Fears mount as Spanish euro uncertainty grows

A man holds his savings book during a protest held outside Caja Madrid's headquarters

The eye of the eurozone crisis has turned its unrelenting gaze on Spain. But could such a major European player even consider leaving the euro?

Spain is feeling fragile.

A rumour that Bankia - the bank in which the Spanish government recently took a big stake - was losing depositors, was enough to see its shares crash this week, before recovering on Friday.

Then came the news that Moody's - the credit agency - was downgrading the creditworthiness of several Spanish banks.

In the Spanish capital the sun still shone and the elegant cafes still charmed the tourists. There was no tear gas, Greek style, no wailing and gnashing of teeth.

Actually no real run on any bank either. But still we found that sense of fragility, a sense that Spain can cope with its current difficulties - but not with new ones. Enough is enough.

The new difficulties loom mainly because of Greece.

Start Quote

There was never any questioning that this was a good thing for Spain and this was a permanent thing for Spain”

End Quote Gayle Allard Economics teacher, IE Business School

If Greece were to leave the euro, there is no question that the bond markets would turn their attention to Spain and test the strength of the so called "firewall" that the European Union claims to have put around those nations that want to stay in the euro.

Truth is, the current firewall is more like a fire extinguisher and with all the same characteristics: it has to be used correctly, it might go wrong, and it might run out before the fire is out.

So the risk is that the day after Greece left, interest rates demanded by anyone lending money to Spain would become unacceptably high.

And many Spanish people and businesses might think it wise to visit their bank and take their euros out or send them abroad.

In those circumstances what might be done?

Sitting in a lovely square close to Spain's parliament building, in view of a couple of sleepy banks (no queues, in fact no people at all) I asked Pablo Triana of the Esade Business School to imagine the day after a Greek departure from the euro.

He accepts that at the moment there is no run on the banks. But if Greece were to go that might change. Indeed it would be rational for Spaniards to be worried.

Spain's Indignants mark the first Anniversary Of their protest movement The country's worst economic crisis in decades has seen mass protests on Spanish streets

"If people start to believe that the possibility of a new peseta is not some crazy hallucination they might take out their euros and put them somewhere else."

Mr Triana says the trouble that might cause, the social disruption and the anger, would be difficult for Spain but difficult for Europe as well.

He asks the following interesting question: "Will Spain reach the stage where the country doesn't want to stay in the euro?"

That is the point. No-one expects that an economy as large and as central to the economy of Europe would be forced out of the single currency.

But if the costs of staying were too great then Spaniards themselves might take the decision to go it alone again.

Gayle Allard, an economics teacher at the IE Business School says the psychological impact of that would be devastating.

Spanish people, she says, have never before doubted the euro. "There was never any questioning that this was a good thing for Spain and this was a permanent thing for Spain."

If that were to change, everything would change.

Not just everything in the world of economics but at a deeper political, even cultural level, Spain would be resentful of the pain it has been through and the ultimate let-down of the failure of the project.

So do something, Germany. That is the message from Spain.

As Christina Manzano of the think tank Fride put it, there should be a "clear sign" from Berlin that Spain is going to be defended from the bond markets at any cost.

What she is talking about is a mix of economic measures - including a relaxing of austerity and a willingness to allow the European Central Bank to take whatever powers it needs to guarantee banks with indefinite amounts of cash - along with a more subtle but equally important political commitment.

She puts it simply: "a commitment to Europe."

From Spain the message is clear and urgent: Chancellor Merkel, it is over to you.

BBC Radio 4's Today programme is broadcast Monday to Friday at 0600 BST and 0700 BST on Saturdays.

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