The euro hit its lowest level in over two years and its lowest level for eleven years against the yen after reports emerged indicating that many of Spain’s regions would be seeking assistance from the central government. Markets across the world reacted, with the Dow Jones industrial average falling two hundred points. Valencia had asked for assistance on Friday, but today the local government of Murcia said that it was considering seeking similar aid, and it looks like more regions will follow suit. In light of the market response Spain has banned the short-selling of shares and Italy has banned the short-selling of financial stocks.
Despite the recent developments Spanish Economy Minister Luis de Guindos insists that Spain will not need or seek a sovereign bailout like the one enjoyed by Greece, Ireland, and Portugal.
Regardless of the insistence of politicians it looks like a Spanish request for a sovereign bailout is unavoidable. However, what future bailouts might look like depends on the German Constitutional Court, which is not set to rule on the constitutionality of the European Stability Mechanism until September. If the Germans do rule in favor of the European Stability Mechanism it is likely that future bailouts will be conditional on requirements that Spain would not be able to meet.
Inspectors are due to arrive in Greece today in order to inspect how well the Greek government is meeting the conditions of their most recent bailout. According to Der Spiegel the International Monetary Fund and the German government have hinted that they may not engage in future assistance to Greece if conditions are not being met. The Greek government has failed to make the necessary cuts to the budget, and Germans will be very hesitant to grant the Greeks a third bailout.
Considering that the conditions of the Greek bailout have not been met and that the German Constitutional court might well make future bailout conditions harsher, the possibility or even the feasibility of a Spanish bailout is doubtful. This of course will not stop politicians trying to look busy, and we can look forward to some equally disastrous though perhaps more inventive measures in the future.