Spain leads to more woes for Europe

IMF Managing Director Christine Lagarde listens and Director of the External Relations Gerry Rice takes questions during a news conference July 3, 2012 at the IMF headquarters in Washington, D.C.

Stacey Vanek Smith: Global markets are having a dismal Monday on new worries about Spain.

Joining us now to explain is Julia Coronado, chief economist for BNP Paribas. She joins us live. Good morning Julia.

Julia Coronado: Good morning. 

Vanek Smith: Julia, Spain just got a bank bailout on Friday. Why didn't reassure the markets?

Coronado: Well, I think what we're seeing in the Spanish economy is that it's a much broader issue than just a banking problem, so the data continues to deteriorate, the government says it can't meet it's deficit cutting targets, so now we are worried about not just a banking problem but a real severe recession.

Vanek Smith: Well, what does that potentially mean for Europe and for the U.S.?

Coronado: Well, Spain is a very big country in Europe. Europe is 20 percent of the global economy. If Europe descends into a recession, we will feel it in Asia, we will feel it in the U.S., and therefore we see our market reacting very strongly to this news. 

Vanek Smith: Also the International Monetary Fund has said it will stop paying out rescue aid to Greece -- can the IMF walk away like that?

Coronado: Well, it's never that simple is it? That is another thing weighing on the minds of investors this morning. It's not that simple. I think what we are seeing is more brinksmanship, both sides trying to get the other to bend to its will. Ultimately Greece faces a lot of hardship, economic hardship, and if the IMF walks away you end up with potentially a failed state on Europe's doorstep. So, I think it's more along the lines of brinksmanship than a real credible threat. 

Vanek Smith: Julia Coronado with BNP Paribas. Thank you, Julia.

Coronado: It's a pleasure. 

About the author

Julia Coronado is chief economist at BNP Paribas.

Comments

I agree to American Public Media's Terms and Conditions.
With Generous Support From...