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The economic situation in Spain is deteriorating rapidly and is coming dangerously close to ongoing situations in failing economies such as those of Greece, Ireland, and Portugal. And the UK stock markets, like other stock markets the world over, are feeling the pinch.
Even mere rumors stipulating that the Spanish government might request for bailouts from international communities have caused dips in the valuation of some stocks trading in the UK. Speculations in this regard are having equally adverse effects on stocks being traded across the United States and Europe.
Although Spain’s prime minister, Mariano Rajoy, dismissed such imminent bailout speculations in his subsequent comments, many experts proffer that the bailout being requested isn’t so much a problem as protracted delays in lodging a request for bailout on the part of the Spanish government. That is to say, if the Spanish plans on requesting for a bailout, it had better just do it and get it over with. As a matter of fact, a bailout being granted to Spain is largely seen as a positive move as it will likely lower borrowing costs, and douse persistent uncertainties and negative market sentiments in relation to the country’s debt situation.
It is widely speculated that Rajoy’s delay in requesting for a bailout is politically motivated. Proponents of this idea argue that the Spanish economy is actually in desperate need of a bailout, but that Rajoy is trying to put off the inevitable so as not to give off the appearance of a weak government in the face of impending elections. As a matter of fact, the Spanish prime minister’s comments and denials of an imminent bailout are in direct contrast with seemingly accurate predictions in a Reuters report that the Spanish government would soon ask for a bailout.
Moreover, there are fears among UK stock investors and traders that the economic situation in distressed European countries, including Spain, may prove to be contagious and might spread its tentacles into the British economy and financial markets.
Nevertheless, the major saving grace for the British economy will undoubtedly lie in the fact that the country has its own currency and its own central bank. The fact that the British government is quite strong also helps. Moreover, the economy is effectively backed by a strong deficit reduction plan; banks in the UK are also strong financial-wise.
The previous bailout granted to Spain a while back initially resulted in a surge in UK stock markets. Shares on the London Stock Exchange moved sharply higher. Though the euphoria was short-lived and ultimately fizzled out, the implications of that bailout for the UK economy were largely favorable. One can only hope that any subsequent bailout will have similar or more favorable effects on the stock market.
