Spain, the Eurozone’s 4th largest economy is trying to dig itself out of debt with holes in its budget. Spain also needs to detoxify its banks, while it is struggling to get the country out of a recession and pressure mounts for it to come up with a solid two year budget plan for 2013 and 2014.   

Spain, the Eurozone’s 4th largest economy is trying to dig itself out of debt with holes in its budget. Spain also needs to detoxify its banks, while it is struggling to get the country out of a recession and pressure mounts for it to come up with a solid two year budget plan for 2013 and 2014.   

The Spanish government is asking its banks to set aside €84bn to cover bad debts. Ibercaja, Liverbank and Caja3 merged to help strengthen their weakened balance sheets but the Bank of Spain is still predicting that the recession will continue through the second quarter of 2012. The ECB played down their involvement in bailing out Spanish banks, which further spooked investors.

The financial markets are in turmoil as investors relinquished returns for security sent German yields from two to zero. UK and US government bonds are also seen as safe havens.  Italy’s 10 year yield rose to 6% and Spain’s 10year yield approached 7%.  Syriza, the anti-austerity party, lead the way for the second time since the failed elections last month.30% of Greek voters will still back the far left party Syriza.

The US dollar saw additional gains against riskier currencies like the Euro yesterday, as investors continue to shift their funds to the safe haven with the EUR/USD falling close to 80 pips during European trading, reaching a two year low.

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