Spain Slides Down Slippery Economic Slope

As the United States attempts to rebuild after its recent financial crisis, other countries are experiencing similar economic hardships. Spain's banks are in a sharp decline, and after Citigroup's recent financial plunge, Spanish banks are floundering for funds. Jonathan, an International Monetary Fund analyst, stated that Citigroup's situation has made Spain's "more severe because now the Spanish banks cannot borrow funds directly from American banks."

What is the cause of such a crisis? The IMF attributes the failure to the lack of liquidity (the cash reserves of the banks) as well as to the "vague structure of Spanish banks."

Spain is in desperate need of assistance. According to the IMF, the unemployment rate is now at an astonishing 17.4%. In addition, consumers are becoming wary of the market.

Jonathan asserts that a bailout is absolutely necessary. He believes that the U.S. Treasury is a catalyst, for if it bails out Citigroup, a little more stabilization will be restored to the global market. While the EU has already channeled money to Spain, Germany still needs to "commit funds in order to get the investor sentiment from negative to positive."

Experts say no to investment in Spanish bonds

Spanish Bonds may not yield as high returns in the near future

Economy experts caution investment in Spanish bonds. Their warnings are due to poor earning reports and lack of liquidity in Spain’s financial system. Unemployment in Spain is also through the roof; reaching record highs especially in the 20-29 year old age bracket

 Financial expert Jorge Villareal says that the purchase of bank bonds at this point is “very risky,” although he does not encourage current shareholders to sell bonds.

These concerns might very well be linked with recent debate over the efficiency of currency union as an economic tool. The euro restricts governments of Europeans nations from inflating currency. Countries are instead forced to cut wages instead of simply printing more money. Though celebrated in times of economic boom, the euro and the downsides of a currency union prove detrimental in time of recession.