Spain Will Exit The Eurozone First—This Year

This post is adapted from a piece that originally appeared at my Strategic Planning Group. I've been doing a lot of work over there—hence the scarce postings over here. Sorry! GL

In the LiraSPG Scenario “When The Euro Breaks”, I discussed what would happen to the euro and the eurozone when those countries—unable to continue under their massive debt burdens—began exiting the European monetary union.

One of the assumptions I made was that one of the smaller nations of the eurozone would leave the monetary union first, thereby encouraging one of the bigger nations to follow their example and leave as well. I postulated that the small country would likely be Greece, and that the large country would probably be Spain.

From this exodus, I analyzed what would happen to the euro vis-à-vis gold and the rest of the world’s currencies—namely, that the euro would suffer a staggered loss of value against commodities and other currencies: An initial drop-and-recovery when the smaller nation exited the eurozone, followed by a sustained drop when the big nation exited the monetary union.

The Scenario was written and published on the LiraSPG site in May 2011.

Since then, I have changed my mind: I no longer think that a small country will exit the eurozone first, followed by one of the bigger countries.

I now think that Spain will exit the eurozone first—precipitously and without warning—and that the impact on the euro will be much more sudden and dramatic than I had earlier thought.

In this SPG Supplement, I will explain my thinking. First I will discuss the general European situation; then the Greek debacle, and how the European leadership has lost sight of what salvaging Greece was supposed to be about; then the current Spanish situation, how it is unsustainable, and how the new Rajoy government’s only escape—politically and economically—is to default and then exit the eurozone.

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