The Spanish finance minster appeals for calm and reminds us that the government is carrying out austerity plans.
There are those who would argue, from a Keynesian perspective, that austerity is precisely the wrong prescription for an economy with a 20% unemployment rate.
What the market fears most is a debt trap: a highly indebted economy that has no ability to out-grow its debts or inflate and devalue their way out of debt. Deflation is the result. Greece is there and the risk is the many other European economies will follow.
EUR/USD is on the mend, almost back to the 1.3210 level from which it tumbled after the Spanish downgrade by S&P.
