It’s been fashionable to dismiss protests in austerity-victim countries as noise. And to date, that view has been correct.
But Spain lurched relatively suddenly into the acute distress of 24% unemployment. Thursday, the Spanish bank bailout terms were clarified, and as we’d thought early on, and as Delusional Economics explained, the terms have the new bank bailout debt as being added to existing Spanish borrowing levels. Spanish bond yields rose, but Mr. Market shrugged that off all of one day. Valencia sought assistance Friday under the rescue package approved the day before. Investors freaked out at the proof that Spain was imploding faster than they thought.
The protests may constitute another crisis front. It’s one thing to drive Greece into penury and social decay pour décourager les autres. As horrific and deplorable as that is, the Eurozone can live with that. Having an economy as large as Spain come apart is not a viable outcome. Notice that this escalation in the number of people protesting comes before the officials start wiping out bank preference shares. As we’ve recounted, banks duped depositors into buying these instruments, presenting them as being completely safe but offering more yield. And it happened on a widespread basis: Reuters reported that 62% of the preference shares are held by depositors at the same banks. So if you aren’t convinced that the current level of Spanish protests are meaningful, be warned: you ain’t seen nuthin’ yet.
Update: The Guardian also sees the protests against the latest round of budget cuts, passed in connection with the Eurozone bank rescue, as a sea change. It estimates 100,000 people turned out nationwide, 50,000 in Madrid.