Can Spain be stabilised?

SPAIN

Spain's instability is emerging as the next big talking point of the euro debt crisis. Kevin Lilley, manager of the Old Mutual European Equity fund, considers the outlook for the country.

It may be sensible to form contingency plans in the event of a Greek exit from the euro, but the chances of it actually happening remain remote. The reason for this is simple: there would be little to gain by either side, and much to lose. According to a recent study by Société Générale, a ‘small, weak’ country exiting the eurozone would reduce its economy by 15%—50%. The rest of the euro area would contract by 3%—5%. This would be a severe outcome. Were the departure of Greece to set off a chain reaction, leading to the departure of a ‘large, weak’ country, economic collapse in the e...