Via email, Michael Pettis at China Financial Markets makes a compelling case why Spain is destined to leave the euro. For ease in reading, I added the subtitles in bold.

 

In my forthcoming book (Princeton University Press, February 2012) I argue that there is little chance that the euro survives the next few years, or that we avoid major sovereign restructurings and/or defaults. I am not just talking about Greece, by the way.

I think a Spanish devaluation (accompanied inevitably by a sovereign debt restructuring) is pretty much a sure thing too, along with devaluations among many of the other obvious suspects.

After I turned in the completed manuscript of my upcoming book, my editors were a little worried about my extreme pessimism over the euro, and suggested that I hedge a little so as not to look foolish if these things didn't happen, but honestly I am less worried about that possibility than I am worried that by the time my book comes out Spain will have already abandoned the euro.

I really don't see any progress at all in resolving the euro crisis, and the longer it takes to resolve, the more financial distress peripheral Europe will suffer, making a resolution of the crisis all the more difficult and urgent.