Dominant Social Theme: It's just a downgrade. Spain will bounce back.
Free-Market Analysis: Is Spain beginning to collapse and, perhaps, the EU with it?
For well over a thousand years, Spain has been at the epicenter of Europe and its fate has provided a bellwether for Europe's larger situation. And whither Europe goes, so goes the West.
The S&P downgrade on its face is just further confirmation of what is taking place in Spain. Of itself, it has little impact on the larger picture except to make borrowing a bit harder.
But Spain's problems go well beyond bank borrowing, which is probably an increasingly unlikely scenario in size anyway. The problems in Spain are both deep and pernicious – as are the difficulties the rest of the PIGS in Southern Europe are subject to.
There are three factors involved in Spain's meltdown. First, there is the "austerity" being imposed by the right-wing Popular Party (PP) government led by Mariano Rajoy. Only 100 days into Rajoy's reign, this yielded a general strike on March 29. The government claimed "only" 800,000 workers took part in over 100 demonstrations nationally but according to the unions, millions marched. There was violence as well.
Second, young people are leaving Spain. With almost 50 percent unemployment among youngsters, the situation is easier for those who are NOT situated. They leave. They go to many places but especially to South America, including Argentina and Chile. It helps that with the exception of Brazil, Latin America is a Spanish-speaking continent.
Third is the increasing unhappiness of autonomous regions and cultures. Because of Spain's incredible history at the epicenter of major European movements, there are all sorts of ethnic subcultures inhabiting Spain. Spain is a kind of tribal patchwork and as the "sovereign crisis" rolls on, this patchwork is becoming unglued.
Catalonia, the Basque Country, Galicia and Andalusia are all self-governing and the Basques especially – but all the regional peoples – are growing increasingly restless. Madrid sucks in revenue like a black hole but not enough of it reappears.
And then there is the king. The Spanish are angry at King Juan Carlos these days, as he snuck off to Africa several weeks ago for an elephant hunt. Why the King wishes to shoot elephants is unclear but his timing was certainly bad.
The Guardian newspaper recently noted the following: "As unemployment reached 24%, austerity measures bit and the economy headed back towards double-dip recession, the 74-year-old monarch had publicly claimed he lay in bed at night worrying about the plight of the young jobless. But a fall as he walked to the bathroom in an exclusive safari camp in Botswana, where he had gone to shoot elephants, water buffaloes and other exotic animals, has revealed a different story."
The King's shooting holiday was estimated to cost €10,000 (£8,000) a day, and both Syrians and Saudis were fingered in picking up the tab. No matter who did or didn't provide the funding, the King could not have picked a worse week in which to bust a hip.