Forget Grexit. Greece’s teeny, tiny economy is a footnote now. As is Ireland’s decision – which seemed more like a sigh of resignation than a plebiscite – to engage in however much self-flagellation the EU gods insist on, for however long it takes. What might have seemed dramatic a week or so ago has now shrivelled in importance by comparison to the realistic possibility of a spectacular crash in the fourth largest economy in the EU. Spexit (and Spanic) are lodged in the lexicon, and have become part of the psychological reality that moves markets. The equivalent of more than £55 billion was withdrawn and transported out of Spain last month – and that was before the country’s largest bank was nationalised. No one seems to be kidding himself that the collapse of the Spanish economy could be somehow weathered and overcome, as the default of Greece might be.
There is no talk of firewalls, or of simply letting Spain go, or of the European banking system being re-capitalised to compensate for the losses that it would suffer. Nope. This is it. The cancer has now spread to the vital organs of the EU. Spain is not a peripheral Mediterranean country. It is not an insignificant player in the political project. It is not a marginal going-along-for-the-ride-and-the-free-money passenger on the euro train. Not only is its economy so large as to be indispensable, but its ties with Italy mean that the Italian economy (which is the third largest in the EU) would be fatally compromised by its fall. “Itexit” is almost unpronounceable, so perhaps it’s fortunate that it will never be required: after Spexit, there would be nothing left to exit from.
With Spain’s “total emergency”, the point at which denial and bluster become absurd has been well and truly reached, but this being the EU, the gamesmanship goes on.