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By Ben Turney.

Well what a difference a year makes!

This time last year and news that Spanish public debt was about to hit a new record would have sent markets reeling. Now, however, I expect them hardly to budge.

The numbers out of Spain are truly awful. Unemployment is above 26% and youth unemployment above 50%. The national debt is now €942.8bn, which equals 92.2% of GDP. This is 15% higher than September 2012 and Spain’s central bank expects the situation to deteriorate over the next 3 years, with public debt to GDP eventually topping 100%. Considering how pitiful the efforts of eurozone policy makers in predicting anything at all have been, this prediction could even be on the positive side! 

So why isn’t all this causing a panic?

A year ago it would have done. Releasing such news on a Sunday would almost certainly have set the tone for a sizeable sell-off in all things European, over the following week. At the same time risk assets would have been in high demand and gold could easily have stuck on $50/oz. When markets open tonight, I’d be surprised if there is any reaction at all.

But this situation can’t last forever.

The European Sovereign Debt Crisis may have slipped from people’s attention over 2013, but don’t for one second be fooled into believing it has gone away. The numbers tell you that. 

With the Federal Reserve expected to clarify its plans for tapering QE Infinity on the 18th and Germany going to the polls next Sunday, this week could prove to be a watershed. The strange stasis markets have settled into, in which they appear passively to have accepted the state of perpetual crisis, will have to end at some point. A reckoning is unavoidable and the only question over the last few years has been when might this occur?

Perhaps we’ll make it to the end of the year, before global investors wake up to the fact that Greece is going to need a third bailout, Portugal is on the verge of collapse and the situation in Spain is threatening to spiral out of control. Policy makers might argue Greece and Portugal don’t matter because of their size. As for Spain, so far the worst of the predictions have come to nothing. The same goes for Italy for that matter.

Strictly speaking this is all true, but it is also an exceptionally myopic view of the world. The stricken European countries have desperately needed to reform their economies and social spending programmes, top to bottom. While some efforts have apparently been made towards this end, it is clear they have not been enough. It doesn’t take a genius to identify a worsening trend and the obvious signs of extreme systemic stress all are suffering from. To reverse this decline, Europe’s leaders will have to deal directly with the root causes of the crisis. So far they have failed and the longer this failure persists, there is a tragic inevitability about how this will all end.

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