“The Spanish government bond market has not melted down like the comparable markets in Ireland and Portugal,” he said. But even the mild increase in Spanish interest rates seen thus far, if sustained, eventually could force the government into a funding crisis, he said.
The euro has taken a pounding with each flare-up of the debt crisis this year. But so far the losses have been small compared to what would happen if Spain needs a massive bailout, he said.
“If confidence about the Spanish position were to deteriorate significantly, the euro would likely come under intense pressure,” he said.
As in past intensifications of the European debt crisis, the U.S. dollar and Treasury have been primary beneficiaries as investors flee into safe-haven investments. The dollar got a boost in recent weeks from Ireland’s woes, despite wariness in the markets about gigantic debt problems in the U.S.
“When the U.S. dollar does well, the euro tends not to,” said Mr. Robinson. But he said the U.S. may suffer next year when investors start focusing again on the burgeoning U.S. government debt and a controversial plan by the Federal Reserve to buy up much of that debt in the next eight months.
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