Spaniards seem to be living a perception of reality problem. Yesterday, when Argentina announced its plan to nationalize the oil company YPF and regaining control that once was Spain’s Repsol, the government of Prime Minister Mariano Rajoy promised retaliation and said that the Argentine decision will have impacts throughout Latin America. He stated that “the commendable effort of Latin American Governments cannot be seen clouded” by the decision taken by Argentina.

However, Spain itself is watching its ship sink. This morning, the Madrid stock market dived 3.5%, accumulating yearly (ytd) losses of 30% so far. The reason: Spanish banks have never had so many bad loans as now. The default rate, which was below 1% in 2007, hit 8.16% – the highest rate since 1994. This data was released today in a report by the Spanish central bank. Overall, bad loans of Spain’s financial institutions total 143 billion euros.

The crisis has fueled rumors that Banco Santander in Brazil may be for sale, with Banco do Brasil and Bradesco as potential acquirers.

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