The market ignores the strains on the social fabric at the European Union periphery as input to EU systemic risk. This is particularly the case for Spain, where disposable income for over 1.8 million people is now less than EUR 400 a month and only 17 million out of a population of 47 million are employed. The unemployment rate is 25 percent and youth unemployment is alarmingly over 50 percent. On top of this, Catalonia is threatening to break away from Spain. While the European Central Bank and the EU are busy ‘selling the success’ of lower interest rates, Spain has seen total debt (public and private) explode to over 400 percent of its gross domestic product. Only Japan is in a worse state. With social tensions so high, the public sector simply cannot cut its public outlays further. In 2013, Spanish sovereign debt is downgraded to junk and the social strain pushes Spain over the edge, seeing Spain reject the extend-and-pretend policies of EU officialdom. Yields rapidly
increase after the downgrade and as an inevitable default is priced in.

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