Ireland announced this weekend that it will accept an emergency bailout from the International Monetary Fund and the European Union to ease concerns about its failing financial system. While bailout details have not been finalized, the amount will likely run into the hundreds of billions of euros. Meanwhile, U.S. stocks declined on Monday over persistent market concerns that Portugal and, in particular, Spain, may need similar bailouts. Spain's economy is far larger than that of Ireland or Portugal, and analysts say bailing out the Spanish banks could cost over €500 billion, threatening the solvency of the entire EU. Will the financial contagion continue to spread?
There's some good news for investors: It isn't all bad in Spain, says Jijo Jacob in the International Business Times. Its public debt was 53 percent of its GDP last year, "well below the eurozone average of 79 percent." What's more, Spain successfully sold off billions in bonds just last week to investors cheered by the "stringent austerity measures" the government has imposed on its population. It's too soon to call it another Ireland.
"Focus on Spain after Irish bailout deal"
Actually, Spain's situation is very similar to Ireland's: Spain's banks are finding it harder and more costly to refinance their debt, says Joseph Cotterill at the Financial Times, and bank bonds are declining. Anyone who saw what just happened in Ireland should have "deja vu" by now. The European crisis is "not over by a long shot."
Spain's problems could be even worse: Spain's problems are unique in the EU, says Sean O'Grady at The Independent, in that its "small regional banks, the cajas, are virtually bust" due to poor investments in the country's collapsed property market. Essentially, it's a savings and loan crisis on top of a global recession. This problem will need a lot of money to solve, and some observers now fear Spain may be "too big to save."
"If Portugal is small enough to rescue, Spain may be 'too big to save'"
If Spain fails, say goodbye to the euro: If, as seems likely, the Irish "contagion spreads to Portugal," says bond manager John Hamilton, quoted in CityWire, then focus would inevitably spread to its larger Mediterranean neighbor. Were that to happen, then "the political and financial implications of maintaining the currency union might prove insurmountable." Germany would want out, at the very least.
"Irish bailout could fail to halt run on weaker banks, managers warn"
THE WEEK'S AUDIOPHILE PODCASTS: LISTEN SMARTER
- China's leader is telling the People's Liberation Army to prepare for war
- How I lost all my money
- How to save money: 12 great personal finance tips
- Why Pakistan won't hunt down the terrorists within its borders
- The religious right isn't retreating — it's reforming
- How academia's liberal bias is killing social science
- How to be the most productive person in your office — and still get home by 5:30 p.m.
- Diagnosing the Home Alone burglars' injuries: A professional weighs in
- 10 things you need to know today: December 22, 2014
- The best books we read in 2014
Subscribe to the Week