First Greece, now Spain; who could be next?

April 29, 2010

Yesterday, the credit rating agency Standard & Poor’s (S&P) downgraded Spain’s debt from AA plus to AA, sending Spanish stocks and bond prices down.  Concerns about Spain’s financial situation are exacerbated by what’s happened in Greece.

As we wrote last month, for years Greece has been over-spending and promising unaffordable benefits to citizens, including the most generous public pension system in the E.U.  Greece’s ballooning debt has become a crisis:  the S&P downgraded Greece’s credit rating to ‘junk’ on Tuesday.  Falling credit ratings exacerbate a country’s financial problems – the country must offer higher interest rates in order to sell bonds, raising the price of borrowing money, creating ever higher interest payments, and leading to even more debt.

Spain’s problems are far from Greek levels, and Spain is taking action to reduce its deficit.  As Reuters reported, “Spain aims to cut its deficit to 9.8 percent this year after it rose to 11.2 percent in 2009. The government said it was still on course to meet the EU’s guideline of cutting its deficit to 3 percent by 2013.” It’s good news that Spain is taking measures to cut its deficit spending and to try to get its fiscal house in order before its problems get worse.  Meanwhile, the E.U. is trying to finalize a deal that will alleviate the crisis in Greece.

Yet some analysts fear that the rescue package won’t be enough to prevent Greece from having to restructure its debt, an outcome that would ripple through the E.U.’s economy, as most European financial institutions that own Greek debt would suffer big losses and become less willing to buy other countries’ debt. A fiscal collapse in Greece could still tip over Spain and further spread to Portugal, Italy and Ireland – and it is unclear how far the crisis could spread from there.

The United States should pay close attention to what’s happened in the E.U. The direct economic impact on the U.S. of those countries’ problems may be minimal, but they should serve as a warning of what can happen when a country spends more than it can afford, thus allowing debt to spiral out of control.

Greece’s deficit is 12.7 percent of GDP. Spain is aiming for a one-year deficit of 9.8 percent.  The Congressional Budget Office estimates that the U.S. federal deficit will be 10.3 percent of GDP for 2010.  If we want to avoid the same fate as Greece and Spain’s path, we need to change course now.

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24 Responses to First Greece, now Spain; who could be next?

  1. Jim,MtnViewCA,USA says:

    I believe that the US is doing more than paying “close attention”. Through the IMF, US taxpayers will be bailing out Greece.

  2. Jim,MtnViewCA,USA says:

    I believe that the US is doing more than paying “close attention”. Through the IMF, US taxpayers will be bailing out Greece.

  3. Jim,MtnViewCA,USA says:

    I believe that the US is doing more than paying “close attention”. Through the IMF, US taxpayers will be bailing out Greece.

  4. willis says:

    “The United States should pay close attention to what’s happened in the E.U. The direct economic impact on the U.S. of those countries’ problems may be minimal, but they should serve as a warning of what can happen when a country spends more than it can afford, thus allowing debt to spiral out of control.”

    The US is paying close attention and what it is seeing is that the best strategy is to spend irresponsibly and blackmail other countries into picking up the tab. If we let them outspend us, we’ll wind up picking up their tab.

  5. willis says:

    “The United States should pay close attention to what’s happened in the E.U. The direct economic impact on the U.S. of those countries’ problems may be minimal, but they should serve as a warning of what can happen when a country spends more than it can afford, thus allowing debt to spiral out of control.”

    The US is paying close attention and what it is seeing is that the best strategy is to spend irresponsibly and blackmail other countries into picking up the tab. If we let them outspend us, we’ll wind up picking up their tab.

  6. willis says:

    “The United States should pay close attention to what’s happened in the E.U. The direct economic impact on the U.S. of those countries’ problems may be minimal, but they should serve as a warning of what can happen when a country spends more than it can afford, thus allowing debt to spiral out of control.”

    The US is paying close attention and what it is seeing is that the best strategy is to spend irresponsibly and blackmail other countries into picking up the tab. If we let them outspend us, we’ll wind up picking up their tab.

  7. Paul says:

    We have had a hundred years of centralized money printing. Financial central planning. Well, it’s done, dead, a Zombie.

    The governments are filled with hollow, institutional minds that by personality or training are like lemmings. Lying, cheating, short sheeting, is all they know. They all go along until they can escape to retirement, and forget.

    The next phase is ‘emergency forced printing’. For stability, the children ( not that there are many of those around )…..for ….for…basically hoping everything goes away when we wake up tomorrow. How’s that?

  8. Paul says:

    We have had a hundred years of centralized money printing. Financial central planning. Well, it’s done, dead, a Zombie.

    The governments are filled with hollow, institutional minds that by personality or training are like lemmings. Lying, cheating, short sheeting, is all they know. They all go along until they can escape to retirement, and forget.

    The next phase is ‘emergency forced printing’. For stability, the children ( not that there are many of those around )…..for ….for…basically hoping everything goes away when we wake up tomorrow. How’s that?

  9. Paul says:

    We have had a hundred years of centralized money printing. Financial central planning. Well, it’s done, dead, a Zombie.

    The governments are filled with hollow, institutional minds that by personality or training are like lemmings. Lying, cheating, short sheeting, is all they know. They all go along until they can escape to retirement, and forget.

    The next phase is ‘emergency forced printing’. For stability, the children ( not that there are many of those around )…..for ….for…basically hoping everything goes away when we wake up tomorrow. How’s that?

  10. kurt9 says:

    First Greece, now Spain; who could be next?

    France?

    California?

  11. kurt9 says:

    First Greece, now Spain; who could be next?

    France?

    California?

  12. kurt9 says:

    First Greece, now Spain; who could be next?

    France?

    California?

  13. WASP says:

    Spain and Greece are two glaring examples of Capitalism gone bad. This is why we need to get rid of Capitalism and usher in a new age of Progressive Liberal Socialism. The Left is right when they say -

    Wait.

    The failing economies of Greece and Spain are Socialist?

    NOTHING TO SEE HERE!! MOVE ALONG!! HOPE AND CHANGE RIGHT AROUND THE CORNER!! MOVE ALONG!!

  14. WASP says:

    Spain and Greece are two glaring examples of Capitalism gone bad. This is why we need to get rid of Capitalism and usher in a new age of Progressive Liberal Socialism. The Left is right when they say -

    Wait.

    The failing economies of Greece and Spain are Socialist?

    NOTHING TO SEE HERE!! MOVE ALONG!! HOPE AND CHANGE RIGHT AROUND THE CORNER!! MOVE ALONG!!

  15. WASP says:

    Spain and Greece are two glaring examples of Capitalism gone bad. This is why we need to get rid of Capitalism and usher in a new age of Progressive Liberal Socialism. The Left is right when they say -

    Wait.

    The failing economies of Greece and Spain are Socialist?

    NOTHING TO SEE HERE!! MOVE ALONG!! HOPE AND CHANGE RIGHT AROUND THE CORNER!! MOVE ALONG!!

  16. Constitution First says:

    0bama is emulating these failed ideologies in the very face of their failure.

    “Who’s next?” is a rhetorical question; After Europe, it’s US!

    Here’s another rhetorical question: What do most illegal aliens entering this country have in common?

    They are economic refugees fleeing failed Socialist countries.

    Why emulate this failure? It makes no sense, unless failure IS his goal.

  17. Constitution First says:

    0bama is emulating these failed ideologies in the very face of their failure.

    “Who’s next?” is a rhetorical question; After Europe, it’s US!

    Here’s another rhetorical question: What do most illegal aliens entering this country have in common?

    They are economic refugees fleeing failed Socialist countries.

    Why emulate this failure? It makes no sense, unless failure IS his goal.

  18. Constitution First says:

    0bama is emulating these failed ideologies in the very face of their failure.

    “Who’s next?” is a rhetorical question; After Europe, it’s US!

    Here’s another rhetorical question: What do most illegal aliens entering this country have in common?

    They are economic refugees fleeing failed Socialist countries.

    Why emulate this failure? It makes no sense, unless failure IS his goal.

  19. John says:

    It’s so cute that the bond rating agencies are actually paying attention to these things we call “risk factors” when appraising bonds, now. Back in 2004 and 2005, they really weren’t so interested in those thing as they gave one CDS after another a AAA rating.

  20. John says:

    It’s so cute that the bond rating agencies are actually paying attention to these things we call “risk factors” when appraising bonds, now. Back in 2004 and 2005, they really weren’t so interested in those thing as they gave one CDS after another a AAA rating.

  21. John says:

    It’s so cute that the bond rating agencies are actually paying attention to these things we call “risk factors” when appraising bonds, now. Back in 2004 and 2005, they really weren’t so interested in those thing as they gave one CDS after another a AAA rating.

  22. i read a lot just about that in the last few days and i think it might be true. Eventhough i believe everyone is responsible for himself. Just my two cents…

  23. i read a lot just about that in the last few days and i think it might be true. Eventhough i believe everyone is responsible for himself. Just my two cents…

  24. i read a lot just about that in the last few days and i think it might be true. Eventhough i believe everyone is responsible for himself. Just my two cents…

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