EU bailout big enough to pull Spain from the muck?

Article Highlights

  • Signs were already appearing Tuesday that the EU loan to #Spain may not be enough to ward off a debt crisis

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  • Spain is the eurozone's fourth-largest economy, yet it's got an unemployment rate of 25 percent.

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  • Spain is looking at a 140 percent ratio of external debt to GDP

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The European Union agreed to give a $125 billion loan this weekend to Spain for the country's banks to sustain themselves in the face of mounting debt and fading hope for a quick turnaround in the struggling nation's financial outlook.

On Tuesday, however, signs were already appearing that the loan may not be enough to ward off a debt crisis that has cascaded from Ireland to Portugal to Greece to Spain and which could head to Italy next.

The interest rates on Spain's 10-year bonds rose Tuesday to 6.63 percent -- near the 7 percent threshold at which the cost of borrowing money has proven too painful for Spain's neighbors. Private investors are also spooked that the loan could be provided in such a way that they may not get dibs in being paid back for their bond purchases, further frightening investors away from risky debt and prolonging the cycle of instability.

The crisis in Spain, the eurozone's fourth-largest economy, may sound familiar. It is in part the result of a busted real estate market as well as a lingering recession with unemployment at nearly 25 percent. And as it copes with mounting debt, Spain's GDP projections for this year are in the negative. 

The charts below — with props to AEI's Daniel Hanson for crafting them — provide a visual depiction of just how bad the situation is.

 

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Sharon
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  • Sharon Kehnemui is managing editor of AEI.org, and is responsible for AEI content on digital media outlets.

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