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News Archive

EU prepares in case Greek woes spread to Spain

15. March 2010. | 09:40

Source: MIA

If Greece's debt crisis is giving the European Union a headache, it is minor compared to the pain it will suffer if a large member state such as Spain sinks into similar trouble.

If Greece's debt crisis is giving the European Union a headache, it is minor compared to the pain it will suffer if a large member state such as Spain sinks into similar trouble.

Spain has an unemployment rate of almost 20 percent, large deficits, a heavily indebted private sector, and weak prospects for growth -- which could make its debt a target for speculators if Athens' problems prove contagious in the euro zone.

A Greek debt default would increase pressure on the euro but the damage would likely be limited since Athens accounts for less than 3 percent of the 16-country currency area's GDP.

A Spanish debt crisis would be much harder for the EU to handle because its economy is the euro zone's fourth-largest, accounting for nearly 12 percent of euro-wide GDP.

"Greece is a small country and at the end of the day its problems can be solved," said Cinzia Alcidi of the Center for European Policy Studies think tank in Brussels.

"The big headache would be if the crisis spread from Greece to Portugal because the next one would probably be Spain. This would be a much bigger problem for the euro zone as a whole and it would be very difficult to solve."

EU states have not committed to any bailout for Greece but, with countries such as Spain in mind, are discussing creating a European monetary fund to offer help in any future crises. But even such a fund might struggle to cope in Spain's case.

"If you talk about Spain, the money needed would be much more than in Greece's case and it's very difficult to see how they could collect such a huge amount of money," said Zsolt Darvas of the Bruegel think tank in Brussels


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