How vulnerable is Spain? The answer depends on which Spain you mean
EUROPE’S sovereign-debt crisis has already engulfed Greece, Ireland and Portugal. But the real fear is that it might spread to a large economy. Spain, whose GDP is almost double that of the three rescued countries put together, has long been a source of concern. Although it entered the crisis with relatively low public debt, at just 36% of GDP in 2007, that figure will rise to an estimated 68% by the end of 2011 because of big deficits. Worse, Spain shared several of the smaller economies’ weaknesses, like a loss of competitiveness and big current-account deficits.
The immediate threat of contagion from Greece receded on June 29th when the Greek parliament passed a plan for more austerity, opening the way for the country to get another chunk of bail-out money. But just as Greece’s problems have not really gone away, nor has Spain’s vulnerability. A land of striking physical contrasts, Spain has an economy to match. There are, in effect, two Spains, one vibrant and one sickly. Reinforcing one and reviving the other require painful reforms. ...
