Bracing for Bailouts: Which EU Problem Child Will Be Next?

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Bracing for Bailouts: Which EU Problem Child Will Be Next?

Euro Crisis

11/26/2010 26.11.2010

Bracing for Bailouts Which EU Problem Child Will Be Next?

By Ferry Batzoglou, Michael Braun, Yasmin El-Sharif, Michael Kröger, Ole Reissmann and Stefan Schultz

A general strike in Spain in September: Will the euro rescue package be enough in the end?

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A general strike in Spain in September: Will the euro rescue package be enough in the end?

First came Greece, then there was Ireland. The EU is gaining experience in helping out their member states' failed economies. But how long can that last? SPIEGEL ONLINE takes a country-by-country look at the nations on the brink.

Fear is spreading in Europe. How many countries are going to need bailouts -- and how many billions of euros will that take? And is the entire euro alliance at risk?

After Greece had to be rescued with a spectacular aid action earlier this year and then Ireland earlier this week, it is no longer a quest of if another country will require a bailout, but when. Most experts are in agreement that Portugal will be the next country to require assistance, despite denials from Lisbon.

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Photo Gallery: Who Will Get Europe's Next Bailout?

But what scares those who deal with euro policy the most is the situation in Spain. The €750 billion program set up by the European Union and the International Monetary Fund for dealing with the euro crisis may be enough to cover Greece, Ireland and Portugal without problems, but there could be problems if a bailout is needed for Spain, which is Europe's fourth-largest economy.

On Wednesday, Spain's government took pains again to assuage fears. "An abyss separates Ireland from us," Deputy Finance Minister Jose Manuel Campa told the Spanish daily El Pais. However, his comments didn't seem to move the financial markets. Interest yields on 10-year Spanish government bonds rose to over 5 percent for the first time since 2002. Speculators fear the risk of bankruptcy in the country has increased.

But how dramatic is the situation? What differentiates Spain from Ireland? And everyone knows about the risks, but haven't there also been reform successes this year? An overview of Europe's five crisis countries:

Part 1: Ireland - The Export Industry as the Trump Card

Part 2: Portugal - The Next up for a Bailout?

Part 3: Spain - Litmus Test for Europe's Rescue System

Part 4: Italy - The Curse of the Relics

Part 5: Greece - Reform with Risks

Part 1: Which EU Problem Child Will Be Next?
Part 2: Ireland - The Export Industry as the Trump Card
Part 3: Portugal - The Next up for a Bailout?
Part 4: Spain - Litmus test for Europe's Rescue System
Part 5: Italy - The Curse of the Relics
Part 6: Greece - Reform with Risks

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Most recent posts on the issue:

11/28/2010 from Norberto_Tyr: The problem is not the kids but the kindergarten, ...

The problem is not the kids but the kindergarten, namely that abstract entity called European Union or Eurogarten. According to the Maastrich treaty, Eurogarten should be providing a strict diet of veggies, milk, fruit and meat [...] more...

11/28/2010 from Trojan Horace: Bailouts

Agree with the analysis - plus talking the Euro down helps Germany's exports to the US - which need help while the US is printing an extra $60 billion every month... But if the domino effect spreads to Spain and joke will wear a [...] more...

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Bonds Get More Expensive

Is the discussion over the stability of the EU rescue package for the euro driving up interest rates? Despite open displays of support from European leaders for the euro, interest rates on government bonds continued to rise on Friday. Risk premiums for Spanish government bonds saw the biggest increases, reaching a new record level. Rates in Portugal, Italy and Ireland also climbed higher. Traders attributed the rise to skepticism over the EU-IMF euro rescue fund's ability to cover future bailouts after Ireland.

The strongest surge came in Spain, Europe's fourth largest economy. There, the premium on two-year bonds rose by 0.18 points to 3.54 percent. Interest rates increased slightly for long-term bonds. Still, the interest rate on a 10-year bond is at 5.24 percent, more than double the rate paid by Germany.

In Portugal, the cost of refinancing 10-year state debt is even higher, at 6.85 percent. The only countries currently paying more than that for 10-year-bonds are Ireland (8.77 percent) and Greece (11.63 percent).

The market skittishness may be linked to concerns expressed in an interview with the Frankfurter Allgemeine Zeitung newspaper by Thomas Mayer, the chief economist at Deutsche Bank. "I fear that the markets are looking at the moment to Portugal, that has fundamental data similar to that of Greece," he told the paper.