Europe is a house of cards and the big worry after Ireland is what's next. The domino effect of Europe's debt crisis goes like this: from Greece to Ireland to Portugal to Spain to the UK. One after the other. And the big worry is Spain. It's too big to bail out.
Economist Nouriel Roubini has described Spanish debt as the "elephant in the room".
"You can try to ring fence Spain. And you can essentially try to provide financing officially to Ireland, Portugal, and Greece for three years. Leave them out of the market. Maybe restructure their debt down the line,'' Roubini says. "But if Spain falls off the cliff, there is not enough official money in this envelope of European resources to bail out Spain. Spain is too big to fail on one side-and also too big to be bailed out."
The Wall St Cheat Sheet gives us some reasons why we should worry about Spain: Spain experienced a bigger property boom than the US and UK, Spanish unemployment is now at 20.8% so more than one in five is out of work which means the tax base has crashed, it's been forced to cut jobs through its austerity program, not create them, it can't generate exports, its debt to GDP sits at a whopping 342%, its real estate sector is a complete mess with doubtful and substandard loans that no one will be able to pay back and German, French, British and American banks provided most of those loans which means they will make massive losses.
The ripples from a Spanish meltdown will be felt through the global economy. That will make 2011 a bad year.
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