Comparing Spain With Ireland and Other PIIGS: Better in Some Ways, More at Risk in Others

Contagion is spreading from Ireland to Spain, which shares some key vulnerabilities in the wake of its real estate boom/bust and large non-performing loan overhang in the banking sector. A house price comparison shows that the housing bubble in Spain was more pronounced than in the United States but less pronounced than in Ireland.

In some dimensions Spain’s macro and financial fundamentals are better than the other periphery countries (e.g. national savings, public debt levels). But in many dimensions, such fundamentals are worse and financial vulnerabilities more severe (e.g. unemployment, large financing needs).

Spain is too big to fail but could also be too big to be saved or too big to be bailed out. The size of a bailout for Spain would be too large compared to the available international resources from the IMF/EU/EFSF to bail out the Spanish sovereign and its financial system. This is perhaps the most serious element of greater vulnerability for Spain. Investors could comfortably assume that, if needed, Greece, Ireland and likely Portugal would receive an international bailout if they were on the verge of losing market access as spreads widen above what is sustainable.  

To learn more about the state of the PIIGS, please read our full analysis in “Comparing Spain With Ireland and Other PIIGS: Better in Some Ways, More at Risk in Others,” available exclusively to RGE clients.