Baltimore, MD (Vocus) May 6, 2010
Investors battered stocks again yesterday over fears that the Greek debt contagion will spread to Portugal and even to Spain. Money Morning Contributing Editor Martin Hutchinson, a former merchant banker who has written extensively about the European debt crisis, explains why the Spain debt situation isn’t so dire.
For all intents and purposes, Greece is insolvent. Spain, on the other hand, is merely experiencing a minor setback.
In fact, Hutchinson thinks Spain has more in common with the U.S. than with the other European “PIGS” (Portugal, Italy, Greece and Spain).
Other factors that set Spain apart from Greece:
- Spain’s debt is less than half of Greece’s, about 55% of GDP. (Greece is sitting on debt totaling a staggering 125% of GDP)
- Spain has an impressive savings ratio. Spanish citizens saved 24.7% of their income in the fourth quarter of 2009 (compared with a mere 2.7% in the U.S.) This means Spain should be able to finance its budget deficit domestically.
- Finally, there has been much panic surrounding the downgrading of Spain’s debt, but it still sits at a respectable AA rating. This is a far cry from Greece’s BB+ rating – the first level of junk status.
Find out exactly why Spain won’t be the next European economy to fall in: Despite Spiraling Contagion Fears, Spain Debt Worries Are Overblown
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