Greek crisis postponed, it’s time for the Spanish crisis to move front and center

Assuming that the $146 billion bailout of Greece goes ahead as planned, investors can forget about a Greek crisis for about three years.

And start to focus on Spain. The debt problem there looks like it’s developing along exactly the same path as the Greek debt crisis. I’d call the current stage denial of the size of the problem: On Friday Spanish finance minister Elena Salgado announced a new austerity plan that would save $21 million a year by cutting 32 senior jobs in government and eliminating 29 public agencies. Not exactly impressive for a government facing a $140 billion annual deficit. (Spain’s economy is about one-tenth the size of the U.S. economy so that deficit is equal to about $1 trillion in U.S. terms.)

It’s by no means certain that the bailout plan agreed to by European Union leaders over the weekend will go through. The biggest source of uncertainty, as it has been through the crisis, is Germany. It looks like Angela Merkel’s government has the votes to get the plan through the German parliament but the measure faces a constitutional challenge in the country’s supreme court, and there is a possibility, albeit small, that the court could stay Germany’s contribution to the bailout, until it rules on the issue. It’s doubtful that the court would decide to throw the European Union into crisis—the Supreme Court follows the election results, as Finley Peter Dunne’s Mr. Dooley commented about the U.S. court more than a century ago, so let’s assume the deal goes through.

Then what? Read more