Eurozone Waits: Will Spain Need Bailed Out Too?

European finance ministers have approved a package of emergency loans for Greece worth $145 billion. But Greece is not the only European state with shaky finances. There are worries that Greece's problems will spread to Spain — which has an economy five times the size of Greece.

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STEVE INSKEEP, host:

European finance ministers yesterday approved a package of emergency loans for Greece. It's worth $145 billion. That money would come from individual European states and the International Monetary Fund. If this rescue is officially completed this week, it would be the largest bailout ever offered a troubled country.

We will have reaction from Athens in a moment. But Greece is not the only European state with shaky finances. NPR's Tom Gjelten is reporting from one of the other countries that is troubled, Spain. He's in Madrid. Hi, Tom.

TOM GJELTEN: Good morning, Steve.

INSKEEP: And what is the situation in Spain?

GJELTEN: Well, the situation in Spain, people in Spain are watching very closely what happens with Greece, because basically all the problems that Greece has in terms of its debt, in terms of its budget deficit, in terms of its lack of competitiveness and its slow growth, all those problems exist also here in Spain. Not nearly as severe, but the same type of problem. So as goes Greece, the fear is as goes Spain.

Now, the problem for all of Europe is that Spain is five times bigger in terms of its economy than Greece. So, you know, remember we talked about banks that were too big to fail? Well, Spain might be a country that's too big to bail.

INSKEEP: And we're talking now about the situation that explains why people are so concerned about Greece, even though it's a very small economy, because it could affect other countries and not just Spain, right?

GJELTEN: Well, the big issue is the cost of borrowing. You know, governments, when they run deficits, they have to borrow money and they have debts that they have to pay off. The cost of that borrowing is not just, you know, how much their debt obligations are but the interest rates that they have to pay.

And when private investors look at this situation, whether it's in Greece or Spain, they have to make a bet on how likely it is that these governments will be able to meet their obligations. And they make the same kind of judgments across various countries. Countries that have problems, whether it's Greece or Spain or Portugal, you know, will end up having to pay more. That is the danger here. That is the contagion that people here fear.

INSKEEP: We're talking with NPR's Tom Gjelten. He's part of a team of reporters in Europe covering the financial crisis there.

And let's talk about Greece, which is at the heart of the matter for now. We mentioned a $145 billion rescue package. There's also austerity measures being called for in Greece. Is this going to be enough, Tom?

GJELTEN: The big question, Steve, is whether private investors will come to the conclusion that the European Union and the International Monetary Fund will spend whatever it takes to help Greece, because the only way that private investors will be reassured is if they have that feeling. We won't know that. We have to look at the reaction in the markets. Now, a couple of weeks ago when we saw the first iteration of this package was only about a third the size. What happened then was that private investors essentially voted it down. They said, This is not enough. We're not convinced.

That's the question, because you need to reassure investors. And we have to wait and see the market reactions.

INSKEEP: Well, now, what's at stake for the United States here?

GJELTEN: Well, the United States is in a somewhat better position. In fact, when economies are in trouble, they looked for a safe currency and the U.S. dollar is that safe currency right now, which means that it's cheaper for the United States to borrow than it is for these other countries. Long-term, this really does have implications for the United States.

The United States is the main contributor to the International Monetary Fund. If the IMF has to do a very big bailout, that means the U.S. taxpayers are going to have to foot a big part of the bill.

Finally, the issues of debt sustainability are ones that apply to the United States, if not tomorrow then a couple of years down the road.

INSKEEP: Okay. NPR's Tom Gjelten is in Madrid. Tom, thanks very much.

GJELTEN: Thank you, Steve.

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