Spain doesn’t have a sovereign debt problem per se, but it does have a busted housing bubble that has left some of its banks saddled with bad loans. Given how poorly capitalized some of these banks are, one way for the government to deal with these debts is to nationalize the banks. In fact, that is what is starting to happen now with Bankia. The problem is that by nationalizing some banks, Spain will need to borrow more money at the sovereign level, and that could cause more ratings downgrades at a time when the appetite for more Spanish debt is already low. Greece, again
So, Spain has a banking crisis, but Greece is a different story. While the French presidential election a few weeks ago did not come as a surprise (and might not even materially change the outcome for Europe), the Greek election caught many investors off guard. Greek voters have voiced their anti-austerity anger at the polls, and as a result the country is now in a state of upheaval. The mainstream parties that supported the so-called fiscal compact are out of power and have been replaced by a hodgepodge of smaller anti-austerity groups, both on the left and on the right. This was always the risk with the Greek bailouts: too much austerity without the potential for growth and without the ability to devalue is a recipe for voter revolt, and that is exactly what has occurred in Greece.
Now Greece will have a second election in mid-June, and the fear is that the results will be even more extreme than the last one. More and more people are now talking about the possibility of an outright rejection of the troika’s [the European Union (EU), International Monetary Fund (IMF), and European Central Bank (ECB)] fiscal pact, which could result in a cutoff of funding, which in turn could lead to a messy exit from the euro.
On the one hand, one could reasonably argue that since Greece never should have been in the euro in the first place, that leaving the euro is the right thing to do, if for no other reason than to bring back a devalued drachma so that Greece can become competitive again. Indeed, in the past, the classic IMF solution when a developing country was in financial crisis was to provide a bailout in return for fiscal austerity, while at the same time having the country devalue its currency. This is what happened during the Asian financial crisis in 1997. So, it is certainly not unreasonable to think that a Greek exit is the best (or only) chance Greece has to return to prosperity.
Market Data 
Markets 
AI
