Spain's future

CRISIS FOCUS: Portugal's caretaker Prime Minister Jose Socrates (right) talks with EU Council President Herman Van Rompuy during an EU summit in Brussels on March 24, 2011 (WU WEI)

Of the four PIGS nations are three that have fallen. Therefore, the world is watching whether Spain will be the next domino to fall. In other words, will the bailout for Portugal be a good beginning of the easing of the European debt crisis, or will it be a precursor to further deterioration?

If we call Portugal, Ireland and Greece peripheral countries of the EU, as their economies are relatively small, Spain should be considered as one of the countries at the center of the EU. The Spanish economy ranks 15th and fifth in the world and the EU respectively. Its GDP is almost twice as much as the total amount of the other three PIGS countries (see table).

Spain's economic problems will therefore have serious repercussions for the EU economy. In addition to huge debt and fiscal deficit, the Spanish economy also faces other challenges, including a high unemployment rate of 20 percent, a large trade deficit, a fragile banking system and mounting inflationary pressure.

These problems result not only from the global financial crisis, but also the Spanish real estate bubble bursting off. Although it is difficult for Spain to improve its economic situation in the short term, the country is unlikely to be mired in a debt crisis.

In March, Spain issued treasury bonds at a low interest rate of 5.16 percent. In addition, the government's fiscal austerity policies and labor market reforms have achieved good results. Analysts believe Spain has successfully helped itself out.

Eurostat, the EU's statistical office, has predicted the growth rate of the Spanish economy will rise from -0.1 percent in 2010 to 0.7 percent in 2011 and 1.7 percent in 2012.

Estimated 2010 GDP Of PIGS Countries

Unit: $bn

Portugal 223.7

Ireland 208.3

Greece 302

Spain 1,375

The author is a research fellow with the Institute of European Studies of the Chinese Academy of Social Sciences