This interesting N.Y. Times video explains why the markets cannot afford to let Spain, the world's 12th largest economy, follow the same path as Greece.
Unlike the U.S. housing bubble, which was dominated by creditory subprime lending, in Spain it was more the enthusiasm of buyers from across Europe who were attracted to second-home properties, that fed the real estate boom. As a result of this massive overbuilt sector, banks are now so heavily exposed to real estate, real estate services and construction that almost 40% of all their bad loans are from this sector.
Unfortunately, according to Gretchen Morgenson, Spain lacks the policy tools to resolve this massive housing crisis because it is in the Eurozone and cannot monetize its debt as the U.S. was able to do.
Leaving the Euro would not be a solution to these problems for an economy the size of Spain. The domino effect would be inevitable, Italy being the first to suffer its effects.
Watch the N.Y. Times video: http://nyti.ms/LpeVgN