Is Italy the Next...Spain and Greece

If you are watching Spain, dear readers, as a gauge of the health of the Eurozone bailout program and the Euro itself, you may be watching the wrong indicator.
In Europe itself, many experts have already abandoned Spain to the same trash heap where Greece is resting. Why? Because the cost of borrowing money for 10 years for Spain (i.e., its 10-year bond) has risen above 7% for the first time. This spells doom in the minds of financial experts, who now believe that the 100 Billion Euros lent to Spain by the Eurozone leadership and the European Central Bank will not solve the problem and that Spain will require a full-blown bailout of its governmental fiscal house, like Greece, Portugal and Ireland.
Some are betting that Spain may quit the Euro and go back to its Peseta before Greece returns to its Drachma.
The experts are watching -- Italy.
This week the Austrian Finance Minister predicted that we can “forget Spain, Italy is the next bailout.”
There were loud denials and anger all around in Europe at the Austrian’s statement, called lies by some, but he is far from being alone in his thought.
But, this is just the Emperor’s New Clothes Syndrome (Europe likes acronyms so let’s call it the ENCS).
A small boy shouts that the Emperor is not wearing any clothes, and all the adults, who know full well that the Emperor is naked, say that the boy doesn’t know what he's talking about.
ENCS - it is the taking of a public position by an elected or appointed European official that Spain and Italy are just fine and that the problem has been solved with the 100 Billion Euro life jacket tossed to Spain’s banks.
ENCS could not be farther from the truth, even though the European leadership loves to deny anything that confronts their fairytale house of glass with real stones.
First, Italy is selling 10-year bonds at above 6% - this is the danger zone on your car’s instrument panel that says you are revving your engine too much. Italy, just as any other nation, cannot sustain repayments at above 6%. There is not enough money coming in as tax payments anywhere in the world to do this over an extended period.
Second, Italy is also deeper in national debt than Spain, which actually has a lower national debt as a percent of GDP than Germany. Italy's debt, alas, is somewhere near 120% of its GDP. So, Italy is already far down the road that experts are expecting Spain to trudge.
Think about America, where the national debt burden, while well below 100% of GDP, is rising by about 1 Trillion Dollars per year, and it will not be able to be repaid with bonds sales when the cost of borrowing begins to rise as it has in Italy.
Think about it in your own terms, if you have a debt so big that it requires you to borrow more money (more debt) to pay it off, and if you are now making less money that you used to - what will happen? You will not be able to pay off the first debt because secondary lenders will not continue to give you credit except at very high interest rates that you cannot afford. This, dear readers, is Greece and may soon become Italy. Spain has not reached this point, but it will, be sure.
The good news for Italy is that the country does not have a real estate bubble that could bring down its banks. Spain’s major problem is its real estate bubble and the bank crisis caused by its collapse.
So, continue to watch Spain, but in the next few weeks, Italy seems poised to become the new kid on the bailout block.