Could Spain doom the euro?

The euro has tied Spain's hands when it comes to traditional tools to revive the economy.

By Kim Peterson Feb 25, 2010 2:54PM
The euro. Credit: (© Robert Kohlhuber/Getty Images)Everyone is freaking out about Greece, but Spain could be the country that breaks the euro, The Wall Street Journal reports.

Spain is the No. 4 economy in the 16-nation eurozone, and it's in bad shape. Its unemployment rate is 19%. Its economy shrunk by 3.6% last year and is expected to contract again this year, according to The Journal.

And so while the focus is understandably on Greece and its enormous debt, the pain in Spain is a reminder that other euro countries are also in a deep recession and coming dangerously closer to economic collapse.

For Spain, the euro is causing serious problems. Spain can't devalue its currency, which would have helped its economy, because Germany drives the euro's value, The Journal reports.

Spain's hands are also tied when it comes to cutting interest rates or printing more money -- that's up to the European Central Bank.

Spanish officials, of course, praise the economy as solid. But the country's been hit hard in the financial crisis -- so much that some are wondering what countries would step in to help if the need for a bailout arose.

The Journal lists three options for Spain:

1. Leaving the economy alone to fix unemployment and high debt on its own.

2. Cutting spending and overhauling the rigid labor market.

3. Withdrawing from the eurozone.

Experts seem to think the country will take the second option, but the third would wreak havoc on the euro's future.

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