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Spain & Portugal: Who Will Be Next To Fall?

Tuesday, 23 Nov 2010 | 5:55 PM ET

Jittery investors are keeping a close watch on Europe as chatter grows about who may be the next to fall.

As they always do, investors are talking with their portfolios – and they’re saying keep an eye on both Portugal and Spain.

According to published reports, both countries’ borrowing costs rose on Wednesday while Spain limited the size of a bond sale because traders demanded higher premiums to hold its debt.

Portugal is considered a risk because of its modest economic growth and its high debt levels.

Ear to the Wall: Spain, Portugal Next?
Why Portugal is likely to tap EU/IMF funds, with Peter Boockvar, Miller Tabak equity strategist.

However Spain is the elephant in the room. A 40% drop in house prices from their peak coupled with an increase in unemployment to 20% is putting a great deal of pressure on lenders there.

Although it’s widely believed big Spanish banks such as Santander or BBVA are well capitalized, that’s not necessarily the case with Spain’s smaller banks.

To make matters that much worse, the cost of providing a bailout for Spain would almost empty the emergency fund that was set up by the EU and IMF.

Peter Boockvar, Miller Tabak Equity Strategist, tells the desk that he's afraid to think about the worst case scenario for Spain because "it could lead to a potential meltdown in Europe."

"Remember, the combined GDP of Ireland, Portugal and Greece is less than Spain," he says. "If the financial woes are limited to those three nations we'll be okay. It's all about Spain."

What else must you know about these developments. Find out from Peter Boockvar, Miller Tabak Equity Strategist. Watch the video above!



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