economic collapse in the Eurozone

[punisa]

Hi guys, I'm given an article to write and could use a bit of help from you who follow economy more closely these days.
We know about the problems Greece is right now, national debt exceeded domestic production by 12% and it's looking at sharp spending cuts as the only way out (commanded from EU HQ).

But there is huge talk over how collapse of Greece would cause an immediate collapse of Lisbon and Madrid, Portugal and Spain that is.
Why is that exactly?
Why would these two countries feel the immediate impact? and why not Italy for example?

Thanks if you can help

[FSL]

Government deficit exceeded 12% of the GDP, government debt is well above 100%.

First of all, Greece collapsing hurts the eurozone economy in many ways. If Greece were to default on its debt, many european banks that have greek government bonds would need a second bailout. Also, the idea of EU being another major player in global finances would erode since there would be no guarantees one of its countries can't simply collapse. Euro would lose a great chunk of its value against other currencies which could be a problem for the health of every euro economy.

Now, defaulting, -stop paying your creditors or giving civil servants their salaries- has more to do with the inability to pay for your immediate needs and less with your economy's long term health. Greece has a large deficit and it will need to borrow a lot of money this year too. Spain and Portugal also have large deficits, among the largest in the EU. Italy on the other hand, despite having a debt as large as Greece's has a smaller deficit and will not need to resort to the markets for borrowing money as much.

One must also consider that the southern economies are less "capital-friendly" in the sense that structural reforms like the liberalization of the labour market have advanced in a smaller degree. For example, the government here is now thinking of raising the retirement age. This will of course have no immediate effect in getting money. Still, markets like that and the spread between the greek and the german bond drops.
This is a great chance for european capital to push these countries to these measures, especially as they're all controlled by "left-of-center" parties that usually have a stronger say in unions.

[punisa]

Thanks FSL, great insight and information.