Europe Solves A Debt Problem With More Debt

Jun 11, 2012

The Spanish government has been borrowing tons of money from its banks, largely because foreign lenders are unwilling to lend the government money.

Spain's banks, struggling as the country's real estate bubble bursts, have been borrowing money back from the government.

We learned this weekend that Spain will borrow up to $125 billion from Europe's bailout fund to keep its banks from collapsing. This may help interrupt the cycle of borrowing within Spain.

But it's unclear if this can help Spain in the long run. The biggest question surrounding the money is the one that's been part of European bailouts for well over a year now: Can you solve a debt problem with more debt?

Under European rules, the money Spain is borrowing will likely be the first money it has to pay back. That may make other international lenders even more wary of lending money to Spain.

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