Peter Boone and Simon Johnson write at The Baseline Scenario:

To be clear, Spain has a better chance of avoiding sovereign and massive bank defaults compared to Greece, which is in intensive care -- with a doubtful prognosis and a permanent resource infusion from the European Central Bank. In this regard the announcements in the last few weeks from Spain were helpful, for example when the government chose resolution authority over religious authority in taking legal control of a troubled savings bank (CajaSur) from the Catholic Church.

Spain’s savings banks, often owned by local authorities, the church, and other civic groups are generally a bastion of moral hazard due to the implicit belief that no political leader would let the relevant creditors fail. The CajaSur takeover did not impose losses on creditors, but it did establish that the managers of failed banks can at least lose their jobs.  

The highly unpopular budget reforms announced by Prime Minister Zapatero further demonstrate some resolve -- and the fact they just passed a legislative hurdle is encouraging. According to optimistic forecasts, Spain’s budget deficit will fall to 5.3% of GDP next year (although the European Commission still has this projected at 9.8%). If Spain can get anywhere near this level, despite 20% unemployment, then financial markets will probably go easy on them. Spain’s high unemployment is partly the result of a more liberalized labor market that made it easier for employers not renew term contracts. This has made Spain one of the worst nations in Europe in terms of employment loss, but it also means jobs could rebound quickly.