Here comes the European version of a financial H1N1: (link requires WSJ subscription).
This may only be the start. There are a few more letters in the term "PIIGS" ... It is interesting that it hits Spain first; after all, this is the one country among the PIIGS that has the least of the debt problems. This is a nice way of highlighting that country risk, R = R[debt/GDP], is is a function of both debt and income. So as Spain's income tanked, its risk rose although its debt accumulation may not have accelerated...
Given the definition of Risk above, use the Mundell Fleming model with fixed exchange rates to identify the effects of a contraction (assume government expenditures declined) in Spain. Note that not only the IS but also the BP=0 line must shift when R =R[debt/GDP].