The problem with stimulus spending in a place like Spain is that someone will have to lend them the money to spend. They either have to charge pretty high interest (which exacerbates Spain's already high deficit) or give a discount on the interest, such that it no longer reflects the risk the lender is taking. Most anti-austerity calls seem to suggest the latter, which basically amounts to redistribution from those c…
From Michael Pettis [1]:
The strength of the German economy in recent years has largely to do with its export success. But for Germany to run a large current account surplus – the consequence I would argue of domestic policies aimed at suppressing consumption and subsidizing production – Spain and the other peripheral countries of Europe had to run large current account deficits. If they didn’t, the euro would have undoubtedly surged, and with it Germany’s export performance would have collapsed. Very low interest rates in the euro area (set largely by Germany) ensured that the peripheral countries would, indeed, run large trade deficits.
The funding by German banks of peripheral European borrowing, in other words, was a necessary part of deal, arrived at willingly or unwillingly, leading both to Germany’s export success and to the debt problems of the deficit countries.
[1] http://www.mpettis.com/2011/07/19/current-account-dilemma/