Last year we woke up to headlines involving the home of the Acropolis and one of the worst debt situations in recent history -- Greece. The new question is: Could Greece this year be replaced by one of its peers? Spain, perhaps?

A few months ago, the odds of another blowup in the European Union were not very high, but in the last week, the odds have ratcheted up as headlines once again turn to the sovereign debt issues in the region.

Spanish Bonds Tell a Story

It has been a busy week for Spain, starting with Spanish Prime Minister Mariano

Rajoy on Friday announcing the country's most austere budget in years, dating back to when it became a democracy in 1978. Rajoy's goal is to instill austerity measures while building confidence with the borrowers and citizens. An alarming number in the 2012 budget is the estimated debt/GDP ratio that will reach 79.8 percent; this is higher than the 68.5 percent expected for 2011.

On Tuesday, Spain held its first bond auction since the new budget was released. The goal was to raise €3.5 billion, but the sale only brought in €2.6 billion. The lack of demand for the Spanish bonds sent the yields on the 10-year paper spiking by as much as 22 basis points (bps) to 5.57 percent. The 10-year Italian bonds followed the lead set by Spain and jumped 19 bps to 5.34 percent. Possibly even more worrisome is the surge in the yields on 2-year bonds in Spain and Italy, rising by 23 bps and 16bps respectively, after the news broke.

Bailout Next?

Now, yet another question begs an answer: Will Spain be the next country lining up in Brussels, shaking its tin can and looking for a handout? This week, Spanish Economy Minister Luis de Guindos said: The government is facing a lose-lose situation, as markets will penalize the country for not going far enough with austerity and also for going to far. This was in response to the question of whether Spain would need to request assistance from its EU counterparts.

During a news conference on Wednesday, the head of the European Central Bank, or ECB, Mario Draghi, alluded to the poor Spanish auction as a reminder that there is continued pressure for governments to reform. But as Guindos noted, Spain and several other countries are walking a thin line where austerity measures are concerned.

All one has to do is look at the economic numbers to come out of Spain in the last week. Unemployment rose by 0.8 percent in March to 4.75 million people out of work; the total unemployment rate now stands at 23.6 percent the highest number in the EU, and greater than the 21 percent reported by Greece in December. As a comparison, Germany's unemployment rate is 5.7 percent. A reading on manufacturing, the Spanish PMI, fell to 44.5, the eleventh consecutive decline in the index.

Austerity = Bad?

If Spain goes too far on the side of austerity, it will likely send the PMI even lower in the near-term as unemployment continues to surge. The country's youth are already struggling, considering half of them are out of work. More of the same with austerity added to the mix could lead to major riots and strikes that will only deter any resemblance of a turnaround.

As I mentioned above, the Spanish government, and to some extent Portugal and Italy, are walking very fine lines when it comes to austerity in future budgets. The governments must stop the frivolous spending, but at the same time not risk a major recession by cutting off the spigots. All I have to say is: Good luck with that.

Matt McCall is founder and president of Penn Financial Group, an investment advisory firm that specializes in ETFs and individual portfolio management. Matt is the author of two investment books: The Swing Trader's Bible: Strategies to Profit from Market Volatility and The Next Great Bull Market: How to Pick Winning Stocks and Sectors in the New Global Economy. He is a regular host on the Fox News Channel. His credits include: The Wall Street Journal, CNBC, Business Week, Bloomberg TV, and Investor's Business Daily, to name a few. You can check out his Web site here: