The Greek contagion is rapidly turning into a Southern European crisis. The spread, or the gap, of the two-year Spanish government bond over a similar German benchmark widened to 165 basis points from 129 basis points a week ago and 53 basis points at the start of the year. Similarly, the spread of the two-year Italian government bond over the German benchmark widened to about 130 basis points today from 102 basis points a week ago and 17 at the start of the year.  The widening spreads reflect the fact the investors are demanding more of a premium to hold Spanish and Italian government debt. The two countries, in the wake of Greece's worsening financial condition, are looking like the new sick men of Europe. Portugal is also on the invalid list though its government debt has been under pressure for some time already.  "Investor sentiment is placing more trust in corporations than governments at the moment as the accounting process is more transparent, and one can see the growth in profits and in the majority of cases, the debt is under control," says Stephen Pope, chief global equity strategist at Cantor Fitzgerald.  Of course, the one exception is in the financial sector. Much like the bonds issued by their governments, shares of Italian and Spanish banks are getting hit hard. In Italy, Banco Popolare is off 14.66% so far this year. Unicredit is down 17.01%, Banco Monte Dei Paschi di Siena has lost 20.77%, Banca Popolare di Milano Scarl has dropped 21.39% and Intesa SanPaolo has plummeted 27.70%, according to data provided by Cantor.  In Spain, the picture is just as ugly. Banco Popular Espanol has fallen 6.73% so far this year, Banesto has tumbled 17.07%, Banco de Valencia has sunk 25.47%, Bankinter has plunged 28.42% and BBVA has lost nearly 31%.  Meanwhile, the top 52 European bank stocks have collectively lost 6.38% year-to-date, weighed down by outsized drops in the shares of southern European financial institutions.  On Tuesday, there were signs that the skittishness was spreading. Shares of UBS fell sharply even after posting profits that analysts roundly applauded. Although the bank said it had little exposure to the Greek crisis, investors pummeled the stock on fears that the Swiss bank's business in bordering Italy, where it is a lender, could hurt the bank in the months ahead.
Investors dump Spanish and Italian bonds and banks as what started in Greece makes its way around the Mediterranean to the Iberian peninsula and beyond.