The Spanish economic miracle looks like it is over. Spain is headed for recession for the first time since the creation of the euro, according to investment bank PNB Paribas. For 15 years, Spain has never had a single quarter of negative growth. But if the Spanish party is ending, what does that mean for the rest of Europe?

Spain’s Economy Minister Pedro Solbes stunned capital markets with an admission that his country faced “the most complex crisis” in its history. The admission, according to the Telegraph, was a break with previous efforts to put a reassuring face on a rapidly deteriorating economy.

Solbes said the Madrid stock exchange had suffered an “earthquake,” crashing 27 percent since June, and that high oil prices, a slowdown in exports, and the global credit crisis had crimped consumer spending and the Spanish economy.

Solbes’s comments followed last week’s collapse of property developer Martinsa-Fadesa. With an empire of housing estates, hotels, shopping malls and other properties, Fadesa is the largest Spanish corporate failure in modern times.

The root of the current problem ailing Fadesa and Spain is the same thing ailing the United States—too much easy money creating bubbles that later burst.

In America, the roots of the housing bubble go back to the dot.com bust. At that time, then Federal Reserve chief Alan Greenspan massively cut interest rates to stave off recession—the side effect being that all of a sudden mortgages became inexpensive and millions more people could afford to purchase homes. Then, as real-estate prices were consequently driven sky high, the government encouraged the state-sponsored housing lenders Fannie Mae and Freddie Mac to make loans accessible to people who couldn’t qualify for loans big enough to purchase homes—which only increased the home buyer pool and drove prices even higher. But when the dot.com danger was over and the Fed began raising interest rates to combat inflation, loans and adjustable-rate mortgages became more expensive, housing prices began to fall, and the bubble burst.

The cause of the Spanish housing bubble is essentially the same. After joining the eurozone, the Spanish financial system became effectively backed by the much larger and more powerful German economy. Consequently, all of a sudden Spanish borrowers were able to borrow money at rates previously unheard of for a smaller economy. And like in America, Spaniards went on a spending spree, and all the newly available money ended up creating unprecedented demand for houses, automobiles and other consumer goods—thus the bubble economy was born.

In 2006, around 750,000 new homes were built in Spain—more than in Germany, France and the United Kingdom combined. And along with the houses, newly created lending, construction, remodeling and real-estate industries were also created, as easy money flowed from one sector to the next. Jobs became more plentiful, and as tax receipts grew, the government collected its share, posting moderate budget surpluses.

But now all that debt-fueled growth seems to be ending. With the European Central Bank raising interest rates to clamp down on inflation, the wheels have fallen off the Spanish economy. During the first quarter of 2007, new home sales plummeted by 32 percent. By the second quarter of this year, home prices had fallen by 20 percent. All the foreigners who had hopped on the hot-property bandwagon were now beginning to exit. Rising energy costs are also taking their toll, as are exports to the U.S., which have slowed due to the twin weaknesses of the U.S. dollar and economy. Corporations are tightening their belts, jobs are being shed, and the Spanish government now expects a multi-billion euro budget deficit.

Recession may be on the horizon, but Spain is not alone; much of the periphery of Europe is in the same boat. Like Spain, other smaller countries, such as Ireland, Estonia, Latvia and Lithuania, also benefited enormously from previously unexperienced low eurozone interest rates, and are now facing economic contraction.

A crisis could be brewing in outer Europe. If so, expect the periphery to look to Europe’s economic heart and core, its largest and most dynamic economy—meaning Germany—for the way out.