Spain (EUSE:ESP) agreed to buy Greece (WSE:HELL), the debt-straddled nation, for €11.6 billion, in what analysts are describing as a direct challenge to Italy’s (WSE:BOOT) stronghold on island tourism. The Greece deal moves Spain into contention with the world’s top island players, which, after Italy, include Canada (NASE:CNK), Ireland (FTSE:EIRE), and the East Indian Union (NTDQ:EIU).

Greece’s common citizens will each receive €38.54 in cash and a pocket Greek-Spanish dictionary, Spain said in a statement today. Carnival Cruise Line (LSE:CCL), Greece’s biggest investor, will receive a lump sum of €635,000 from the deal when Spain takes control of its Greek port privileges.

Shares in both Spain and Greece rose sharply in extended trading late Thursday, when a few analysts speculated that another country may make a bid. New Zealand and Indonesia were possible buyers, according to Mingshan Wu, a travel analyst at Kaufmann Moss.

Analysts we spoke with were uniformly bullish on Spain. “This is a low-price, low-risk way for Spain to become a leader in the island sector,” said Federico Altamonte, a takeover analyst for Raymond Jane and Associates. Altamonte (who holds no shares of Spain) upped Spain from the hold column to strong buy. “We always wondered why Spain had no global island strategy, given the consistent success of Ibiza and other small holdings,” he added.

Shares in Ireland were sharply down on the news, which came on the heels of last month’s blow to that country’s shaky islands standing. Ireland has struggled to remain in the game since its 2006 hostile takeover of Iceland, and most analysts downgraded its offerings after the eruption of Eyjafjallajökull clouded prospects. Eyjafjallajökull was also a linguistic embarrassment for the Emerald Isle, which has yet to fully overcome the unanticipated public confusion between “Iceland” and “Ireland.”