Spain and the Eurozone crisis

Discussion in 'Politics, Religion, Social Issues' started by jnpy!$4g3cwk, Jun 10, 2012.

  1. jnpy!$4g3cwk macrumors 65816


    Feb 11, 2010
    An article in the BBC business news looks at the origins of the debt crisis and the role different countries played. Spain has been on the brink lately. And yet, the Spanish government played by the deficit rules and has a lower debt-to-GDP ratio than Germany. What gives?

    Some thoughts arise from reading the analysis, based on only on Europe's experience but that in U.S. as well:

    1) Should governments raise interest rates and/or quantitatively tighten currency in order to deflate speculative bubbles in the private sector?

    2) Is there some kind of self-regulating mechanism (certain kinds of taxes, for example) that would "punish" speculation and "irrational exuberance"?
  2. Rodimus Prime macrumors G4

    Rodimus Prime

    Oct 9, 2006
    Well Spain debt/banking crisis is one that can be solved and a short term problem. Compared to greece they do not have a same problems. It is one were an injection of capitital would be enough to stabilized and solve the banking problems. It is not caused by the government not doing what is needing to be done but by the fact the banks are just flat out of cash and are starting to fail.
  3. Happybunny macrumors 68000

    Sep 9, 2010
    The main difference is that Spain played by the rules, and it's problems are caused by a property bubble.
    Greece was just a corrupt house of cards from the top down.
  4. Queso macrumors G4

    Mar 4, 2006
    Spain's problems aren't down to government debt. As you say, the Spanish government is one of the few that played by the rules.

    The problems there are down to business and consumer debt. Spanish companies took advantage of the low-cost credit boom to expand both their domestic and international presence, but all on the expectation of revenue increases which have not materialised (take, for example, Ferrovial's takeover of the major British airports. Ouch.). At the same time, Spanish consumers have also taken out mortgages or personal debts they can't afford. The end result is that whilst Spanish government debt only increased slightly in terms of GDP over the past decade and is still now only about 60% of GDP, personal and business debt has grown to more than 200%, and critically virtually all of the latter was funded internationally.

    When unemployment began to rise steeply at the beginning of the recession a lot of these loans were defaulted on, leading to a cascading effect on the banks being unable to lend to businesses needing to cover their own overspend. Hence the €100bn hole.

    It should be noted, however, that things are not quite as bad as the official figures. Spain, like Italy and Greece, has quite a large parallel economy that operates under the radar. Whilst some industries have taken a major hit and some regions are suffering badly as a result (Murcia and Andalucia especially) others have seen a far smaller change in everyday life terms as official activity has been transferred into the black economy. The problem for the Rajoy government and the Bank of Spain is that cracking down on this might actually cause more problems than it solves.
  5. jeremy h, Jun 11, 2012
    Last edited: Jun 11, 2012

    jeremy h macrumors 6502

    Jul 9, 2008
    Just to add - the 100bn has now been 'socialised' - owed by the people, not the banks.

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