[mrypg9]

From the BBC

What went wrong with Spain?
Spain's story illustrates the fact that the eurozone's problems run far deeper than the issue of excessive borrowing by ill-disciplined governments.

Greece, Portugal and Italy all had way too much debt.

But the Spanish government's borrowing was zero - that is, it ran a balanced budget on average - every year until the eve of the 2008 financial crisis.

And as Spain's economy grew rapidly pre-2008, its debt ratio was falling. Germany's, by contrast, continued to rise.

When Spain joined the euro, interest rates fell to the much lower levels typical in Germany and while the Spanish government resisted the lure of cheap loans, most ordinary Spaniards did not.

The country experienced a long boom, underpinned by a housing bubble, as Spanish households took on bigger and bigger mortgages.

House prices rose 44% from 2004 to 2008, at the tail end of a housing boom, according to ministry of housing data. Since the bubble burst, they have fallen 17%.

The economy, which grew 3.7% per year on average from 1999 to 2007, has shrunk at an annual rate of 1% since then.

When the housing bubble burst, so did its construction sector.

So, although the Spanish government still has relatively little existing debts, it is now having to borrow like crazy to fill the gap left by the jump in unemployment benefits and collapse in tax revenues during the downturn

 

[dunmovin]

From the BBC

What went wrong with Spain?
Spain's story illustrates the fact that the eurozone's problems run far deeper than the issue of excessive borrowing by ill-disciplined governments.

Greece, Portugal and Italy all had way too much debt.

But the Spanish government's borrowing was zero - that is, it ran a balanced budget on average - every year until the eve of the 2008 financial crisis.

And as Spain's economy grew rapidly pre-2008, its debt ratio was falling. Germany's, by contrast, continued to rise.

When Spain joined the euro, interest rates fell to the much lower levels typical in Germany and while the Spanish government resisted the lure of cheap loans, most ordinary Spaniards did not.

The country experienced a long boom, underpinned by a housing bubble, as Spanish households took on bigger and bigger mortgages.

House prices rose 44% from 2004 to 2008, at the tail end of a housing boom, according to ministry of housing data. Since the bubble burst, they have fallen 17%.

The economy, which grew 3.7% per year on average from 1999 to 2007, has shrunk at an annual rate of 1% since then.

When the housing bubble burst, so did its construction sector.

So, although the Spanish government still has relatively little existing debts, it is now having to borrow like crazy to fill the gap left by the jump in unemployment benefits and collapse in tax revenues during the downturn

okay you can call me "fick" if you want, but, who burst the housing bubble and why? Prices up by 44%, down by 17%.....still a net gain of 27%


Basically, there was "X" amount of cash in the pot and now there seems to be "fy" amount in the pot and no-one can explain where the rest of it went.

 

[Leper]

What went wrong with Spain is no different to what went wrong in Ireland and it can be described in five words:- Greed, Greed and more Greed.

I omitted adjetives that would probably get me banned on this forum.

 

[Lucie123]

Irelands ridiculous welfare amounts ,minimum wage level and lack of taxes certainly didnt help. i should have moved there and lived on the dole. i would have got more in a week in dole money than i earned in the uk!

 

[mrypg9]

okay you can call me "fick" if you want, but, who burst the housing bubble and why? Prices up by 44%, down by 17%.....still a net gain of 27%


Basically, there was "X" amount of cash in the pot and now there seems to be "fy" amount in the pot and no-one can explain where the rest of it went.

Simple: the bubble burst because a) supply outstripped demand -classical economic theory and b) the global financial crisis caused currencies to plummet and economies to stall, thus further suppressing demand.

People were encouraged via cheap loans to buy properties they probably shouldn't have done. The money went to those who always gain...those who lent.

What these institutions think they will gain by evicting people rather than accepting whatever payment of their debt they could afford beats me.
They will be left with empty houses with negative equity which no-one will buy even at depressed prices..

 

[thrax]

There are an estimated 900,000 empty homes in our region alone. Spain's economy relied so heavily on the construction industry it is difficult to imagine how it can recover realistically in the short term. Many of the unemployed Spanish are from that industry and it simply isn't going to return to pre 2008 levels, certainly not in my lifetime. It will be interesting to see what this austerity budget dreams up to return the construction workers to employment.

 

[Calas felices]

What went wrong

One of the most significant facts is that Spain has been a net recipient of EU money since it joined. The idea was that the money would be used to build a viable industrial nation - instead it was used to line people's pockets, and build an industry based on greed. Most of the new roads, the new infrastructure was paid for by the main contributors to the EU - Germany France and the UK. Now the money has dried up so has the construction. Much the same goes for Ireland. No surprise it went belly up.

 

[jojo]

In the beginning, Spain was a growing, exciting and "up and coming" holiday resort. Expats and nationals alike could and did start businesses and projects that hadnt been there before. they had a wonderful life in the sun, goods were cheap and there was a favourable exchange rate. But now its all been done - overdone and the holiday nature (package tours) of Spain has ceased to be in fashion. This meant that prices had to drop and the whole thing started to deteriorate. Yes, its a shame Spain didnt plough the money given to it by the EU into something more profitable and speculative. Expats, who once used to manage to start businesses and feed from each other are now finding that there is nothing for them so are returning to the UK. Those who bought property cant sell amid the huge amounts of new and half built properties that were built on the strength that their success wouldnt end... but it did.

All is not lost tho, great empires, countries, towns etc have come and gone before and things evolve into other things. Order will rise from the chaos for all the troubled countries eventually, but it'll take time and austerity



Jo xxx

 

[mrypg9]

One of the most significant facts is that Spain has been a net recipient of EU money since it joined. The idea was that the money would be used to build a viable industrial nation - instead it was used to line people's pockets, and build an industry based on greed. Most of the new roads, the new infrastructure was paid for by the main contributors to the EU - Germany France and the UK. Now the money has dried up so has the construction. Much the same goes for Ireland. No surprise it went belly up.

But the construction boom was fuelled by private funds....at low interest rates, available because Spain had adopted the euro. Many people took advantage of this.

I don't think you can blame the previous Government for this. What should it have done - introduced credit controls? It had no control over the interest rates of foreign bank.

Like other chickens coming home to roost, this cheap loan money was on tap because of the free movement of capitaL allowed under the terms of the Maastrict Treaty.

Another dire consequence of globalisation.

 

[dunmovin]

Simple: the bubble burst because a) supply outstripped demand -classical economic theory and b) the global financial crisis caused currencies to plummet and economies to stall, thus further suppressing demand.

People were encouraged via cheap loans to buy properties they probably shouldn't have done. The money went to those who always gain...those who lent.

What these institutions think they will gain by evicting people rather than accepting whatever payment of their debt they could afford beats me.
They will be left with empty houses with negative equity which no-one will buy even at depressed prices..

that bit and your subsequent post, I do understand, but in simple terms, where did the money go? Who got it and why?
The Goodwins, Madoffs, that **** that crashed the Halifax and their ilk of today seem to hoard the cash we all earned. What is worse (with Madoff the exception) we seem to accept the solution to these wahoos is " here's a big wad of cash, now go away quietly and hopefully nobody will realise we were complete and total plonkers we were for hiring you.".......and who pays? US! It may be a reduction in the the interest rates we get for lending banks our money ( let's not forget they don't just keep it for us, but use it to invest "your investment can go down as well as up, but we'll skip over that part"

 

[dunmovin]

Simple: the bubble burst because a) supply outstripped demand -classical economic theory and b) the global financial crisis caused currencies to plummet and economies to stall,

why? did we allow short term profiteers to gain control, grab the money and run?


Expand this line of thinking and that might explain the "global crisis"

 

[cdat12]

Why, Yes we did

The answer to your question.

 

[Leper]

Let's get back to the original subject - What Went Wrong in Spain?

A friend of mine explained the situation to me last year:- Imagine a pub with lots of customers. The pub owner extends credit to all his customers all of whom are alcoholics and invites them to drink without paying now and will accept the money later, say a year later. The clientele drink and drink and drink on credit. The publican believes a great investment has been made and looks forward to a terrific pay day in a year's time.

The banks want some of the action and shove huge amounts of money in the direction of the clientele of the bar for use elsewhere e.g. to buy jeeps, cars etc.

Each member of the pub's clientele then loses his job 9 months after credit was first given and now has no income. The publican is not going to get paid no matter what way he looks at the situation.

The publican looks to the banks and believes that he did nothing wrong and that the banks must take on the blame. The banks dont want any blame so they go to the government demanding help.

The government thinks that the country cannot go forward without more money. So the government then taxes the non-drinkers more to bail out the banks, publican and the alcoholics.

In a sentence the people must now pay for the greed of others.

 

[mrypg9]

why? did we allow short term profiteers to gain control, grab the money and run?


Expand this line of thinking and that might explain the "global crisis"

I don't think that the slump in construction leading to unemployment in Spain and the global economic crisis are that closely connected but there is of course a knock-on effect.

It's simple: houses were built, there was strong demand, prices rose, credit was cheap, mortgages were obtained....then the economies of the northern European states slumped, demand fell, prices dropped, many properties were unsold in spite of this....

The cheap loans went to people who of course owed their creditors...foreign and domestic banks and similar institutions. People in the construction industry lost their jobs because of fall in demand. This had a knock-on effect on the Spanish economy as a whole. So people were unable to pay their mortgages.

Whrere did the money go/ Well of course into the purchase of property - this was the collateral...but the price of that collateral had also fallen...So even if the lending institution repossessed because of non-payment of the mortgage they were left with an unsaleable (due to market glut of unsold property) devalued property. They then go after the borrower for the balance of negative equity as is the case in the UK ....but in most caees the borrower has no means of paying...not surprising if s/he can't pay the original mortgage debt.

So where's the short-term profit you refer to? Everyone loses, except the 'middle-men', the lawyers, financial advisors and so on, who arrange for loans to be given to people who really didn't qualify for them. Just as in the UK where 110% mortgages were on offer.

Silly system, isn't it...

Just as we in the UK neglected manufacturing for the quick profits of the financial sector, so Spain sacrificed long-term growth for the sake of a proprty bubble.

As Leper said, people must accept some degree o0f responsibility....both those who lent and those who borrowed.

Sadly, you can't pick oput the 'innocent' from the 'guilty'.
As in Greece, all must bear the pain.