Spain isn't in a bad situation, if we compare them with Greece, but the weight of Greek economy is 7 times lower than Spanish ( Spain's GDP is $1.6 trillion. Greece's is $357 bn), so a fall of Spain would be harder than the (expected) Greek one
Real estate bubble: Main problem
Housing was (and is) one of the principal income source of Spanish economy. Low interest rates, easy credit environment and a continuous stream of foreign workforce, made possible a big number of new houses (and high skyscrapers) in no time, at Valencian-Catalan coast, mainly used as summer house.
This boom increased real estate price a 80%, from 1990 to 2009, as foreigners used them as summer house, who had a bigger budget than the average Spanish.
Spain's unemployment: An endless nightmare
Foreigners (sometimes, illegal ones) work went to Spain to work at construction, in such numbers that Spanish government was unable to control. In the fourth quarter of 2009, unemployment was 18'8% of total workforce power. Youth unemployment levels are even worse: 43%, being the second worse of Europe and two times the European Union average.
Source: EurostatHow Spain can deal with labor problems?
Spain can hardly compete with Germany, France, UK, Ireland, and most European countries for the quality of its products and, as long Spain can't devaluate its currency as China with Yuan, can't become more competitive with other countries, offering low-priced products.
Spain, as Italy and other countries, will raise the retirement age from 65 to 67 and cut the government spending (like Greece), as short-term measures to deal with their problems
Future of Spain's economy (if any)
Housing bubble collapse, leaves small room for opportunities to Spanish economy. Spain should work is way to improve his GDP, opening new resources to his income. One may be solar energies, where Spanish government is starting to work it, to replace housing former source.
The big question is: Would Spain solve his GDP problem in time, or would be a second Greece? The European Central Bank can support Spanish debt financing the country? Or will fall?
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Greek economy rated junk by S&P Share
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5 comentaris:
But now the Spanish housing market has effectively collapsed, right? I still have trouble understanding what the mistakes Spain is making are and why Spain is in such a bad situation compared to the majority of other EU countries? Do you think that the EU would could even sustain Spain were it to collapse? Would they want it in the Eurozone? Other EU countries are hesitant to fund any kind of bail for Greece, and as you said Spain has an economy 7 times that size. Spain could really be a disaster, right?
The problem with Spanish government is that they act thinking in short-term, not long-term. If they act thinking in long, even mid-term, benefits can be attributed to other party, if they lose the power. That's why the mind-set is 'solve now, regain popularity,don't think about future, we maybe we won't be in power'.
Housing market collapsed because: Spanish was unable to pay houses they were building (why sell a house to a Spanish for, let's say, €15.000 when we can sell them for €40.000 to a foreigner (mainly, Europeans)? So as I've said, Catalan-Valencian coast is full of summer houses for Europeans (In fact, there are towns where foreigners represents more than 50%, even 75% of town population!).
Mix a bad income source (high priced houses, not reliable in mid-long term) with corruption, a limited land (you can't build forever), and the traditional Spanish back-stabbing politics.
Spain is the S of PIGS, and even before Greek debt became public, European voices suggested expel Spain as they're suggesting do it with Greece.
The fall of Greece, would be the devaluation of Euro and, even worse, the investors would be hesitant about investing in Spain. If Greece fall, Spain and maybe Portugal, will probably fall too, starting a Chain reaction that nobody wants, that's why Greece recovery is a must.
I know that Spain is one of the racist country in the world. but I hope that they can solve their economical problems and avoid a economical crisis.
Eventually... But who are we to judge?
No one wants to buy their houses? (foreigners and Spanish)
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