Monday, June 11, 2012

What is wrong with the Spanish economy?

This is a simple precis of the Wikipedia entry on the Spanish economy, provided here as a service to those who want such a precis, and know that they will not get it from the official papers and broadcasters.

Spain is the 5th largest European economy and 12th largest world economy.
Ingrained weaknesses of the Spanish economy are

  • inflation (especially house price inflation, see below)
  • Poor education system
  • Large underground (black) economy
  • trade deficit at 10% of GDP
  • Falling (reversing) income flows from the EU

Spain's economy was booming 1997-2007 on the back of a huge construction effort, which ground to a halt in 2008.

Mortgages caused household debt to triple, so the median household debt/income ratio was 125%. Many find themselves in negative equity.

Note that this is a private, not a public debt problem. In fact, in 2008, the Spanish Government had a surplus. That is why it is right that Spanish banks should get EU support without the Spanish state having to do further self chastisement.

Hope this helps.

1 comment:

Haddock said...

I think each European country is going through a difficult phase.