Spain's Delinquent Loans: The Next Greece?

Protesters angry about economic woes
Protesters angry about economic woes

Sitting on the horizon, not far off are dark, ominous clouds, casting shadows on all of Spain that resemble the US housing and bad loan crisis. Germany has said it will not bail Spain out, at least as of April 2012. Spain has spent most of its money buying its own debt to bring down interest rates to issue bonds. Now, the rates are going up again and after three years of this, Spain now has $188 billion of bad loans defaulting. These are mostly housing loans that started to fail starting in 2008 and housing prices continue to dive into the abyss. Home sales are dropping and new construction is too expensive and risky. The government is also to blame for its costly expenditures, just as it was in Greece. Unemployment is above 20%, wages are low. Delinquent loans are at a 17-year high.

It sounds like the US dilemma.Spain is now trying to sell bonds to make gains, yet, the country has been in the red zone for a very long time and it will need a bail out from Germany later this year to avoid being "Greeced".

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CHRIS57 profile image

CHRIS57 4 years ago from Northern Germany

Good to put focus on this issue with your hub.

Spain is a perfect example for evaluating the state of an economy not only in terms of sovereign debt. After stepping into Euroland, until 2010 public debt only nominally increased by a few %of GDP while household and corporate debt grew some 100% of GDP. And that is what causes the trouble.

IsnĀ“t the ECB umbrella only good for sovereign debt? That means corporate debt has to be transfered to public debt. And that is what is happening right now with Spain issuing bonds that are bought by (private, corporate) Spanish banks. And the banks make use of the cheap money issued by the ECB to do so. The European type of Q.E.

The new Spanish administration is not really on the austerity path. This is additionially draining confidence, increases yield for bonds and reduces manouverability.


perrya profile image

perrya 4 years ago Author

Thanks, I guess time tell.

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