Spain has by some measures superseded Greece and Italy as Europe’s most troubled economy. But Spain took a much different path to perdition than it’s Mediterranean neighbors. Spain’s troubles were caused by a housing bubble that rivaled and possibly exceeded the real estate bubble in the U.S. From 1998 to 2006, housing prices in Spain increased 150%, with housing stock doubling in that same time period. When the bubble burst, demands of the welfare state and bank bailouts caused government debt to balloon.
All the while, this bubble masked competitiveness problems that had been mounting in Spain over the past several decades. The result is an economy that is up to its eyeballs in debt and suffering from depression-level unemployment. But efforts on the part of the Spanish government and financial institutions to reduce debt have only sunk the economy deeper in trouble. As my TIME colleague Michael Schuman wrote last month, “Whatever numbers you look at, Spain is in a death spiral, a self-defeating circle of recession and austerity that is sending one of Europe’s most important members into an economic dark ages. Spain today represents all of the failings of the monetary union, from its misconceived inception to its misguided approach to the debt crisis.”
Total Debt as a percentage of GDP: 363%
Nonfinancial Corporations: 134%
Financial Institutions: 76%
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