"The economic crisis in Spain would cause a grat many problems in Europe, since Spain is a mainstream European nation.
The explosive charge of a possible sovereign default by Spain would threatens the structure of the European Union far more than the current economical problems in Greece. Spain is four times as large as Greece economically, five times the size of Ireland, and six times that of Poland. According to an article in the Financial Times reports, "It is bad enough that investors have lost faith in Greek economic policy but, if the Eurozone is to remain intact, it is essential that Spain swiftly restores order to its public finances.... Yet Spain's immediate prospects are dismal."
Spanish Finance Minister Elena Salgado called a press conference to announce an austerity plan designed to reduce the country's current budget deficit of 11.4% of GDP, to the Maastricht criteria's 3% by 2013.
But the country is already in such terrible economic shape, that this would produce a social explosion of unimagined proportions. Manufacturing production in Spain fell in January, for the 26th month in a row, while it purportedly grew in the rest of the Eurozone.
And Spain's unemployment rate rose to 19.5% at the end of 2009 (against an average in the Eurozone of 10%)--double what it was two years ago. Youth unemployment is between 45 and 50%.
There is also an intimate relationship between Spain's banking system and the City of London, which could add to the explosive charge of a Spanish meltdown. The country's largest bank, Santander, has had a "strategic alliance" for decades with the Royal Bank of Scotland (RBS). Spain has so far avoided spending a cent of state money on bank rescues and had seen one of its own strong banks--Santander--pick up some of the pieces of the weakened British banking system." But Santander is also rumored to be placing a bid to buy 300 branches put up for sale by the beleaguered Royal Bank of Scotland.
Santander now accounts for about a fifth of the mortgages granted in Britain in 2009, according to the London Times, which notes that "Santander has been one of the big winners in the credit crunch." They have 1,300 branches in the U.K., and about 15% of the retail banking market. They say Santander has weathered the storm so far, but "a bursting property bubble in Spain" could bring real problems. Santander is known to be heavily exposed to toxic real-estate paper.
© PROMETHEUS 152/2010
PROMETHEUS, Internet Bulletin - News, Politics, Art and Science. Nr. 152, February 2010