2008–2009 Spanish financial crisis

This article may be expanded with text translated from the corresponding article in Spanish Wikipedia. (March 2009) After translating, {{Translated|es|Crisis inmobiliaria española de 2008}} must be added to the talk page to ensure copyright compliance. Translation instructions · Translate via Google

It has been suggested that this article or section be merged into Late-2000s recession in Europe#Spain. (Discuss)

The 2008–2009 Spanish financial crisis is part of the world economic crisis of 2008. In Spain, the crisis was generated by long term loans (commonly issued for 40 years), the building market crash which included the bankruptcy of major companies, and a particularly severe increase in unemployment, which rose to 13.9% in February 2009.

Spain continued the path of economic growth when the ruling party changed in 2004, keeping robust GDP growth during the first term of prime minister José Luis Rodríguez Zapatero, even though some fundamental problems in the Spanish economy were already evident. Among these, according to the Financial Times, there was Spain's huge trade deficit (which reached a staggering 10% of the country's GDP by the summer of 2008),^[1] the "loss of competitiveness against its main trading partners" and, also, as a part of the latter, an inflation rate which had been traditionally higher than those of its European partners, back then especially affected by house price increases of 150% from 1998 and a growing family indebtedness (115%) chiefly related to the Spanish Real Estate boom and rocketing oil prices.^[2]

The Spanish government official GDP growth forecast for 2008 in April was 2,3%. This figure was successively revised down by the Spanish Ministry of Economy to 1.6.^[3] This figure looked better than those of most other developed countries. In reality, this rate effectively represented stagnant GDP per person due to Spain's high population growth, itself the result of a then continuing strong level of immigration. Currently most independent forecasters estimate that the rate was actually around 0.8% instead,^[4] far below the strong 3% plus GDP annual growth rates during the 1997-2007 decade. Then, during the third quarter of 2008 the national GDP contracted for the first time in 15 years and, in February 2009, it was confirmed that Spain, along other European economies, had officially entered recession.^[5]

In July 2009, the IMF worsened the estimates for Spain's 2009 contraction, to minus 4% of GDP for the year (close to the European average of minus 4.6%), besides, it estimated a further 0.8% contraction of the Spanish economy for 2010, the worst prospect amid advanced economies^[6].

Contents 1 Property bubble 2 Prices 3 Spanish banking system 4 Employment crisis 5 References

[edit] Property bubble

The residential real estate bubble in Spain saw real estate prices rise 201% from 1995 to 2007^[7]. € 651,168,000,000 is the current mortgage debt (second quarter 2005) of Spanish families (this debt continues to grow at 25% per year - 2001 through 2005, with 97% of mortgages at variable rate interest). In 2004 509,293 new properties were built in Spain and in 2005 the number of new properties built were 528,754^[8]. 2004 estimations of demand: 300,000 for Spanish people, 100,000 for foreign investors, 100,000 for foreign people living in Spain and 300,000 for stock^{[citation needed]}; in a country with 16.5 million families, 22-24 million houses and 3-4 million empty houses^{[citation needed]}. From all the houses built over the 2001-2007 period, "no less than 28%" are vacant as of late 2008^[9]

House ownership in Spain is above 80%. The desire to own one's own home was encouraged by governments in the 60s and 70s, and has thus become part of the Spanish psyche. In addition, tax regulation encourages ownership: 15% of mortgage payments are deductible from personal income taxes. Even more, the oldest apartments are controlled by non-inflation-adjusted rent-controls [5] and eviction is slow, therefore discouraging renting.

As feared, when the speculative bubble popped Spain became one of the worst affected countries. According to eurostat, over the June 2007-June 2008 period, Spain has been the European country with the sharpest plunge in construction rates^[10]. Actual sales over the July 2007-June 2008 period were down an average 25.3% (with the lion's share of the loss arguably happening in the 2008 tract of this period). So far, some regions have been more affected than others (Catalonia was ahead in this regard with a 42.2% sales plunge while sparsely populated regions like Extremadura were down a mere 1.7% over the same period)^[11].

Banks offered 40-year and, more recently, 50-year mortgages. Unlike Ireland, Spanish labour costs did not track house market rises^{[citation needed]}. While some observers suggest that a soft landing will occur, others suggest that a crash in prices is probable. Lower home prices will allow low-income families and young people to enter the market; however, there is a strong perception that house prices never go down. As of August 2008, while new constructions have come virtually to a halt, prices have not had significant movements, neither up nor downwards. The national average price as of late 2008 is 2,095 euros/m2^[12]

[edit] Prices

Due to the lack of own resources, Spain has to import all of its fossil fuels, which in a scenario of record prices added much pressure to the inflation rate. Thus, in June 2008 the inflation rate reached a 13-year high of 5.00%. Then, with the dramatic decrease of oil prices that happened in the second half of 2008 plus the confirmed burst of the property bubble, concerns quickly shifted to the risk of deflation instead, as Spain registered in January 2009 its lowest inflation rate in 40 years which was then followed in March 2009 by a negative inflation rate for the first time ever since this statistic was recorded.^[13][14]

[edit] Spanish banking system

The Spanish banking system has been credited as one of the most solid and best equipped among all Western economies to cope with the worldwide liquidity crisis, thanks to the country's conservative banking rules and practices. Banks are required to have high capital provisions and demand various proofs and securities from intending borrowers.^[15]

Spain's largest bank, Banco Santander, took part in the UK government's bail-out of part of the UK banking sector.^[16]

[edit] Employment crisis

As for the employment, after having completed substantial improvements over the second half of the 1990s and during the 2000s which put a few regions on the brink of full employment, Spain suffered a severe setback in October 2008 when it saw its unemployment rate surging to 1996 levels. During the period October 2007-October 2008 Spain had its unemployment rate climbing 37%, exceeding by far the unemployment surge of past economic crises like 1993. In particular, during this particular month of October 2008, Spain suffered its worse unemployment rise ever recorded and,^[17] so far, the country is suffering Europe's biggest unemployment crisis^[18]. By July 2009, it had shed 1.2 million jobs in one year and was to have the same number of jobless as France and Italy combined^[19]. Spain's unemployment rate hit 17.4% at the end of March, with the jobless total now having doubled over the past 12 months, when two million people lost their jobs.^[20] In this same month, Spain for the first time in her history had over 4,000,000 people unemployed,^[21] an especially shocking figure even for a country which had become used to grim unemployment data.^[20] Although rapidly slowing, large scale immigration continued throughout 2008 despite the severe unemployment crisis, thereby worsening an already grave situation.^[22] There are now indications that established immigrants have begun to leave, although many that have are still retaining a household in Spain due to the poor conditions that exist in their country of origin.^[23]

[edit] References

v • d • e Financial crisis of 2007–2010 Late 2000s recession · 2008 G-20 Washington summit · APEC Peru 2008 · 2009 G-20 London Summit · 2009 G-20 Pittsburgh summit · APEC Singapore 2009 · 2010 G-20 Toronto summit · 2010 G-20 Seoul summit Specific issues United States housing market correction · World food price crisis · Energy crisis (Central Asia) · Subprime mortgage crisis (timeline, List of writedowns) · Automotive industry crisis · 2008–10 California budget crisis · Future of newspapers · List of entities involved (Bankrupt or acquired banks, Bankrupt retailers) · Effects upon museums · Banking revelations in Ireland · Resurgence of Keynesianism · January 2008 Société Générale trading loss incident · European sovereign debt crisis By country (or region) Belgium · Greece · Iceland · Ireland · Latvia · Russia · Spain · Ukraine · (Europe · Africa · Americas · Asia · Australasia)   Legislation and policy responses Banking and finance stability and reform Banking (Special Provisions) Act 2008 · Commercial Paper Funding Facility · Emergency Economic Stabilization Act of 2008 · Troubled Asset Relief Program · Term Asset-Backed Securities Loan Facility · Temporary Liquidity Guarantee Program · 2008 United Kingdom bank rescue package · 2008 East Asian meetings · Obama financial regulatory reform plan of 2009 · Anglo Irish Bank Corporation Act 2009 · 2009 G-20 London Summit · Irish emergency budget, 2009 · National Asset Management Agency · Irish budget, 2010 · Dodd-Frank Wall Street Reform and Consumer Protection Act · Bank stress tests: EU, US Stimulus and recovery National fiscal policy response to the late 2000s recession · Housing and Economic Recovery Act of 2008 · Economic Stimulus Act of 2008 · 2008 Chinese economic stimulus plan · 2008 European Union stimulus plan · American Recovery and Reinvestment Act of 2009 · Fraud Enforcement and Recovery Act of 2009 · Green New Deal   Companies and banking institutions Companies in bankruptcy, reorganization, administration, or other insolvency proceedings. New Century Financial Corporation · Woolworths · American Freedom Mortgage · American Home Mortgage · Bernard L. Madoff Investment Securities LLC · Charter Communications · Lehman Brothers (bankruptcy) · Linens 'n Things · Mervyns · NetBank · Petters Group Worldwide · Terra Securities (scandal) · Rothstein Rosenfeldt Adler · Sentinel Management Group · Stanford Financial Group · Washington Mutual · Icesave · Kaupthing Singer & Friedlander · Yamato Life · Circuit City · Allco Finance Group · Waterford Wedgwood · Saab Automobile · BearingPoint · Tweeter · Babcock & Brown · Silicon Graphics · Conquest Vacations · General Growth Properties · Chrysler (reorganization) · Thornburg Mortgage · Great Southern Group · General Motors (reorganization) · Eddie Bauer · Nortel · BI-LO (United States) · Arena Football League · DSB Bank · CIT Group · Movie Gallery · Air America Radio · Citadel Broadcasting · Midway Games · Tribune Company · Sun-Times Media Group · FairPoint Communications · R. H. Donnelley Government bailouts and acquisitions Northern Rock (nationalisation) · Bear Stearns · IndyMac Federal Bank · Fannie Mae (takeover) · Freddie Mac (takeover) · AIG · Bradford & Bingley · Fortis · Glitnir · Hypo Real Estate · Dexia · CL Financial · Landsbanki · Kaupthing · Straumur · ING Group · Citigroup · General Motors · Chrysler · Royal Bank of Scotland Group · Bank of America · Anglo Irish Bank (nationalisation) · Parex Bank · Bank of Antigua · ACC Capital Holdings (reorganization) · U.S. Central Credit Union · Bank of Ireland · HBOS · Allied Irish Banks Company acquisitions Ameriquest Mortgage · Countrywide Financial · Bear Stearns · Alliance & Leicester · Merrill Lynch · Washington Mutual · Derbyshire Building Society · Cheshire Building Society · HBOS · Wachovia · Sovereign Bank · Barnsley Building Society · Scarborough Building Society · National City Corp. (details) · Dunfermline Building Society   Other topics Alleged frauds and fraudsters Stanford Financial Group (Allen Stanford) (Laura Pendergest-Holt) · Fairfield Greenwich Group · UBS · Sean FitzPatrick (Anglo Irish Bank) · Kazutsugi Nami (Enten controversy) · Nicholas Cosmo · Arthur Nadel · Paul Greenwood · Stephen Walsh · Angelo Mozilo · Barry Tannenbaum · Raj Rajaratnam (Galleon Group) Proven or admitted frauds and fraudsters Bernard Madoff (Ponzi scheme) (Frank DiPascali) (David G. Friehling) · Satyam Computer Services (accounting scandal) (Ramalinga Raju) · Marc Stuart Dreier · Norman Hsu · Joseph S. Forte · Du Jun · Scott W. Rothstein · Tom Petters Related entities Federal Deposit Insurance Corporation · Federal Reserve System · Federal Housing Administration · Federal Housing Finance Agency · Federal Housing Finance Board · Government National Mortgage Association · Office of Federal Housing Enterprise Oversight · Office of Financial Stability · UK Financial Investments Limited · Federal Home Loan Banks Securities involved and financial markets Auction rate securities · Collateralized debt obligations · Collateralized mortgage obligations · Credit default swaps · Mortgage-backed securities · Secondary mortgage market Related topics Bailout · Bank run · 2009 California college tuition hike protests · Credit crunch · Dot-com bubble · Economic bubble · Financial contagion · Financial crisis · Great Depression · 2008 Greek riots · May 2010 Greek protests · 2009 Icelandic financial crisis protests · Interbank lending market · Jon Stewart's 2009 criticism of CNBC · Liquidity crisis · Capitalism: A Love Story · 2009 May Day protests · 2010 French pension reform strikes · PIIGS · Tea Party protests