Originally Posted by
detroitexport
Paul Krugman gets Spain pretty much nailed down. Part of this started with the Euro. When the Euro came into affect Spain became the cheap country for the rest of Europe. What was already a huge country for tourism became even more so. And, with interest rates at super huge lows, real estate became THE craze. You had Spaniards buying second houses if nothing else but to invest their undeclared pesetas that they would have had to declare with the change to the Euro (in other words, laundering) and you had a lot of the rest of Europe buying up the coast of Spain. But that's still not the biggest part, Spain itself saw this housing boom and turned it into a huge housing bubble. Speculation went crazy and Spaniards went crazy financing 110% of their homes and paying 70% of their monthly income on mortgages. It's important to understand that Spain is a buying housing market. Whereas the UK or Germany might have around 35-50% of homes owned it's around 70% for Spain. So they had this enormous housing bubble that was the only driver fueling the economy. Spain itself is a debtor nation and its businesses even more so, with huge construction companies taking up huge credit to build huge projects. Mix that with the enormous % of the population of the country also taking on more credit than it could handle. I would add cost of living in Spain also grew disproportionately to the rise in average salaries. So when the global crisis hits and the bubble burst, the country was left with tons of temporary jobs and construction jobs that were no longer needed and companies that couldn't pay their debt causing even more unemployment of a workforce that had mortgaged itself to the teeth.
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