Spagna : October 27, 2009

The Spanish economy is suffering from its worst recession in many decades.  In just over 30 years Spain developed from an isolated (almost third-world) nation to become one of the world’s top ten economies.  However, these days of wine and roses may be over – perhaps forever.

The country attributes most of its growth in recent years to massive EU subsidies which fueled both construction and tourism.  Tourists, by the millions, flocked to Spain to relax in the warm sun with many of them purchasing properties along the coast.  With interest rates low and banks willing to extend easy mortgages of up to 50 years, housing prices soared more than doubling in the period from 1998 to 2007.

Of course, as we all now know, the glory days turned gray when the housing bubble finally burst in 2007 leading to the financial collapse in 2008.  As the world economy tanked, significant numbers of tourists stopped coming to Spain, banks stopped lending money and the EU discontinued its subsidies to Spain instead focusing on newer members of the union. In response to our downturn in the economy, the Spanish government had few answers and simply put forth the statement of “Crisis? What Crisis?”  As months passed, foreign investment continued to decline and unemployment and default rates soared.  Currently, the unemployment rate in Spain is close to 20 percent with industrial production declining by 15 percent from just a year ago.

On a positive note the government has finally admitted the country is suffering a very serious recession and has taken steps to stimulate the economy through government spending.  However, in order to cover the cost of its stimulus plans, taxes have been increased thereby adding more harm to consumption levels and industrial activity. 

When comparing the government’s earlier response to the one being provided now, many Spaniards are now pining for the days of “Crisis? What Crisis?”