The macroeconomic basis of the recent development of the Spanish financial system

The development and modernization of the Spanish financial system in the final quarter of the 20th century and the early years of the 21st has been closely linked to profound changes in the Spanish economy and particularly to how it has operated on the macroeconomic level. From the macroeconomic point of view, the history of this period has been characterized by the difficulties encountered in establishing a stable framework, something that was only successfully achieved with Spain’s joining Economic and Monetary Union (EMU). The last few years have been shaped by the severe international financial crisis, which caught the Spanish economy by surprise at a time when it had already embarked on a process of adjustment to correct imbalances which had built up over the years since membership of Monetary Union. This would represent the biggest perturbation in the country’s post-war economic history, test the solidity of the progress achieved by the financial system, and trigger a radical reorganization of the sector. The aim of this chapter is to elucidate the significant influence that macroeconomic developments have had on the transformation of the financial system over the period and look in detail at the most decisive factors. The first section therefore gives a short introductory overview of the role of macroeconomic stability on the development of financial systems, drawing upon the existing analytic literature.