The Spanish Case: The Housing Market Bubble and External Disequilibria

The chapter recalls the major issues at stake in the Spanish economy since 1996, a time when financial markets started to discount the Spanish entry into the Eurozone. We start with a brief analysis of the most recent economic developments, and the current macroeconomic imbalances. As of 2007, the Spanish economy underwent its worst period in recent history, since the Stabilisation Plan was implemented in 1959. When 2008 came, however, what was most worrying was the sense of disarray that the Government projected: it simply took measures against the global financial crisis, as though this were the major, and indeed, the only crisis to cope with. Nevertheless, what affected the Spanish economy in 2008 was a deterioration in the country's productive capacity; the nation became poorer, and we should have reacted to this at the time. What Spain faced in 2008 was a domestic crisis rather than a macroeconomic shock, even though citizens had yet to feel the full painful impact of the macroeconomic adjustments that followed. Inaction translated into major macroeconomic imbalances: the trade deficit was huge, there were sectors that were overdimensioned and undercapitalised (housing, banking) and there was a glaring need of structural reforms in sectors such as banking, healthcare and the labour market, and in fiscal and budgetary policies.