Cost of Spain’s Housing Bust Could Force a Bailout – NYTimes.com
By any measure, the Spanish real estate boom was one of the headiest ever. Spurred by record-low interest rates, Spaniards piled into holiday villas along the Costa Blanca, gaudy apartments in Madrid and millions of starter homes throughout the country.
But since the frenzy drove Spanish home prices to a peak in 2007, they have fallen by at least one-fourth, and the bottom seems nowhere in sight. As Spain endures its second recession in three years and unemployment nears 25 percent, an increasing number of debt-heavy Spaniards can no longer meet monthly payments on the mortgages that their banks were all too eager to give.
With a rising portion of Spain’s 663 billion euros, or $876 billion, in home mortgages at risk of default, many economists say it is only a matter of time before some of Spain’s biggest banks will need a bailout. And the Spanish government, staggering under its own debt and budget deficit burdens, may not have the money to come to the rescue.
The implications of all this for the rest of Europe were a prime topic at last weekend’s meetings of the International Monetary Fund and the World Bank in Washington. The big fear is that the European Union will need to step in with a Spanish bailout — one much bigger than any of those already extended to Ireland, Greece and Portugal.
“Retail mortgages are set to become the Achilles’ heel of the Spanish banking system,” said Edward Hugh, a Barcelona-based economist and blogger who has closely studied the issue.
Two years ago, when Ireland’s banks succumbed to a real estate bust, the Irish government’s rescue effort eventually forced it to take 80 billion euros from the European Union and I.M.F. Analysts say that a similar rescue for Spain would cost at least 200 billion euros, or $264 billion — nearly double the 110 billion euros given to Greece, whose debt travails had long raised the question of which European economy might be next to require a rescue.
Strange Random Spain Quote:
“Spain: A whale stranded upon the coast of Europe.” – Edmund Burke (British Statesman and Philosopher, 1729-1797)
- The Pain in Spain (ritholtz.com)
- Spain bailout only a matter of time, experts say (business.financialpost.com)
- Will Spain and Italy need bailouts? (business.financialpost.com)
- Analysts see Spanish bank bailouts as inevitable (theglobeandmail.com)
- Spain’s economy ails (examiner.com)
- Rising Interest Rates – Spain Slides Further Into Crisis (freeinternetpress.com)
- Spain lurching further toward bankruptcy (cbsnews.com)
- Why Spain Won’t Regain Market Confidence (economistmeg.com)
Posted on April 25, 2012, in Article and tagged Costa Blanca, Edward Hugh, European Union, Government of Spain, Greece, International Monetary Fund, Spain, World Bank. Bookmark the permalink. Leave a comment.