The 2008–2014 Spanish financial crisis began as part of the world Late-2000s financial crisis and continued as part of the European sovereign debt crisis. In Spain, the crisis was generated by long-term loans, the building market crash, which included the bankruptcy of major companies, and a particularly severe increase in unemployment, which rose to 29.16% by April 2013. - Wikipedia
1. CHALLENGES OF THE SPANISH
ECONOMY
RADHIKA GATTANI
MALAY SHAH
DIVIJ FARSAWANI
TANVEER SEHGAL
VIGNESH PRABHU
2. BIBLIOGRAPHY
The Spanish Financial Crisis
University of Iowa
Problems with the Spanish economy
www.eyeonspain.com
9 Reasons Why Spain Is A Dead Economy Walking
www.theeconomiccollapseblog.com
2008–14 Spanish financial crisis
Wikipedia, the free encyclopedia en.wikipedia.org
Economy of Spain
Wikipedia, the free encyclopedia en.wikipedia.org
5. HISTORY During the
16th century, Spain
became the most
powerful nation in
Europe, due to the
immense wealth derived
from its presence in the
Americas
6. ART Many famous
artists such as Salvador
Dali, Francisco Goya,
Diego Velazquez, and
Pablo Picasso are from
Spain.
7. FUN FACT Every
year the city of Bunol, in
the Valencia region of
Spain, hosts the world's
largest tomato fight, “La
Tomatina”.
8. HISTORY – THE EURO CRISIS & SPANISH ECONOMY
Euro crisis caused because of failure of the Euro
Italy, Ireland, Greece, Portugal, Spain effected severely
European history
Trade Barriers
Tariffs on trade
Wars
World War 2
Devastated the economy
Steal and coal tariffs lifted
9. HISTORY – THE EURO CRISIS & SPANISH ECONOMY
Unified currency
Central bank formed – European Central Bank (ECB)
Uniform monetary policy
Independent fiscal policy
Trade more fluid
Germany’s credit card
Heavy government expenditure
Property bubble
Interdependency
US housing crash chain reaction
“Son, I’ll give you some money, but you better spend it wisely” - GERMANY
10. THE BANKING SYSTEM
• Spanish regional savings and loan banks, called cajas, account for half of
Spain’s banking system.
• 24,000 branches of cajas throughout Spain to serve its 46 million.
• Usually regional politicians control the cajas instead of shareholders.
• Before the crisis, cajas often loaned to those that the larger banks turned away.
• Cajas were relatively unregulated, and they were not required to disclose
certain information such as collateral on loans, repayment history, and loan-to-
value ratios.
• This nondisclosure prevented the Spanish government from understanding cajas’
financial situations before and during most of the crisis.
• The government was also unaware of the depth of cajas’ investment in the real
estate market.
14. THE PROPERTY BUBBLE
HOW DID IT START ?
LOWERED LONG TERM INTEREST RATES.
• In order to keep up with the Maastrichist Treaty’s requirements the Spanish government had to lower down its long
term interest rates :
INCREASED BORROWING CAPACITY
• This encouraged people to invest more in property and housing.
• As a result, the construction market flourished.
RISE IN IMMIGRATION
• Demand for unskilled labour increased which led to an increase in immigration.
Treaty required to join the
European union
15. THE PROPERTY BUBBLE
The HOUSING MARKET CRASHED IN 2009
Debtors fell into BANKRUPTCY AND BAD LOANS dramatically increased.
The cajas were paralyzed by a lack of income from these delinquent loans.
Loan exposure in the Spanish banking system in the real estate market - €180.8 billion
in mid-2010.
Spanish banks were only capable of handling losses of only a third of that amount.
The cajas could handle much less.
16. THE PROPERTY BUBBLE
2009 - construction industry owed billions to Spanish banking system.
Many construction companies - bankrupt.
Regular listed banks delinquent loans including construction loans of 3.2 % of their portfolios,
cajas delinquent loans 4.4 %
March 2009 - Spanish government - first bailout of a caja.
Investors saw this first bailout as an indicator of the unhealthy status of the Spanish financial
sector as a whole.
INVESTOR CONFIDENCE BANK SHARES
Banks needed more cash to pay the depositors who lined up to extract their deposits.
First four months of 2010, depositors withdrew €21.6 billon. This caused more bank bailouts
by the Spanish government. Government bailouts kept the banks from going bankrupt, investor
confidence in the Spanish economy sunk even lower.
18. PRICES
Initially the lack of resources led Spain to import more thereby increasing the
prices.
Inflation rates reached an all time high of 5%.
The second half of 2008 witnessed a steep decrease in oil prices and the property
bubble which together led to lowest inflation rate in 40 years.
By 2010 :
GDP Employment Buying Capacity Inflation
20. HOW DID CONSTRUCTION EMPLOYMENT RISE ?
Rate of interest
Demand for Houses
Construction of Houses
Employment
Construction employment went up in such a manner that it constituted to 13% of
Spain’s total employment.
21. HOW DID CONSTRUCTION EMPLOYMENT FALL ?
After the rapid rise in employment, during the construction period in 2007
the prices rose and hence, the demand for houses went down.
Construction came to a standstill steep fall in employment (construction
sector).
As unemployment skyrocketed, so did unemployment benefits. In Spain,
unemployment benefits are generous.
Spanish government’s tax revenue went down since it was heavily
dependent on real estate.
These drains on the economy turned a previous budget surplus of over 2
percent of GDP into a deficit of almost 4 percent of GDP.
23. DECLINE IN TOURISM
US and other
western countries
were feeling the
heat of the
financial crisis
Decrease in their
disposable incomes
Tourists can’t vacation in
relatively expensive
countries like Spain
(Affordable Turkey – Spain’s
tourism rival)
-13% tourism
growth in coastal
Spain
Adverse
effects on the
Spanish
economy.
24. CURRENT STATISTICS – SPAIN
I. GDP $1.349 trillion (2011)
II. GDP growth -0.1% (2013)
III. GDP per capita $29,195 (nominal) (cia)
IV. Labour force 22.9 million (December 2012)
V. Unemployment 26.83%(4,890,7928 people) (May 2013)
VI. Average net salary $24,293.98 yearly (INR 30,230)
VII. Ease of doing business rank 44th
VIII. Public debt 86.0% of GDP (2012 est.)
IX. Revenues $515.8 billion (2010 est.)
X. Expenses $648.6 billion (2010 est.)
XI. Foreign reserves $34.375 billion (April 2011)
25. CONCLUSION
The Spanish government and the EU are working hard to ensure its recovery and
stability.
Spain found itself in a unique situation because of its real estate market and the
actions of the cajas.
While the Spanish government perhaps should have acted sooner,
it is acting now and making necessary changes to bring about
recovery.
Spain still may not see increases in employment or growth for many
months, but Spain’s important position within the Eurozone and the
resiliency of its government and people suggest that Spain will
survive this financial downturn and will hopefully learn from its
mistakes.
