Financial Crisis In Spain

The Financial Crisis in Spain

CONTENTS INDEX

Introduction 3

The Years that Preceded the Crisis in Spain 3

Bursting the Bubble: U.S.A and the fall of Lehman Brothers: 2007-2008 6

The Debt Crisis in Europe 9

The Case Of Spain 17

CONCLUSIONS 21

BIBLIOGRAPHY 21

Introduction

For over a decade, and since 1994, following the First Gulf War, not only Spain but thewhole world, had experienced one of the most prosperous periods in history with GDP indicators rising at surprising rates in industrialised countries and incredible rates in the so-called “developing countries” . During this period, price stability was the general rule and levels of employment neared full employment in some countries. Nevertheless, a series of events that will be closely analysed,led to a halt in this expansive period and a global stagnation or even recession started in what has been called the Global Financial Crisis.
The terrible situation that the Spanish economy has been suffering for over 5 years now, in spite of its many particularities, cannot be separated from the Global Financial Crisis that triggered in 2008 in the United States or the Debt Crisis that theEuro-zone is yet trying to surpass. However, we are sadly witnessing how other economies that surround us have much more effectively dodged the negative consequences of the global recession and economical disturbance. Why did this happen?
Many experts have seen in macroeconomic and financial imbalances and disequilibriums accumulated during the high-growth phase a weakness that made Spain speciallyvulnerable to shakes in the global markets. The explosion of the International Financial Crisis resulted in a fast-paced change in conditions that the Spanish economy could not absorb and led to a rushed adjustment of previous excesses in the housing sector. Furthermore, the Spanish banking system, that had been described as one of the most solid systems in the world by the former President, hadreached an extremely high level of exposure to this sector.  
On the other hand, we must ask ourselves about the implications of being part of the European Union and more specifically of the European Monetary Union. Complying with some of the stability requirements that the EU legal system and Brussels demand, together with the limited use of monetary policies that this system leaves forindividual countries could be burdening our growth rate and therefore our escape from this crisis.
In this composition we will try to analyze as closely as possible the years that preceded the crisis both in our country and in the United States together with the implications and consequences of the decisions made then and the measures (or not measures in some cases) taken since 2008 in order to put anend to the critical situation. We will also closely take a look at the particularities of our own economy (and political system) that have resulted in the current situation from an unbiased point of view.
 

The Years that Preceded the Crisis in Spain

The Economic Expansion of the 1990’s and Early 2000’s
In line with the global economic situation, between 1994 and 2008 the Spanish GrossDomestic Product (GDP) boomed. The Spanish economy grew uninterruptedly in this period even at a faster rate than most industrialised countries
Nevertheless this came motivated by the housing sector as we will later explain.
Little or no money out of this increase in GDP was invested in high value-added industries, developing industries or research and investigation resulting in what has beencalled “poor quality of the Spanish GDP”
Spanish GDP 1994-2012 Source: World Bank Data

The 1998 “Ley de Suelo”
Some experts have made reference to the “Ley 6/1998, de 13 de abril, sobre régimen de suelo y valoraciones” as a strong cause of the crisis in our country. This law’s functioning was...