Will Spain Default?

With the glory days of Spain's rapid economic boom of the mid-nineties long since passed, the new prime-minister Mariano Rajoy, in office since December, is currently faced with three major problems afflicting the country: high unemployment, budget deficits, and excessive weakness of the banking system. In 2011, the Spanish budget deficit was 8%, less than 5 percentage points above the 3% target set by the European Union agreements. The government intends to cut the deficit to 5.3% in 2012. In order to achieve this, it announced extraordinary measures through spending cuts (which would be the most consistent voice), new taxes (taxes on the house), one-off interventions (such as the amnesty on the emergence of capital), and the fight against tax evasion. But the IMF is perplexed. According to the Institution, in 2013, Spain will only be able to lower the deficit down to 5.7%, hence the pressure that the European institutions and rating agencies are putting on Madrid. Unemployment in Spain has reached the record level in Europe at a rate of 24.4% , desperate circumstances to the extent of social revolt. In 2007, however, the unemployment rate was only 8.3%. The difference between the areas of the country, with the Basque Country about 14% and Andalusia and the Canary exceeding 30%, is remarkable. The situation of the banking system is particularly concerning, mostly because the first and the third largest bank in Europe by market capitalization are Spanish, Santander and BBVA respectively. They are giants in that, if touched by a crisis, it would create significant financial problems throughout Europe. The collapse of the housing market, which began in 2009, is continuing even today. In the last quarter of 2011, the prices dropped by 11.2% over the previous year. In 2011, about 361,000 homes were sold, almost half compared to 2007. The banks are still exposed for about 450 billion euros in real estate, with values, ​​as seen, in the downhill and a situation that certainly will not improve in 2012. This, coupled with soaring bad loans equal to 8.15% of total loans (after having been 3.37% at the end of 2008) is making a necessary recapitalization, as well as the need for further aggregations. In this respect, the Spanish Central Bank has calculated 29 billion the amount that banks must set aside and an additional 15.5 billion in funds to be collected. Large indicators on the liquidity needs of the banking system is the increased funding that the Spanish banks have asked the Central Bank, exceeding 152 billion (in April 2011 the amount of bank debt to the Iberian ECB was 42 billion euros). We are facing a possible Greece? I think not because Spain is still the tenth-largest world economy. We do not forget that it is the first foreign investor in South American countries, some of which are experiencing a good economic season. Moreover, the expansion of Spanish companies in the world involved in many economic sectors, from technology and oil to tourism (hotel chains). It's such a well-structured and diversified economy, but has suffered more than others the real estate and financial crisis of the world. The biggest weakness is the level of employment. Despite an announced reform of the labor market among the warhorses of the neo-premier Rajoy, 5 million unemployed people is far too many for an industrialized economy and does not provide encouraging prospects for economic recovery. Unlike Italy, Spain cannot rely on a vibrant network of small and medium enterprises and this makes the situation objectively more complicated.