7. 2008: Spain in the Eye of the Perfect Storm

A third much smaller bank Banco Popular remained in existence until 2017, when it was intervened and absorbed by Santander.

Of course, Spain was not the only economy where a real estate bubble occurred: the United States, Ireland and the United Kingdom are other cases.

The ratio continued to increase until it reached its peak in June 2010 of 205% of GDP.

“Soft landing” was the expression the incumbent government used between 2004 and 2007 to refer to political measures aimed at diminishing the significance of the real estate sector in the economy.

At least in terms of output loss (Betrán and Pons 2013).

This figure includes mortgages and loans for housing renovation, and loans to construction companies and real estate developers as a percentage of loans to households and firms (Jimeno and Santos 2014: 132).

See Martín-Aceña, Martínez-Ruiz and Pons (2013) for a more complete account of the developments in the banking sector up to 2012.

For example: “The Commission is proposing that, as a matter of urgency, Member States and the EU agree to an immediate budgetary impulse amounting to € 200 billion (1.5% of GDP), to boost demand in full respect of the Stability and Growth Pact”, Communication from the Commission to the European Council, A European Economic Recovery Plan (26/11/2008). “Fiscal policy must play a crucial part in providing short-term support to the global economy”, IMF 2009 WEO April. “Notwithstanding already large deficits and rising public debt in many countries, fiscal stimulus needs to be sustained until the recovery is on a firmer footing and may even need to be amplified or extended beyond current plans if downside risks to growth materialize”, IMF WEO 2009, October.

Some of the organizations present in the concentrations had names like “Youth with no future” or “Real democracy now”.

As Simón Cosano (2019) explains, the economic crisis is not the only possible explanation for the emergence of this movement.

A mutually destructive dynamic began to form whereby the sovereign debt crisis harmed the banks, the main holders of that debt, while the increase in bank fragility threatened a State that could not handle an eventual rescue of the banking sector. Of course, Spain was not the only country trapped in this destructive spiral.

The level of principal capital was set at 8% for entities with more than 20% of capital held by private investors or with little dependence on wholesale financing, and 10% for the rest; that is, for entities with more than 20% of their financing from the wholesale markets and with at least 20% of their capital placed among third parties.

According to the Bank of Spain, the total cost of the interventions in the banking system from 2009 to 2018 was 65,725 million euros. Nota informativa sobre ayudas financieras en el proceso de reestructuración del sistema financiero español, 2009–2018, 20/11/2019.

The so-called redenomination risk was based on the negative self-fulfilling predictions of the possibility of an imminent euro-area break-up.

The circumstances in which a firm’s economic difficulties could justify lower compensation for firing were expanded and the required administrative authorization in the case of collective dismissals was eliminated.

The concept of tariff deficit was introduced in the year 2000, when a law was introduced that prevented electricity tariffs from rising above the rate of inflation. However, it was from 2005 onwards that the deficit grew significantly. The growth in the tariff deficit was the result of the government’s reluctance to increase electricity tariffs in the face of growing system costs due to the strong expansion of subsidized renewable power, expansion of the electricity transmission and distribution networks, and the use of the electricity tariff to fund public policies such as support for coal mines. The tariff deficit problem was further exacerbated by the crisis-related drop in electricity demand after 2008, which meant that revenues had to grow more than the drop in demand to prevent electricity system revenues from falling.

This step was finally taken in 2019 after the EC opened an infringement procedure against Spain for this issue.

Spain will be the oldest country in Europe in 2050 for three reasons. First, Spain has one of the highest life expectancies in the world, both at birth and at age 65. Second, it has one of the lowest fertility rates in industrialized countries. In addition, the ageing process is occurring some time after that in other countries because the baby boomer generations came later and the immigration process of the 2000s led to the rejuvenation of the population.

The intervention of a Spanish bank, Banco Popular, in 2017 was the first time that the SRM acted.