According to the European newspapers in the last couple of days, it has gone and it will need ECB financing.
It goes like this:
Too many properties were built, Spain built more houses that the rest of Europe combined, as with the S & L in the USA, people sell their properties and because prices have dropped they cannot fully repay their mortgage. Many are foreign owners who just walk. Some are Spanish owners with reduced or no incomes so neither group can make up the shortfall. Or they simply walk away when the property values drops below the mortgage value. Many regional savings banks lent money on these properties, and now they default on savers, so the Spanish government puts all these small banks into a few big banks like La Caixa. They then have too many toxic loans, hence the Spanish bank bailout where the ECB funding has to be channelled through the Spanish government, increasing its debt. Borrowing cost rise to above 7%.
Now, linked to this, Spain has twice as many provincial, regional, town and village councils as the average for Europe. They have in the past embarked on their own development programmes – covering utilities and other facilities for the supposedly ever increasing immigration to Spain to fill the houses built. But people are not moving to Spain and some people are leaving. So lower revenues than expected. Additionally mucho corruption and siphoning off of funds, mayors disappearing with billions of euros. For example, there are more 500 euro notes in circulation in Spain than there are in the rest of Europe! Why are they needed, ah, money laundering through property purchases. For example, the government of Valencia built a second airport for 150 million euros, but they could not get one single airline or plane to land there – now they are digging it up. For example, 300,000 houses on the coast have been built illegally without planning permission and now they have to be pulled down. Mismanagement, corruption, no market, lack of government control all play a part here.
So far 6 of the 18 provincial governments have asked central government for bailouts, to get to the size of the problem – these provincial governments take over half of many taxes collected on their behalf by the central government – the latter must help them because otherwise they cannot pay the wages of their employees who will then be sacked and will claim unemployment pay which the central government cannot afford to pay. In many towns in Cadiz the average public sector employee is owed three months wages. Then, also, these provincial governments cannot pay interest on their debts and may default and often the central government guarantees the debt!
This is a potted summary. It happens elsewhere in the world, e.g. New Zealand local authorities have a somewhat similar problem. You could look at any Spanish newspaper website and you will see examples of these factors. Vanguardia, Pais, El Mundo. And there are other major underlying problems such as 25% unemployment, inequalities of wealth, a narrow industrial base………………..
Love it, Germany can sort out everything.
I just received this from British friends on the ground in Spain. They are property owners in Jerez.