Economic Crisis in Spain

1. Summary of Article

A recent article from the internet in The Washington Post, had reported on the “Spain’s unemployment rate hits record of 24.6 percent in the second quarter and almost 5.7 million of people are jobless” (Cited http://www.washingtonpost.com/business/spain-unemployment-edges-up-to-246-percent-in-second-quarter-57-million-people-out-of%20work/2012/07/27/gJQAwXveDX_story.html. 27 July 2012).

It is said that the Spain Government is facing financial problems and is in loan of $123 billion to save its’ banks. The situation was resulted after the bad investment and property sector collapsed in year 2008. The Spain is trying to avoid bailout as it tries to convince the investors that it can manage its finance so as to gain confidence of the investors. Spain’s regional Governments are also in financial problems and many semi-autonomous regions are heavily in debt; they can’t even raise money for their own market. However, the European leaders had promised to help Spain by setting European Banking Authority that give rescue loans directly to banks but it will take months or even years.

This crisis and the reforms and austerity measures that the Spain Government had introduced, led to many workers protesting daily on the street showing their unhappiness. Today, the increase in unemployment in Spain had hits its record and there is an increase of unemployment especially for age that falls under 25 years old which result in youth unemployment. (Refer to Appendix A).

2. Economic Crisis in Spain

The cause of the economic crisis is due to the excessive borrowing by the ill-disciplined Government. The Government actually borrows money from the banks to deal with the effects of the property collapse, recession and the increase of the unemployment. As the property collapsed, many borrowers are unable to react and lead to huge debt on their assets. The recession break out, result in borrowers struggled to make repayments to the bank and caused bank’s loss on loans. Hence, the banks need to borrow money from the international market to lend it to developers and home buyers. With the unstable and weak market, investors became more reluctant to invest and Spain’s economy further declined. Spain has to turn to emergency funding from its eurozone partners for assistance. Spain had begun to restructure its banking sector by merging small banks together or some rescued by larger banks. The closed down of the small banks resulted in a decrease in job employment in the industry.

2.1 Unemployment

Spain’s low interest loan had encouraged more developers to build more housing and buildings. People tend to purchase bigger house as they could afford in low cost borrowing activities. When the real estate broke out, the Government who is dependent on the tax revenue of the property are badly affected.