Diego Galan

2014400062

2-E

Written Report: Spain’s Economic Crisis

The root cause of Spain’s economic crisis all started in 1998 when the Prime Minister of Spain promulgated a new act urbanizing hectars and hectars of rural land all over the country. His dream was to urbanize all the rural areas of Spain and convert them into housing and industrial areas. By the end of 2002, the construction industry boomed bringing in a lot of advantages for Spain’s economy. Unemployment was below 10%, The GDP was at its highest in the last decade and Spain was declared the most developed country among its neighbors, France, Italy and Portugal. By the end of 2003, Spain had attracted numerous foreign investors and the real estate industry was blooming.

By that time, the dream of the Prime Minister had already been realized. The real estate industry was booming, foreign investors were coming in and most importantly, there were thousands of houses readily available for locals to buy at a very cheap price. The term “El sueño Español” or the Spanish dream was then coined. Study and work hard and you can buy a house at 25 since real estate had very affordable prices.

The Spanish banks took advantage of this situation by making very attractive house loan offers to the public. Their motto was, loan now with little interest rate because the price real estate never goes down. Subsequently, thousands of Spaniards took advantage of this offer because it was apparent at that time that the industry was at its peak.

This all unfortunately went downhill during the American Economic Crisis in 2008. A drastic domino effect caused Spain’s Economy to crumble. American Banks closed which affected the world economy. Foreign investors suddenly withdrew substantial amounts of money from Spain. Spanish banks suddenly refused to issue loans and raised interest rates. Spanish businesses suffered because of high inflation and unemployment skyrocketed. In the end of it all, Spain Economy was left with millions of euros of debt due to banks issuing loans which cannot be paid for now because of lack of forecasting.