Spain can face the fate of Greece

According to the latest data on the status of the Spanish economy the country's GDP declined by 0.3% in Q4 2011. The unemployment rate in Spain is seen as the highest in Europe: almost 25 percent of working population of the country are unable to find work. The end of December last year showed 5.3 million people officially unemployed. Such level of unemployment could trigger social collapse and lead to mass protests.

The crisis in Spain is similar to the global financial crisis which was the result of the bursting real estate bubble. Property prices fell sharply with an immediate negative impact on the construction business and the banks that were caught in a payday loan trap. This is not surprising.

The main principle of the Spanish economy was based on growth of property prices. Banks offered secured loans with low interest rates against the security of property. That resulted in the housing construction boom. However, the debt crisis in Europe made its own adjustments. Demand for properties decreased sharply, property prices came down, and real estate market collapsed.

Small and medium-sized banks, credit portfolios of which were secured by the Spanish real estate, suffered the most. Today only the largest banks are able to cope with such a collapse, which will inevitably lead to a change in the banking system. The total banking assets of the country have come to 1.543 trillion euros, with about 350 billion euros fall to loans of real estate market; more than 50 percent of these loans are recognized as problematic. And figures are to further growth.

The situation has been worsened by the fact that private investors as well as companies withdrew billions of euros over the last several months, exceeding the 10% acceptable limit. Moreover, the Spanish banks’ deposits at ECB have topped the record.

Thus the crisis of one of the major sector of Spanish economy has led to massive cuts and high unemployment rate in Spain.