“Greece set off the crisis rattling the euro zone. Spain could determine whether the 16-nation currency stands or falls” writes Wall Street Journal’s Stephen Fidler.
“The euro zone’s No. 4 economy, Spain has an unemployment rate of 19%, a deflating housing bubble, big debts and a gaping budget deficit. Its gross domestic product contracted 3.6 % in 2009 and is expected to shrink again this year, leaving Spain in its deepest and longest recession in a half-century.”
Punch line:
“The problem is that, thanks largely to its membership in the euro, Spain lacks tried-and-true means to heal its economy”, or rather, I would say, to absorb the shock of the world crisis.
The journalist, however, seems to believe that the previous years of prosperity were due to the euro, while it was mostly a case of catching up, by a latecomer, of the other European countries level of living. The euro indeed played a role, because the local inflation, much higher than the EU average and higher than the ECB interest rates, made real interest rates negative, thus fueling the housing bubble and excessive real estate activity.
A classical case of applied “austrian theory” over-investment, in ultimately non profitable ventures, and an example of the inadequacy of a "one size-fits-all" monetary policy.
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