Spanish Economy Hits The Rocks

Spain has been one of Euroland's great success stories. A country that struggled for years after it had been left an economic basket-case following the Franco era was revived, largely with the aid of EU money and policies. There has though been something of the unreal about Spain's economic advances during the last ten years or so. A construction boom has led, among other things, to a substantial increase in home ownership whereas before the norm was to rent. But this has come at a price. The Spanish consumer is one of the most indebted in Europe, and many of the Spanish building companies are similarly indebted. Some have gone to the wall, others are finding it difficult to get financing as the banks retrench. The general word now about the economy is stagflation - stagnant growth combined with inflation. The policies of the European Central Bank, in other words interest-rate rises, have hit mortgages but have failed to hold back inflation.

The Zapatero administration, two days now from seeing whether it will retain power,  has been largely toothless in face of the credit-squeeze and ECB assaults, the economy is essentially a plaything of influences beyond Madrid. Spain's economy has grown fat on the back of EU beneficence, but, as Bronwen Maddox points out in today's "The Times", the pot of Euro money has shrunk from the days when Spain could transform itself with money from rich neighbours. Moreover, that pot has other, new basket-cases to contend with, such as Romania.

There is a real fear that the Spanish housing market will collapse. In one sense, this might be no bad thing as prices could become more realistic, but such a situation would add to the woes of the already overstretched consumer and homeowner. Maddox concludes that whoever wins the election on Sunday "could face something much worse" than is already the state of the economy. There's trouble ahead.

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