Concerns about Spain

More federalistic than you might think, indeed more like the EU than you might think:

Another concern is that the central government’s cost-cutting zeal might not be matched by regional and local authorities, which accounted for 57 percent of public spending last year.

The full story is here.


As in Ireland, in Spain it's the banking system and the real estate blow out.

What is interesting in all of this is that Ireland and Spain share a common currency, and the European Central Bank manages the money supply. If it were the ECB's monetary policy which caused the problem, then you would expect to see the same problem, say, in Germany or other EU countries with their banks and real estate exposure.

So, the, the difference is: differet bank regulation and support for real estate development in different countries across the EU.

Common currency. Differential regulation.

It looks like state regulation matters.

Andy, That proves my point. German banks and their regulator determined the characteristics of leverage and oversight in their jurisdiction. No one is saying German banks are failing.

What are the regulatory differences between jurisdictions sharing a common currency.

In addition to regulatory oversight, local banking authorities and the law of the jurisdiction determine rights of debtors, whether there can be recourse or non recourse loans, levels of downpayment minimums (in some circumstances) and disclosure, foreclosure rules, leverage ratios, minimum downpaymentetc.

The fact that a German bank holds paper originated in the Ireland or holds bonds of the Irish bank, for example, or other paper of a foreign bank is not the same effect as an Irish bank which holds a much larger amount of such paper or mortgages.

So, even if you have a common currency, regulation determines the upper bounds of risk to those who hold the paper.

Regulation matters. Not just the money supply.

Miquel, We're talking about bank regulation and supervision, and regulated banking practices as being different across jurisdictions with the same monetary policy. Do you have any knowledge of differential banking regulations, differences in permissable mortgage terms, minimum required downpayments, ability to issue non-recourse or recourse loans, disclosure requirements, etc.

I can certainly see your argument if that were a cause here, but guess (although I don't know for sure) that policies listed above would more likely have an effect, although I could go to IMF data and check differential inflation rates across these jurisdictions, I haven't heard that one as an argument. Could be wrong. It's a question of fact.

What I hear is that banks overextended to real estate developers and contractors, and to homeowners. Why some banks did that and others did not, or why some jurisdictions had unmanageable bubbles with the same currency but with different regulation interests me. How do German lending practices differ from French, or Spanish on mortgages? On bank leverage and capital ratios?

Jsk, Ok, I accept that thare may be population growth and housing stock differences, but I doubt this explains the overcapacity and bust. Did the population with sufficient assets to buy a house suddenly increase in Spain and Ireland?

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