Why Everything You Believe About A Spanish Sovereign Debt Crisis Is Wrong

Church Spain

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The Spanish sovereign debt crisis is the one that everyone is afraid of, and now that Portugal is well on its way to a bailout, it’s believed by some that Spain is next in line.From the cajas, to the deficit, to the real estate mess, to the unemployment situation, those speculating Spain is next have their reasons.

But what if all their reasons are dead wrong? That’s the suggestion of LSE economist Albert Marcet.

He breaks down the situation in Spain for WSJ.com as follows:

  • Austerity cuts have been easy for Spain, as they’ve just been rolling back taxes for the most part.
  • Spain cut its debt from 2000-2008, and still has a lower debt to GDP ratio than the U.S., UK, and Portugal

  • Spain is not following the Irish plan for its banking sector, spending little on recapitalizations, and letting bad banks fail

Marcet mentions one Damocles Sword hanging over Spain’s head: high youth unemployment. Because the government has, thus far, been able to muddle through without large protests, the problem doesn’t seem threatening. But if, in advance of the upcoming elections, youths in Spain rally around any political party that offers an austerity alternative, there could be problems for the country’s debt position.

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