The Harsh Reality of the Spanish Debt Crisis - Thriving Tools

The Spanish debt crisis hitting Spain is the result of a number of factors and may end up causing a lot of problems for all of the countries in the Eurozone.

Spain is the fourth largest economy in the Eurozone so any problems that they face economically will be that much greater. Recently there has been some talk about Spain leaving the Eurozone although many analysts don?t see this as a solution to the problems Spain is facing.

Causes of the Spanish Debt Crisis

Spain was doing well economically until its housing market crashed in 2008. House prices had risen by almost two hundred per cent in ten years and when the bubble burst, banks were left in a precarious position. ?In fact, one of the Spain?s banks, Bankia, ended up being nationalized and needed over ?19 billion to cover its losses from failed mortgages. In addition to this amount, the government also gave ?34 billion to the banks to help cover their losses.

A number of the smaller banks were forced to merge or receive help from some of the larger banks. There is now fifteen per cent fewer bank branches and eleven per cent of the jobs in the banking sector have been lost.

High rates of unemployment also had an effect on the Spanish debt crisis and investor confidence levels. The unemployment rate is over twenty four per cent which is double the Eurozone average and for people under twenty five years of age, the unemployment rate is over fifty per cent.

An increase in public spending and the higher cost of borrowing money also had a big impact. Investors expressed concern about investing in Spain and as a result demanded higher interest rates to take the risk. The credit rating has also been dropped a number of times which has made it even more expensive to borrow money and had a negative impact on the economy.

Spain?s Steps to Deal with the Spanish Debt Crisis

Spain has started to take a number of steps to deal with the financial crisis designed to increase revenue and decrease the debt. The Spanish government is planning on raising the national sales tax as well as increase taxes on items such as tobacco, alcohol and fuel. The government has already raised income and property taxes to help deal with the debt crisis.

In addition to raising taxes, the government has also put in place a number of spending cuts to help trim the deficit. Spending cuts, wage freezes and corporate taxes are estimated to save Spain more than ?27 billion. This will help to drop the budget deficit to 5.3 per cent of GDP in 2012 instead of the 8.5 per cent of GDP that it was in 2011.

One controversial law put in place by the Spanish government to deal with the Spanish debt crisis allows banks to refuse to give people their money. Even people with instant access bank accounts can be refused access to their money by the banks. The government put these rules in place in order to protect the banks from any possible runs on the bank. The banks can block withdrawals for up to two years according to one source.? Many people have expressed concern about this new law and they worry about the safety of their money.

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Source: http://www.thrivingtools.com/world-news/the-harsh-reality-of-the-spanish-debt-crisis/

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