Hampered by a remarkable collapse of private debt and struggling to sell its public debt on the market, Spain is in an economic free fall
Before I depress you with some really hideous graphs, here's a story about Spain and Germany -- two lovely European countries, both alike in soccer excellence, both shaped like cheese squares with an edge bitten off -- that are going in opposite directions in the aftermath of the Great Recession.
In the boom years of the 2000s, Spain was riding a real estate and construction bubble, and frugal Germany was still recovering from the fizzle-out of its telecom burst while the country grappled with labor reforms that many accused of slowing down the economy. Looking for a hot bet, German banks bought debt off smaller European countries, which had the effect of inflating their housing bubbles. For much of the decade, Spain was growing twice as fast as Germany.
Then the bubble burst. Germans, famously thrifty, had an easier time thriving in a global balance sheet recession. With factories humming and domestic spending low, they exported their way to growth that the developed world could only envy. Meanwhile the Spanish, who built up more private debt than almost any other country, have been an international mascot for debt hangover. Between 2007 and 2011, private sector debt swung 17 percent toward savings in Spain, according to Richard Koo, and the country's unemployment skyrocketed from 8 percent to 20 percent.