Driven by a Real Estate price bubble and the lack of Monetary Policy, the Spanish Economy has suffered from the credith crunch one of the biggest recession in its history. Banking bailouts and savings banks resstructure and other government policies have stabilized the economy, but a strong dependance on a low interest rate can lead Spain to another crisis in 2019 if the European Central Bank follows as always the american trend of rising interest in a crowling manner by 2%. If you are in the brick industry again, and in Spain and have mortgage, start thinking now again about switching industry like I am doing and focusing on International business and exports. I hope to enlighten with this group project from the Darla Moore School of Business, at the top #1 International Business School of the USA, a broader point of view on global financial impacts of capital markets.

1. The Impact of International Financial
Crisis 2008 on Spain
Presentation by:
Ø Puneet Kaur
Ø John Black
Ø Tze Chiao
Ø Veronica Parellada
Ø Pavel Korobov

2. ABOUT SPAIN
Economy
• Population: 48.9 Million
• Unemployment: 14%
• GDP(PPP): $1.77 trillion
• GDP growth Rate: 3.1%
Political
• Government: Constitutional Monarchy
• Legal System: Civil law
• President: Pedro Sánchez
Culture
• Official Language: Castilian Spanish
• Religion: 99% Roman Catholic

3. CAUSES OF THE CRISIS

4. MONETARY PRICING DEPENDED ON EUROPEAN
CENTRAL BANK, NOT SPAIN
• As a member of the Eurozone, Spain’s
monetary policy is decided by the
European Central Bank. As such, the
interest rates leading up to the crisis
were decided by the ECB, not Spain.
• The global liberalization of the financial
markets during the end for the 20th
century led to faster movement of
capitals between countries.
Source: Political Geography Now website

5. EURO INTERBANK OFFERED RATE (EURIBOR) INCREASED,
FOLLOWING THE INCREASE OF RATES OF THE FED RESERVE
• Former US Fed. Reserve Chairman Alan Greenspan’s
adopted low interest rates, as part of his free market
policy. This led to over-lending in the US economy, which
led the ECB to lower IR to compete in European markets.
• When the rates increased first in the Fed Reserve, so
followed the ECB and people and companies started to
default mortgages and there was a credit crunch.
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
3,069 3,949 4,574 3,483 2,705 2,216 2,312 2,833 4,064 4,498 2,622
Source: Datosmacro.com

6. EVOLUTION OF SPANISH REAL ESTATE MARKET
BUBBLE
• The Real Estate market bubble grew.
• It happened because there were weak
regulations, and money was cheap to lend.
Price per square meter evolution in euros (1985-2012)

7. THE COMMERCIAL AND SAVINGS BANKS WERE TOO WEAK,
AND BOTH OF THESE SYSTEMS LENT TOO MUCH
• Unlisted, regionally-based savings banks,
known as cajas, accounted for around half
the loans of the domestic banking system.
• The removal of restrictions in 1989
enabled the cajas to expand around
Spain. By 2008, there were 25,035, while
there were 15,617 commercial banks that
same year.
• This means that there was about one
branch for every 1,000 Spaniards -- twice
the density of all other Eurozone countries.

8. EVOLUTION OF NUMBER OF MORTGAGES APPROVED
IN SPAIN DURING PERIOD 2005-2017
• Mortgages started to decline even before the
interest rates rose, due to an extenuation of
the rising real estate market prices above the
purchase power possibility of the clients.
• This lead the banking system to lend the
“cheap” and abundant money in the
economy to every time less capable of
mortgage house buyers.
• This period is referred to as La Burbuja
Inmobiliaria (The Real Estate Bubble) in
Spain.
Source: Statista.com

9. IMMEDIATE IMPACT OF 2008
CRISIS ON SPAIN

10. TREMENDOUS
DECLINE IN
REAL GDP
(OECD DATA)

11. UNEMPLOYMENT
EVOLUTION
Source: Statista 2018, Worldbank

12. SECTORAL
IMPACT
Source: Idescat - Catalan Institution of Statistics 2018
There was a huge impact on the Construction sector during the crisis.

13. SHORT TERM AND MEDIUM
TERM POLICY RESPONSES

14. POLICIES
• Increase in Income Tax
• Increase in VAT in 2010 and 2012,
16% to 21%
• Wealth tax imposed in 2011
• Increased public spending from 2008
to 2009
• Increase in the government revenue
in the Short Term
• Strikes in the Short term
• Another tax reform to make the
system more fair for the poor
OUTCOMES
Short
Term
• Reduction in Spending on public
services (2010-2013),
• 2015 Stability Programme: 44% GDP
in 2014 to 38.4% GDP in 2018
• Decrease in the wages of public
employees
• Decrease in the number of
departments in offices
• Strikes and protests
Medium
Term

18. • Golden Visa
Non-EU habitant could obtain Spanish
citizenship in return for an investment in
Spanish real-estate property
• Spanish Tax Amnesty 2012
(cancelled)
• Increase in Foreign Direct
Investment
• Increase in immigration
• Returning black money to the
Spanish System.
POLICIES OUTCOMES

19. • Lowered Interest Rates by the EU • People could afford their mortgages
• It boosted investment again in Spain
• People could start/ run their
businesses again.
• Unemployment declined
SOURCES: Eurostat, INE and Banco de España.SOURCES: IMF and Banco de España.
POLICIES OUTCOMES

20. STRUCTURAL FISCAL REFORMS
Constitutional Reform: Cap on budget deficit
• Commission on the Reform of Public Administrations (CORA)
• Administrative Duplication, Administrative Simplification, Service Delivery and Shared
Services, Institutional Administration
Pension System Reforms
• 2011 Legal Retirement Age 65 to 67
• 2014 Sustainability Factor and Revaluation Index
AIReF Independent Fiscal Responsibility Authority

21. BANKING SECTOR
REFORMS
InstitutionsandMeasures In 2009, FROB (Fund for Orderly Bank
Restructuring), a new institution for bank
restructuring was created.
To strengthen the solvency of banks by providing
funds to facilitate processes of structuring
To help entities in finding solutions for specific
difficulties, thus minimizing the use of public
resources
In 2010, Stress tests and the exercise of
information transparency introduced- to improve
investor confidence in Spanish banking and to
increase financial transparency.
The regulation on provisions was tightened and the
reform of Savings Bank Law was approved

22. BANK RESTRUCTURING
MODEL: BANK BAILOUT
SYSTEM
• Fund for Orderly Bank Restructuring
• European Stability Mechanism (ESM) 2012 €41.5
billion
• Bank bailout: Government provided the capital that was
“strictly necessary” to clean up the lender by converting
its 4.5 billion euros ($5.8 billion) of preferred shares into
voting shares, obtaining controlling stake of 45 percent
in Bank
• Banks wanted injections of 19 billion euros from the
FROB
• Credit institution equity reinforcement and orderly
restructuring of credit entities with the aim of resuming
the normal furnishing of credit to companies and
households
• Viable and non-viable entities
• Consolidation → Solvency Improvement → Clean up
Balance Sheets
Objectives of
Spanish Banking
System Reforms
Reorganization
Recognition of
losses
Capitalization

23. LABOR MARKET REFORMS
In 2010, Government took various reforms
regarding:
1. Hiring Formulas:
• The promotion of indefinite hiring
• The extension of workers that can be hired
• The introduction of new limits on temporary
hiring
• Extension of group of workers that can benefit
from traineeships and apprenticeships.
2. Working conditions were modified
3. Changing established conditions with the
employer was only allowed through a private
agreement between employer and employee.
4. The laws include a commitment for reforming
collective bargaining agreement with the social
agent.
Objectives of Labor Market
Reforms
Reduction of duality and
wage rigidity
Promotion of internal
flexibility within firms
SOURCE: Eurostat, INE and Banco de España.

24. SPAIN’S
INCREASE IN
EXPORTS
• Spain needed to become more
competitive in world market place
but they could not change the
interest rates or devalue their
currency because of the existing
turmoil.
• The other option was to decrease
the labor costs, which would lead
to exporters to reduce their prices.
• There was an emphasis on
exporting.
Source: World Development Indicators

25. CURRENT SITUATION OF SPAIN

26. • Real Estate:
Boosted by strong economic growth;
close to 465,000 property sales or
purchases were recorded in 2017
• GDP:
Spain GDP and its rates are recovering
after crisis
• Interest rate:
Spain interest rates went significantly
down after the crisis and now it is 1.37
• Unemployment:
After 2008 it was growing, after 2013
falling and now it makes 14.55

27. SOURCES AND REFERENCES
• THE 2012 LABOUR MARKET REFORM IN SPAIN: A PRELIMINARY ASSESSMENT. (2013). OECD.
• Pérez, F. M. (2016). SPANISH PUBLIC FINANCES THROUGH THE FINANCIAL CRISIS. BANCODEESPANA.
• Wagner, D. (2014). The Spanish Export Led Recovery. University ov Virginia.
• 17/341, I. C. (2017). SPAIN- FINANCIAL SECTOR ASSESSMENT PROGRAM. IMF.
• Pombo, G.-A. &. (2012). Spanish Tax Alert.
• Researchgate: “Causes and Consequences of the Spanish Economic Crisis: Why the Recovery is Taken so Long?”
https://www.researchgate.net/publication/227639627_Causes_and_Consequences_of_the_Spanish_Economic_Crisis_Why_the_Recovery_is_Tak
en_so_Long
• Picture: https://worldpolicy.org/2010/03/23/the-pain-in-spain/
• Spain economic crisis – Spanish bank needs propping up – Bankia cartoon http://www.chrismadden.co.uk/cartoon-gallery/page/13/
• The Local: “Spain's property market just recovered to pre-crisis levels”
https://www.thelocal.es/20180220/spains-property-market-just-recovered-to-pre-crisis-levels
• Countryeconomy.com: https://countryeconomy.com/gdp/spain
• Ceicdata.com: https://www.ceicdata.com/en/indicator/spain/long-term-interest-rate
• TradingEconomics.com: https://tradingeconomics.com/spain/unemployment-rate
• Picture: http://www.chinadaily.com.cn/a/201801/29/WS5a6e5f40a3106e7dcc1373ab.html

28. SOURCES AND REFERENCES
• Idescat- Catalan Institution of Statistics 2018, in thousands https://www.idescat.cat/indicadors/
• https://www.saintsavinenglish.com/5217/construction-cartoon-images-24-08-2018/free-construction-cartoon-images-barricade-stock-vector-
illustration-of/
• Accessed from Report on the Financial and Banking Crisis in Spain 2008-2014, p. 85
• https://www.bde.es/f/webbde/Secciones/Publicaciones/OtrasPublicaciones/Fich/InformeCrisis_Cap2_en.pdf
• http://www.realinstitutoelcano.org/wps/portal/rielcano_en/contenido?WCM_GLOBAL_CONTEXT=/elcano/elcano_in/zonas_in/international+econom
y/ari11-2014-chislett-spain-banking-crisis-light-in-the-tunnel
• Golden Visa Image: https://www.sun-lawyers.com/golden-visa-spain/
• CIA World Factbook
• Statista: https://es.statista.com/estadisticas/533881/hipotecas-concedidas-por-los-bancos-en-espana/
• OECD Economic Outlook: Statistics and Projections comparison Spain OECD. https://data.oecd.org/gdp/real-gdp-forecast.htm#indicator-chart
• Statista 2018, Worldbank https://www.statista.com/statistics/263706/unemployment-rate-in-spain/
• https://www.statista.com/statistics/263706/unemployment-rate-in-spain
• Picture: https://www.123rf.com/photo_69194481_stock-vector-toreador-with-the-bull-spanish-bullfighting-vector-illustration-isolated-on-white-
background-.html

29. THANK YOU FOR YOUR ATTENTION