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El blog de Maria

Your daily Spanish Law reporter. Have it with a cafe con leche.

Legal tip 540. Euro-fallacy and Spain´s current situation
26 May 2011 @ 12:35

I think of Paul de Grauwe´s statements made in 1998 and wonder what he thinks of current situation of Spain. I guess he thinks that Europeans need to complete the Spanish dream, as it is not a dream we spaniards had alone. 

We dreamt together, let´s work together for it to be completed:

This is a very telling paragraph of De Grauwe´s thinking, written, as you know, back in 1998, before everything started:

Suppose a country, which we arbitrarily call Spain, experiences a boom which is stronger than in the rest of the euro-area. As a result of the boom, output and prices grow faster in Spain than in the other euro-countries. This also leads to a real estate boom and a general asset inflation in Spain. Since the ECB looks at euro-wide data, it cannot do anything to restrain the booming conditions in Spain. In fact the existence of a monetary union is likely to intensify the asset inflation in Spain. Unhindered by exchange risk vast amounts of capital are attracted from the rest of the euro-area. Spanish banks that still dominate the Spanish markets, are pulled into the game and increase their lending. They are driven by the high rates of return produced by ever increasing Spanish asset prices, and by the fact that in a monetary union, they can borrow funds at the same interest rate as banks in Germany, France etc. After the boom comes the bust. Asset prices collapse, creating a crisis in the Spanish banking system.

What do you think?



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Like 0


janice. said:
08 June 2011 @ 00:52

Yes, i agree with this view, but my question is. How long will it be, before the Banks stop lying and cheating the people. Spanish and English alike. How much longer are we going to be treated like this.WE ARE HUMAN BEINGS, but the Banks are only interested in how much money they can make out of us. Abusive clauses, excessive interest rates, the list goes on and on.We all need to pull the plug on the banks, they cannot continue to treat the people in this way.

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