European Debt Crisis

How much of a problem is Spain’s economy?

Kai Ryssdal Apr 30, 2012

Kai Ryssdal: We got some eh economic numbers here this morning. Consumer spending last month was a bit more tepid that the experts had been hoping.

Lukewarm as the economy here is, though, it’s positively humming right along when you compare it with Spain. We learned this morning Spain has dipped into its second recession in three years. Yet the latest sign Europe’s economic problems are still very much front and center.

Economist Edward Hugh, an ex-pat Brit, studies the Spanish economy from Barcelona. Mr. Hugh, good to have you with us.

Edward Hugh: Nice to be here.

Ryssdal: So a lingering debt crisis that we’ve had a couple of years to get used to is one thing. It seems to be recession in Spain is quite another, no?

Hugh: Oh, very definitely so. Yes. Everybody is concerned about fiscal deficits and adjusting fiscal deficits, but really Spain’s problem — and for the people in the United States to think about it easily, you need to think about somewhere like Florida. Spain’s problem is associated with the housing and construction boom, which went fine for several years into the crisis and then collapsed. It’s the economy dealing with the hole that’s been left by that collapse that really causes the problem. The government have difficulty raising the revenue they had before simply because the level of economic activity has collapsed.

Ryssdal: Well put this in context for me. We are very familiar over here with the Greek debt crisis. Greece, though, is a relatively small economy. How much bigger is Spain and then how much bigger a problem does that make it for the world?

Hugh: I would say Spain is about five times bigger than Greece, so it’s a much bigger problem. Spain is the fourth biggest economy in the euro area. It’s not as big of an economy as Germany, but it’s big enough to really be a problem if it goes too far wrong.

Ryssdal: Did I read it right this morning that unemployment in Spain is 24 percent?

Hugh: You did read it right, unfortunately yes. It’s still going up.

Ryssdal: We had Timothy Geithner on the program on Friday, the secretary of the Treasury over here, and I asked him about Europe and whether the American economy was strong enough to survive something bad happening in Europe. He was declarative. He said we are strong enough, everything is fine. Do you believe that?

Hugh: What if the world was so simple? Obviously the United States economy is in a much stronger position at this present point and time than the European economy. Clearly, if Spain has a serious problem and this creates a problem which unwinds the euro area — and that’s the risk — then naturally it’s going to be noticed in the United States. It won’t be good news.

Ryssdal: Is — if I could create the word here — Spain “bailout-able?” It’s much bigger and it’s such a more systemic problem.

Hugh: Well yes. It’s not bailout-able using the model of Ireland, Portugal or Greece. It’s too big for that. It is possible that you could have a partial — in fact, not only possible, I think it’s very highly likely in the coming months we will see this kind of partial bailout of Spain from the European Union.

Ryssdal: But we went through all of the sturm und drang, if you will, of the Greek crisis and yet it’s still a mess.

Hugh: Yeah, I’m afraid so. Even Greece is not resolved really because Greece is still inside a program where it’s got targets to meet that it may not meet at the end of the day. But don’t imagine you’ve heard the last word from Greece yet.

Ryssdal: Economist Edward Hugh, we got him in Barcelona. Mr. Hugh, thanks very much for your time.

Hugh: You’re welcome. Bye-bye.

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