‘We are not goods in the hands of politicians and bankers’ was the slogan under which 130,000 Spaniards protested in Madrid in May 2011 in response to the ongoing financial crisis.
Five years of recession, a tripling of national debt in only six years, and over a quarter of the country unemployed—that was the bleak economic reality Spain experienced from 2008 to 2014. What happened?
In the ten years preceding the crisis, Spain experienced steady economic growth, fuelled by a booming housing market. Between 1997 and 2007, the GDP of the country increased at an average rate of 3.8% per annum, ahead of most other EU nations. Because of low interest rates and a construction project boom, investment in buildings accounted for almost 20% of Spain's GDP by 2008. Before long, though, cracks began to show, including the overvaluation of the housing market and the massive accumulation of private debt. The final nail in the coffin? The 2008 financial crisis.
When the international financial crisis arrived in Spain, the housing bubble burst, unleashing a painful economic downturn that would last over five years. The country's high debt level and rising interest rates destroyed investor confidence, stopped building projects, and made economic growth plummet. By 2013, housing prices that had nearly tripled between 1997 and 2007 had fallen by almost 30%. This dealt a severe blow to the Spanish banks, particularly the regional savings banks or 'cajas', which had invested tremendously in mortgage lending and real estate.
To rescue the banking system, the 'cajas' were merged from 45 in 2010 to 11 in 2014. The Spanish government also established the Fund for Orderly Bank Restructuring (FROB) in 2009, injecting €61 billion between 2009 and 2014 to bail out collapsing banks. However, this was not enough, and Spain asked for economic assistance from the EU in 2012, receiving a €100 billion credit line to fight the crisis. As part of the restructuring, Spain also created the 'bad bank' Sareb, which managed high-risk property and sold off assets of banks that were near collapse. The recession sent unemployment soaring from 8% in 2007 to a peak of 26.3% in 2013.
By 2014, over half of all adults under 25 in Spain were out of work. The surge led many to look for opportunities abroad, triggering the infamous 'brain drain' or 'fuga de cerebros', as skilled workers emigrated for higher salaries and standards of living. Today, over 20,000 Spanish PhDs live outside of Spain, and youth unemployment remains over 25%. In response to the economic crisis, the Spanish government implemented austerity measures (tax increases and spending reductions) to try and reduce its ballooning debt. While the policies stabilised public finances, they also encouraged prolonged periods of stagnant growth and mass social unrest. Anti-austerity protests were organised across Spain, and new political parties, i.e., 'Podemos', emerged in response to growing public disillusionment with mainstream political parties.
Then, finally, in 2014, there were signs of economic stabilisation. Spain's economy grew by 1.4% that year, which marked the end of the recession. Unemployment fell by 5%, falling below 20% at the end of 2015. Despite all these improvements, Spain's labour market has never fully recovered. Its unemployment rate has not returned to the pre-2008 level of less than 8%, and job insecurity remains a significant problem, with a large proportion of temporary and low-paid contracts. While Spain has achieved important progress in stabilising its economy, the financial crisis still leaves its marks today.
The government debt remains well over 110%, compared to pre-crisis levels of 36%. High youth unemployment, job insecurities and excess debt continue to cast a shadow over the economic landscape. While Spain has managed to maintain economic growth, issues persist. The restructuring of the banking sector after the crisis is ongoing, but there are still doubts on whether Spain can even maintain long-term economic growth. The crisis highlighted the fact that there was a need for a more diversified economy, less reliant on real estate and more focused on innovation and green sectors.
