The pain in Spain...

Meltdown in Madrid has reached such a pitch that it has elbowed the anarchy in Athens from its unenviable slot as the eurozone’s number one nightmare.
Received wisdom is that a Greek default is just about containable because of the small size of that economy. But Bank of England officials privately admit to dark fears that the eurozone could not survive a collapse of the Spanish banking system, with serious repercussions for the UK.
The Spanish economy has been driven onto the rocks not by profligate government borrowing, but through private indebtedness, currently running at more than 171 per cent of GDP.


Its blasted economic landscape has been scarred by a housing boom and bust combined with a debt-fuelled corporate takeover spree.
Spanish acquisition fever has engulfed a string of household name British businesses, including O2, now owned by Telefonica, Scottish Power, which is now a part of Iberdrola, and the BAA, which succumbed to a bid from infrastructure group Ferrovial.


That debt binge is exacting a terrifying toll on Spain’s banks, whose balance sheets amount to 337.5 per cent of the country’s entire economy, according to a European Commission report yesterday, up from 285 per cent before the crisis in 2007.
A report by the respected Institute of International Finance calculates total loan losses could range from 218bn euros to 260billion euros. Some well-placed sources suggest the figures could be even worse than that.


Premier Mariano Rajoy’s Madrid government is hunting for an internationally-renowned economist to act as an adviser on how it can extricate itself from its plight. Possible candidates could include Robert Zoellick of the World Bank or his fellow alumnus Joseph Stiglitz.
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