Spain has been fighting with Greece to take center stage at the heart of the euro crisis right now, with borrowing costs hitting record highs.
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10-year yields wavering above the important benchmark of 7 percent at which other European countries have requested a bailout, and its economy is falling deeper into recession.
A housing bubble broken by the financial crisis has ravaged the banking system and spread into the greater economy. Without the help of Spain-specific monetary policy—and amid more and more rounds of austerity measures—it appears that these problems will only grow worse in the future. Further, the troubled banking system threatens to breed an infection that could spread through the rest of the European financial system.
Whatever the European Central Bank may promise to do to help, Spain's problems go far beyond monetary policy.
Banks hold more troubled real estate assets than non-troubled ones.
Spanish banks had €155.8 billion ($188.5 billion) in troubled loans of a total €1.741 trillion ($2.106 trillion) in total loans. Bad loans as a percentage of total lending amounts to a whopping 8.95 percent, the highest level in 18 years.
Source: Banco de Espana
Spanish home prices continue to fall, exacerbating the consequences of its housing bubble.
Societe Generale analyst Michala Marcussen wrote earlier this year that home prices will likely fall another 15 percent in the 2012-2013 period. They have already dropped 25 percent from their peak.
Citi's Willem Buiter argued in a similar note that the decline in Spanish land and property prices is probably less than halfway complete. He ultimately expects them to drop 60 percent from their peak.
Meanwhile, the scale of Spain's private debt is simply overwhelming.
Most of Spain's debtors are non-financial corporations and households who will continue to default regardless of aid for the government and banks.
See the rest of the story at Business Insider
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