June 8th, 2012
07:36 PM GMT
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Madrid (CNN) – Spain: a country home to 47 million people and a $1.4 trillion economy. The Spanish bull has stood proud on Iberian hilltops for years, a symbol of force and a fitting tribute to a country which up until recently was the euro zone's fourth richest.

But step out of the Castilian plain and onto the bustling streets of Madrid – or any other Spanish city for that matter - and the skyline tells a different story.

The horizon is dotted with relics from the country's now burst property bubble.

Empty apartment blocks stand idle in the suburbs, while downtown the glass towers of Spain's financial district cast shadows over the people below and a shadow over their children's future.

Trapped between its cash-strapped banks and weakening public finances Spain is the biggest economy to run the gauntlet of skeptical credit markets that in three years have claimed the scalps of as many eurozone members like Greece, Portugal and Ireland.

The single currency can ill afford a bailout for Spain but neither can its leaders ignore crisis of confidence the country's banks are causing. As such speculation is rife the country may require a bailout.

Spain's predicament has less to do with a lack of austerity and more to do with a lack of transparency.

Unlike Greece and Portugal, the country's public sector finances aren't really the problem, rather the hit they would take should Spain need to fork out more money to shore up its ailing banks.

The country is already part nationalizing one of its biggest lenders – Bankia- at the cost of 24 billion euros. But the reality is much, much more money will be required for others.

On Monday we may well have a clearer picture of what Spain needs to get its house in order. That's because the International Monetary Fund is set to publish its survey of the nation's financial sector and judging by the recent drip feed of leaks emanating from the institution (so characteristic of this crisis) the picture will not be pretty.

The IMF reportedly reckons Spain's banks will need 40 billion euros to bolster their accounts.

Yet the country's prognosis is likely to have worsened since such data was collected and economists say more money will need to be earmarked. Indeed at just 40 billion euros, the IMF's estimate would make Spain's cash crunch cheaper than Ireland's bank bailout. Hardly a likely scenario!

Explaining its decision to slash Spain's sovereign debt rating to within a whisker of 'junk' status, Fitch ratings estimated efforts to shore up Spain's broken banks could cost the country 6 to 9 percent of its GDP - or 60 to 100 billion euros. That's up to $125 billion.

Megan Greene of Roubini Global Economics reckons Spain's banks may be just the start of a problem that could be much more expensive than its politicians have let on. She says Spain's banks may need up to 250 billion euros in total but even if the country manages to save its lenders, keeping the sovereign solvent is another matter

"A bailout for the banks could delay a bailout for the state, but the former could accelerate the latter as well."

soundoff (23 Responses)
  1. Nuno

    This year Spain , next year Itally... the euro is DEAD

    June 8, 2012 at 10:41 pm |
  2. virgincapt

    The problem is not "a lack of transparency", but a lack of productivity. I lived in Greece in late 70's before the euro. Everyone, besides not paying taxes, had a cottage industry. shop keeper, fisher/farmer, service...All were proud and OK. food and friends freely available. The eruo borrowed, not produced. All of us, American or, whatever, must produce to continue in our current capitalist MO, for ourselves or others ( if we grow and

    June 9, 2012 at 1:48 am |
  3. virgincapt

    To produce is the key element. think about that for yourself. What do you produce? Service is OK, but only if production is solid. The Greeks will be more poor than in the 70's if they do not fend for themselves = sell, serve, make

    June 9, 2012 at 1:52 am |
  4. KJMU

    Here is the Spain / European problems: In a city of 35 thousand inhabitants in the southern part of Spain, more than 8 thousand persons participated in the Islamic Friday prayer at 2:00 p.m., including a significant number of converted Spanish men and Spanish women. At the end of the prayer, seeing these people, I began to wonder in how many years Spain will be a mostly Muslim country. The Spanish / French / Italians / British / Germens are no longer having many children. It's a problem for many European countries! Brussels will be majority Muslim in less than 20 years (these are non-Muslim statistics). Europe will surely be a Muslim land for our grandchildren, maybe our children. These Muslims vote. They only need to be about 30%-40% to control the democratic parliament because of political "deals"… We see now only the beginning of the huge economic effect of the Muslim immigrants on the Spanish economy. The tragic thing is that these trends reflect the will of the Spanish people since they open the "gates" of their country to Islamic immigrants.

    June 9, 2012 at 9:14 am |
  5. myhyperion

    @KJMU you need to be ashamed at yourself. Spreading the "muslim fear". Why Muslim? Christians have wiped out civilizations....sorry mate..you need to go back to school.

    June 9, 2012 at 1:23 pm |
  6. Olavo Santos

    Productivity is not a problem. We as europeans produce enougth for us and for the rest of the world. And if not, we just shift production to sweet cheap China and let part of our population live on wellfare. Our problem as Europe is that we've evolved too fast for the rest of the world. We are on the edge in technological terms, we center our governance in humans instead of money, we don't spend our days thinking about war, and we just live happy. Europe is now leading the world. And leading is hard. :-)

    June 9, 2012 at 1:29 pm |
  7. kathinmadrid

    During the time of the housing boom, these banks which now require the taxpayers' money to not crash were making obscene profits on property speculation. My suggestion is that those who profited return the money. They don't have to give it back for nothing; they can have the deeds to the properties which the banks are holding. In 10-15 years, they will recover their money.

    June 9, 2012 at 3:40 pm |
  8. justice

    to KJMU, you are just racist and hateful person, these people you are talking about, they are hardworking people, they are family oriented, they pay taxes like other, you should not blame these people for the major economic failure in Europe, the governments in Europe should not waste the financial sources that do not have, the governments in Europe did not learn form the fatal mistakes that occurred in Greece.

    June 9, 2012 at 7:07 pm |
  9. jman

    Dis country is finish

    June 9, 2012 at 7:25 pm |
  10. justwondering

    Why bail out the banks? Why not let them go bust? They made stupid loans on overpriced real estate to people who could not pay the loans back except if property prices kept going up forever. Those banks should go out of business. Other banks who were not so stupid will take their place, or new banks will be formed to take up the profitable business that continues. Ireland also – why have they bankrupted themselves to honor the bad bets of private business?

    June 9, 2012 at 7:41 pm |
  11. pepe garcia

    More money will go to the gutter, not to people. Spaniard politicians robbed the money from Bankia for decades without control. Spain is world champion in soccer and in corruption. From 1555, read "Lazarillo de Tormes" and learn how people manage here to live without working.

    June 9, 2012 at 11:01 pm |
  12. Mike Johnson

    The solution is very simple ... let the banks go bankrupt and liquidate the dept. Somebody will come in and buy the assets at current value.

    June 9, 2012 at 11:41 pm |
  13. Banks & IMF Collapse

    Let the banks go broke. hav eyou noticed that all these bailouts do not go to the people but the banks. Yet the people have to pay as well with cuts and taxes.

    June 10, 2012 at 12:11 am |
  14. Livia

    And two of the biggest banks and healthy of the world, Santander and BBVA, are spanish *ironic* but they are living in another universe. The only problem in Spain is the political corruption.

    June 10, 2012 at 1:31 am |
  15. Paulo Carvalho

    All of you talking about "production" or "islamic fear", you simply don't know what you're talking about. Production might be a problem when you compare European states but it would be the same if you compared American ones. Plus, many American states are broke, since longe before all this started in Europe. The thins is that you have American Bonds and we don't have "Euro-Bonds". Your central federal bank produces more money to face this kind of problem, our central bank is not allowed to do so. Why? Wonder how does this all start... American Rating Agencies. One of the motives Europe hasn't created the so called "Euro-bonds" is the fact that those rating agencies warned they would rate it as "trash" as they had broke countries included (like Greece or Portugal). In that case, when California, for example, is in the same situation, why do they rate the American Bons AAA?!
    About the so called "islamic fear", that's a non-sense! Portugal is as it is and it almost has no muslims. Germany, the wealthiest economy in Europe, has the most of them... it says it all...

    June 10, 2012 at 3:56 pm |
  16. Stephanie

    @justice: "Muslims" are not a race of people.
    @Olave Santos: You're a mad man. Your governments invest in people and not money? Did you think about that before you typed it? How is Europe leading the world? What does thinking about war have to do with anything? You believe the eurozone is in great shakes? You are either an uneducated and idealistic teenager or some kind of hippie with Internet access via a local coffee shop. Look at the economies that are booming, and Spain isn't one of them, friend. You won't deceive anyone on here with you silly, inane comments, mate.

    June 10, 2012 at 4:13 pm |
  17. Spock_rhp

    the cost of hiring Spanish labour must decline in order to jump start the economy. This is what produces jobs. There are three ways to go - depreciate your currency, slash government imposed hiring, employing, and firing costs [taxes and regulations, or endless recession and depression in order to convince workers to work for lower wages.

    It would help if China allowed the yuan to rise as the market deems necessary - but Spain alone can do nothing to accomplish this; only if the US and Europe united on the issue might China pay attention. The credible threat of 5% tariffs now on all Chinese imports, plus 5% more every year until they comply, in the form of laws passed, not noise made, might be enough to to the trick. Maybe.

    June 10, 2012 at 4:15 pm |
  18. Steve Spain

    It would be better to give the money to the people, with the proviso of having to pay off their mortgages/debts first. The banks would then have "their" money and it would give people money to spend, thus kick starting the economy and creating jobs.

    June 10, 2012 at 4:49 pm |
  19. Juan Carlos

    The problem of Spain cannot be place in a a single area. The main issue is patriitism! Spain has lost what this is , they became very independent and each autonomy, group, and yes, the Islam inflence, is more concern about themselves than the whole of Spain. Yes there have and is scandals in its politics, but this is minor when you see the lack of unity at a national scale. No one wants to put its 2 cents but ask for a nickle in return. See the many useless buildings, parks, airports, religious centers and emigration stray, from East Europe to the Americas. Spain needs to find its unity first. I hate to say this but the Spannish soccer team can rally some of them, but it seems that a national desaster is needed to wake Spain.

    June 17, 2012 at 5:41 pm |
  20. Paolo Morra

    I think that Spain has bank problems because it has too many banks with weird policies. A merger with a dominant bank making the rules for the failed banks would probably help more than a very risky bailout speculation scheme. The euro as a currency is not a big problem, it enables better communication across borders. Perhaps there are too many rules to follow in the European Union, but that could be made better by cutting a few of the pro richer country rules.

    Bye for now, pmorra73

    July 17, 2012 at 10:37 am |
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