När och hur spricker EMU?

Wolfgang Munchau

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Meltdown of the Spanish economy

Two aspects of the eurozone economy are often mixed up. One is its overall performance.
The other is the divergences that at any time exist within the single currency area.
The Spanish economy may be about to fall off a cliff. But Spain accounts for only 11.8 per cent of the eurozone’s gross domestic product.
If you look at the eurozone from a great height, a meltdown of the Spanish economy looks like a minor regional wildfire.
Wolfgang Münchau, Financial Times, July 20 2008

Most of the eurozone does not have a house price problem... But what about intra-eurozone divergences? I was struck the other day by a statistic from the ECB that shows Spain losing competitiveness relative to Germany, even now...
Last week’s collapse of Martinsa-Fadesa, a large property developer, has been a reminder, if any were needed, of the massive scale of the Spanish property crash. Serious financial and economic distress is almost inevitable.

Do not be fooled by the fact that Spanish banks had virtually no exposure to US subprime mortgages. Being exposed to Spanish mortgages is probably worse.

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