The root cause of the crisis is in a sense Europe\’s monetary union. The euro effect halved Spain\’s interest rates almost overnight. Rates then fell below Spain\’s inflation rate for several years, fuelling an explosive credit boom. The country\’s current account deficit has reached 10pc of GDP, the highest of any major economy.
This is the bit that all those federasts panting for the euro rather forgot to mention. A single currency is indeed lovely for the transaction costs side of things. It also, inevitably, means a single interest rate though. And with different inflation rates, widely disparate economies, this might not be a good idea.
The rate was clearly and obviously too low for Spain: as it is now too high for Spain.
"We have a very worrying situation. The developers simply cannot refinance their debts. We need to cut interest rates by 2pc, which is obviously not going to happen,"
There is no solution to this….other than leaving the euro.