New Open Europe briefing: Spanish banks may be forced to seek eurozone bailout

In a new briefing, Open Europe assesses the state of the Spanish economy in light of recent budget proposals, announced by the Spanish government in full today. Spain is not the “next Greece” - it remains a serious and diverse economy, with relatively good administration and infrastructure. However, the increasing exposure of its banks to potentially toxic loans, the difficulty in curbing Spanish regions' spending and the risk of reforms not taking effect quickly enough, all raise serious questions as to whether the Spanish economy will make it through without some sort of external help.

“One in five loans to the real estate and construction sectors held by Spanish banks is now potentially toxic, a situation which could explode if house prices continue to drop. It’s not at all clear that the Spanish state could afford to recapitalise its banks in the case of severe losses, meaning that banks may be forced to tap the eurozone bailout fund instead, shifting even more of the risk onto European taxpayers.”

“The Spanish government deserves credit for the structural reforms that it has undertaken but further reforms are desperately needed, in particular on the labour market, if Spain wishes to have a sustainable future inside the eurozone.” Read More