An in-depth analysis of the Spanish financial crisis

Abstract

The US subprime mortgage crisis, which started in 2007, shocked all the world economies. What was seen as minor problems in the US’ financial markets, increased and spread to the global financial markets. The majority of the European countries endured some difficult moments during this recession, however particular countries, such as Spain and Greece, are still witnessing the consequences from the recession. This underlines the importance of understanding financial crises. This research study is aimed at answering the following research question: What were the main reasons behind Spain’s long and sluggish exit from the recession following the Spanish market collapse and the US subprime mortgage crisis? Therefore, the main objective of this dissertation is to understand the main characteristics that led to Spain’s long period of recession. The study revealed that Spain’s lengthy recovery from the recession was related to the pre-crisis period, where the Spanish economy had particular attributes that negatively affected the country as soon as the crisis started. These factors include an accumulation of external deficits, an extreme bias towards the construction sector and the loosening of banks’ lending standards. The findings in this research study are important in order to understand the attributes that caused the problem, and also to avoid repeating the same mistakes.