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Multi-level Finance and the Euro Crisis

Multi-level Finance and the Euro Crisis

Causes and Effects

Studies in Fiscal Federalism and State-local Finance series

Edited by Ehtisham Ahmad, Massimo Bordignon and Giorgio Brosio

Representing a unique contribution to the analysis and discussion of the unfolding Eurozone crisis in terms of the relationship between central and local government, this book addresses a number of important fiscal and political economy questions. To what extent have local and regional governments contributed to the crisis? To what degree have subnational services and investments borne the brunt of the adjustments? How have multi-level fissures affected tensions between different levels of government from the supranational to the local? This volume covers these and many other critical issues that have been largely ignored despite their relevance.

Chapter 8: Multi-level finance and governance in Spain: the impact of the Euro crisis

Santiago Lago-Peñas and Albert Solé-Ollé

Subjects: economics and finance, public finance


The recent economic crisis provoked in Spain a fiscal crunch without any precedent in recent history, with public deficits of around 10 percent of GDP over several years and a public debt approaching 100 percent. Although economic prospects are currently improving, the situation in public finances at different levels of government is going to be challenging in the coming years. The main causes of this situation are external to the country, and related to the availability of ‘low-cost’ credit during the boom years and to the effects of the international financial crisis. However, some authors suggest that internal factors also played a role: the poor quality of institutions made it more difficult to provide an appropriate and speedy response to the housing bubble once the crisis appeared (e.g., Fernández-Villaverde et al., 2013). Santos (2014) provides a description of the role of government in dealing with the crisis of Spanish savings banks. And Solé-Ollé and Viladecans-Marsal (2013) examine the role of regional and local land-use policies in fuelling the housing bubble.

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