Causes and Effects
Edited by Ehtisham Ahmad, Massimo Bordignon and Giorgio Brosio
Chapter 8: Multi-level finance and governance in Spain: the impact of the Euro crisis
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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