Financial Cycles and the Real Economy
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Financial Cycles and the Real Economy

Lessons for CESEE Countries

Edited by Ewald Nowotny, Doris Ritzberger-Grünwald and Peter Backé

What is the link between the financial cycle - financial booms, followed by busts - and the real economy? What is the direction of this link and how salient is this connection? This unique book examines these fundamental questions and offers a paramount contribution to the debate surrounding the recent financial and economic crisis.
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Chapter 10: The real estate sector and the financial crisis: the Spanish experience

Eloisa Ortega and Juan Peñalosa


The Spanish economy is going through a process of correcting the macroeconomic and financial imbalances which emerged in the years before the onset of the financial crisis in 2007. These imbalances affected the real estate sector, the level of private credit and the competitiveness position of the Spanish economy, all of which fall squarely within the scope of the issues addressed in this volume. Against this background, the focus of this chapter will be on the lessons to be drawn from the developments in these three areas since 1997. Spain is emerging from an unusually deep economic crisis. This crisis has been more severe in Spain than on average in the European Union and it has had a sizeable cost in terms of employment destruction. With the perspective of the six years that have passed since the outbreak of the global financial crisis (Figure 10.1), the severity of the recession in Spain can now (2013) be seen to be the consequence of a combination of a number of causes. The starting position of the Spanish economy in 2007 was characterized by a number of macrofinancial imbalances that had built up over the expansionary phase of the cycle, which heightened its vulnerability to financial shocks. In addition, the macroeconomic crisis together with the superimposed sovereign debt crisis gave rise to a vicious circle of tightening financial conditions and deteriorating confidence, which led to a worsening in the macroeconomic environment.

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