What next for Spain?

EUROPE

Spain has the potential for recovery, but it needs to confront structural reform in its labour and banking markets, writes Kevin Lilley, manager of the Old Mutual European Equity fund.

Spain is enduring the hangover of all hangovers, following on from the cheap interest-rate-fuelled property binge of the noughties. During that period, interest rates set by the European Central Bank (ECB) were far too low for Spain – which was growing strongly – but just right for Germany, whose economy was struggling. This resulted in access to cheap funding, which stimulated the property sector, generated a building and construction boom, boosted employment and immigration, and allowed Spanish companies to take on high debt levels. This feel-good factor also spilled over into the S...