Euro to blame for Spanish property boom and bust

Spain would have been better off outside the Euro-Zone and it’s not too late to leave, argues an expert

If Spain had kept the Peseta the bubble would never have been so big, claims Max Otte, an economics professor and fund manager who forecast the crisis in a book published in 2006.

Otte explains that low interest rates that came with Euro-zone membership are the root of the problem. Egged on by the banks, Spaniards binged on cheap mortgage credit and drove the property market into a frenzy, making a traumatic bust inevitable.

Given where we are now, Spain would have been better off with higher interest rates and steady growth outside the Euro-zone, argues Otte in comments reported in the Spanish press. The boom years were no worth this bust.

He also claims it’s only a matter of time before Greece abandons the Euro, and recommends that Spain does so too. The Euro has been a waste of time and money, says Otte.

Comments

comments

8 thoughts on “Euro to blame for Spanish property boom and bust”

  1. Ironlady

    Cheap money can only partly be blamed . Hardly anybody mentions that banks custom tailored mortgages to fit any potential buyer never mind the income . They did this in a criminal way together with the “tasadores” . During the hey days a 1000 Eurista would get a 40 year mortgage for a 150.000€ house and if they buyer fancied a new car the banksters would even lend 30.000€ more .
    IT IS THE BANKING PRACTICE WHICH IS TO BLAME .
    It is almost impossible to live on 1000Euros a month let alone repay a mortgage . BANKSTERS BEHIND BARS .

  2. Robert

    The greeks will effectivily be having their pensions and Civil Servants salaries paid for them by other EU members / they will all be on a form of welfare
    The price for the money a loss of sovereignty
    With the Greek Govnt being there to implement EU directives
    and with an eu commissioner and office in the couuntry to enforce compliance

    Spain under franco was certainly on hitlers side but sat on the fence long enough to see the tide of war change and did not fully commit
    perhaps they will welcome German control
    at least the Germans will sort out the local govnt corruption land grabs and illegal builds

  3. Paul Mitchell

    I don’t agree that Spain would be better off outside the Euro. It might have been better not to have gone into it in the first place, but now the deed is done. Spain’s central bank would find it near impossible to manage the Peseta:Euro exchange rate since it would not have the foreign funds to support its currency, and few external investors would feel safe holding financial assets in Pesetas. Nor would Germany support the Peseta in the same way it may still be obliged to shelter Spain within the Euro.

    Germany benefits from a weak Euro, and needs Spain and Italy to act as a counter-balance to the strong Euro it would be without them. Its exports (and France’s) to the rest of the world would become uncompetitive overnight if Spain and/or Italy left, despite French lunacies.

  4. Rio Livros

    I am sorry for Mr Clish and his wife. Many people, both Spanish and other nationalities, were given completely false predictions about the future of the Spanish property market. Max Otte is not the only person who predicted trouble ahead – many others did too, including The Economist in a leading article. Their front cover for that issue had an illustration of an elaborate balloon suspending a house in mid-air. Suitably, the house was suspended on the skew. Add to that the vast amounts of corruption in Spain, at ALL LEVELS, and this is what we end up with. Honest financial experts, there are some, predict that no effective recovery will occur for at least 10 years, and that it will be very, very slow going after that. Sorry to pass on bad news, but it is best to face up to the true size of the problem. Spain signed up to the euro in the blind hope of getting a lot for nothing. Beautiful new roads, excellent new hospitals and schools, but look at the eventual dreadful cost. If you have any tears left, please spare some for Spain.

  5. Almantas

    this guy Max Otte has his own agenda, probably he is waiting for a total collapse of property prices in Spain so his fund can start buying cheap properties. If Spain leaves Euro, the property prices will crash, because new currency will be unstable, devalued and etc… you better stick to euro.

  6. speakupboy

    I am NOT sorry for Mr Clish and his wife. Building a retirement plan based on investing in property was a risk and you can’t blame the Americans or the banks or anyone else for the consequences of your bad investment decisions. This is especially so as the property crash in Spain was inevitable and even overdue. There are plenty of safe options for preserving and growing your pension for people who are not financially aware although you have to accept that they may not enable you to get an even bigger (second?) house than you already have.

    Spain outside the Euro could possible have benefited its exports but it would been at the cost of imports, foreign expansion of its industries and overall standard of living. And there would have been no way France or Germany would have allowed cheap peseta priced imports to compete unhindered with local production and at the same time funded the upgrade of the Spanish infrastructure.

  7. David

    Any country leaving the euro will have to have a currency of its own backed by a solid asset ie. gold, silver, oil, or who would accept it in payment for goods ? it would be worthless paper.

  8. Stephen

    The peseta would find its own level and Spain could be competitive with its exports again. Those fielding reasons against leaving should look at the experience of Argentina 10 years ago that did very well after giving up pegging its currency to the dollar.

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About Mark Stücklin

Mark Stücklin is a Barcelona-based property market analyst and consultant, and author of the 'Spanish Property Doctor' column in the Sunday Times (2005 - 2008). He can be reached by email on ms@spanishpropertyinsight.com.