If your hypothetical scenarios came to pass Angie it would have a catastrophic effect on property values for existing owners. One the other hand it would in my opinion kick start the Spanish economy and the property market.
Spanish sovereign debt would be unsustainable because it’s in Euros and serviced in Euros……The burden could break Spain and the country would default.
Spanish exports on the other hand would be very competitive in world markets, property would look very cheap to almost everyone and there would eventually be an economic bonanza for the Spanish people.
The reason I am so confident of that is because it did actually happen once.
In the late seventies during a depression in the Spanish economy property was in the doldrums. Spain allowed the Peseta to devalue against the DM.
The result was a period of relatively short booms in Spain until the Peseta was pegged to the DM then back came recession.
It’s a ‘no brainer’ really. Spain cannot afford to be in the Euro, neither can Ireland or Portugal.
The principal problem for these countries is politics, and the European project not economics. Like consumers, countries were encouraged to spend and borrow beyond their means.
Lenders handed over the cash because being in the EZ gave them credibility and triple A status.
Far Eastern states such as China and Japan are currently riding to rescue the Euro from collapse. It’s in their interests so to do.
It will not help Spain or the EZ because the currency will strengthen. That’s the last thing they need right now.
Unless things change the pain in Spain and elsewhere will last for at least a generation.