Reply To: “Prices haven’t dropped and buyers won’t return"


@mark wrote:

Just had lunch with Edward Hugh, a very charming man. We both agreed that, for better or worse, these are fascinating times to be living in Spain. And if you’re a housing market analyst like me, it couldn’t get more interesting. We are looking at a once in a lifetime event. You just have to hope you’re still standing when it’s all over (which could take years).

He pointed out to me something I hadn’t picked up on. There’s a funny case of moral hazard going on in all this. The Spanish banks appear to be burying their heads in the sand with regard to their property problems. But in fact they are following a rational course of action. If the problem doesn’t explode, then they might be able to muddle through until things pick up again, and may even be able to turn a profit when they sell. But if it explodes, guess who will have to pick up the bill? Germany and France, that’s who. So it’s tails Spain wins, heads the Germans lose (bailing out Spain – that’s the bargain implicit in the Euro). Nice one.


Mark, whatyou say makes a lot of sense. But there are some aspects which are adding to the gravity of the problem:

– Eastern Europe (Romania, Bulgaria, HUngary, etc) has seen a huge fall in property prices. Now, who owns most the mortgages there? Austrian. Italian banks. They also hold on many properties to stop the decline.
They will also be bailed out by Germany.

– Italy and Greece also have a fall in property prices. Their banks will also need to be bailed out.

– French property will also have a major correction. Their banks will also need to be bailed out.

– as the cash-for-bangers schemes are phasing out, many auto industries will need to be helped out, especially Opel who might lose more than 20K workers soon.

Now, who is it going to be bailed out first? Spanish banks? Austrian banks?
French banks? Opel or BMW?