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98% Of Spain's Mortgages Are Based On Floating Libor Rate

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Spain faces frightening parallels to Britain

By Ambrose "Ambers" Evans-Pritchard

Last Updated: 12:51am BST 19/09/2007

Spanish officials have furiously denied reports that the country’s property market is heading for a crash or that a clutch of banks may be in the same boat as Northern Rock...../
The banks are highly exposed to the Spanish housing market. After rising 270pc since 1995, house prices have begun to fall in parts of northern Spain, slipping 2.1pc in Barcelona and Madrid so far this year.
Over 98pc of all mortgages are priced off floating Libor rates
causing mortgage payments to almost double in under two years. Construction has reached 18pc of GDP, more than Germany (15pc) at the height of the reunification boom.
David Owen, an economist at Dresdner Kleinwort, said Spain was in danger of a serious crisis. “House prices may fall, but what is even worse is that the corporate sector’s deficit has grown so large that it needs to find financing equivalent to 10pc of GDP every quarter just to stand still,” he said.
“In an environment of easy credit and low rates, these excesses are not an issue, but it can quickly unravel as the mood changes. The problem is that a country inside EMU can’t get itself out once it reaches tipping point: it can’t cut interest rates or let the currency fall.”
While the extreme levels of household debt in Spain are similar to those in Britain, the abilities of the two countries to act in a crisis are quite different. Spain may face a replay of Britain’s ERM crisis in 1992, but this time without the safety valve of easy exit.

Burnt toast comes to mind. :o

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Toast burning blacker


The TimesSeptember 21, 2007

Pain in Spain?

James Harding, Business Editor

Asked yesterday where we should be looking for the next casualties of the credit crunch, the head of one of London’s biggest investment banks was unequivocal: Spain.

The bankers, investors, property companies and construction companies behind the unprecedented splurge of building on the Spanish costas could be badly hit. The hundreds of thousands of Brits with recently acquired bolt-holes there would not be immune either.

Cracks are appearing in the adobe. Spreads on credit default swaps, insurance policies against default, have ballooned for some Spanish banks.

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I posted a few links from El Mundo and El Pais a few days ago, in which the media and the banks were desperately trying to deny that a NR situation could happen down there. I remember commenting those articles saying that the truth is exactly the opposite of what's been written. I guess I was right.

Spain will suffer even more than Ireland and Northern Ireland. Just check how many jobs are being lost in the construction business and what percentage of the total job losses that represents

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