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house price ugh. Figure

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nt index si 06 but are st

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e prices h nce their p till higher th

2007).

deed the tive and vour se it any urce on fact, e on ants y to

have peak han

An full pri late clo adj Wh ma less use rea (esp rela sho for Eur Fig

Not as a per Sou

3 He mai eng of t goin has

n analogous l hump-sh ce/rent rat e 1990s. W se to comp justment is hile this mi acroeconom s important ed in the ho al economy

pecially em ative to th ows spendin

the two co rope: Irelan gure 2. Housi

te: The vertic a share of GD

iod 1970-2000 urce: European ere we consid in subsectors gineering con the dwellings ng from 6.7%

increased fro

s figure for haped cur tio already While Irelan plete, one c still only ab ight be true mic develop

t than the a ousing sect is the size o

mployment he long-run ng in constr ountries wit nd and Spai

ing overhang

al axis show DP. The red 0.

n Commissio der total cons s: dwellings a struction. Bet s as a share o

% to 12.5%, w om 7.3% to 9.

r Ireland w rve, with back to th nd’s price could argue bout halfwa e, we argue ments, hou amount of tor. What m

of the const t) and its n equilibriu ruction as a

th the bigg n.³

g in Spain an

s investment line is the a n services (A struction, whi and non-resid tween 1997 an of GDP has a while the rest

7%.

would show the curre he level of t

adjustment e that Spai ay complete e here that use prices a

real resour matters for t

truction sec s time pa um. Figure a share of GD

est bubbles

nd Ireland

t in construct average over Ameco).

ich includes t dential and c nd 2006, the s almost doubl t of construct

w a ent the t is in’s ed.

for are ces the ctor ath e 2

DP s in

tion the

two civil size led, tion

Th the tw hu inv ou est fix ex eq GD bil It the va alr av co po mo

H pr

Th lon pr do su bu In inc the me

•

•

4 O ov sus rel

5 S cou for

he figure ca e housing o wo countries ump curve vestment in ur estimate

timate of th xed structu

cess of con quivalent to DP. In the c

llion or 37%

is often arg ere is a s acation hom ready take verage as s nstruction oints higher

ost Europea

ow far alo rocess?

he area belo ng-run con ocess of ab o not deca upply and

uilding less.

both co complete in e absorptio easuring th

In Ireland high spee has alread In Spain, the foreca for 2012 a line) sugg stagnate.

Our measure erhang becau stainable leve lated activitie Spain’s long-r untries, not o r dwellings.

an be used t overhang an

s. In each g and above n construct of excess c he overhan ures).⁴ For nstruction b o about €99 case of Spa

% of (2010) G gued that S strong dem mes. While t

en into ac shown by

spending r in Spain th an countries

ong is the

ow the red nstruction i bsorption of y rapidly, demand b

ountries, t n the sense on is much he overhang

d, the adjus ed and abou dy been abs

absorption asts from th and 2013 (r gest that th

e is likely to use during th el as it conta es taking place run average i

only for the o

THE SPANIS

to compare nd its absor graph, the a e the long-r

tion (red li construction ng (of hous Ireland, t between 199

billion, or in, this is m GDP.

Spain is dif mand by

this might count in an ‘equilib

(relative han in Irela s.⁵

e adjustm

line represe investment f the bubble the only back into

the proces e that the a

h smaller g.

stment has ut one-third sorbed.

n has hardl he Europea represented he adjustme

o understate

he boom GD ained constru

e at an unsus s higher than overall const

SH HANGOVER

e the genesi rption in th area below run average ine) represe n and thus

sing and ot the cumula 97 and 200 55% of (20 more than €

fferent beca foreigners be true, thi the long brium’ rate

to GDP) and and ab

ment

enting aver measures e. Since hou

way to br balance is

ss is clea area measur

than the a

taken place d of the bub

ly started a n Commiss by the dot ent is likely

the size of DP was above

uction and o stainable pace n other Europ truction, but

R |2

s of hese the e of ents

our ther ated 8 is 008)

€380

ause for is is

run e of

5%

bove

rage the uses ring by

arly ring area

e at bble

and sion tted y to

the e its other

e.

pean also

If rela abs yea on the mig act also adj rev The eco the bot sec del Ou ove sec – per rep a s by esti pro Spa sav Fig

Th

A h to dom Un

constructio atively hig sorption of ars. More r housing sta e Commiss

ght unders ivity, which o be the m justment) w vised downw

e relative onomy in 20 e fact that d

th the gove ctor slowed

lay are now ur very rou

erhang also ctor may be at least rspective. In presents the

ector whos credit. It imated tota ovisions an

anish bank vings banks gure 3. Spain deficit

he source

housing ov an acute fi mestic savi nfortunately

on were to gh rate of

the bubble recent data,

arts (and co ion’s forec state the f

h is acceler main reason why growth

wards.

good perfo 010–11 mig during these

ernment ac down. Th w becoming ugh estima o informs th

facing onc from a n the end, th e amount of se expenditu t goes wi al of €380 b

d write dow king system s) so far.

n: Constructi t

of fundin

erhang per inancial cris

ings (like i y, this as not

o continue today, th would take , from diffe ompletions)

asts for 20 fall in the rating again n (rather th h rates for Sp

ormance of ht thus hav e years the ccounts and he long-term

apparent.

ate of the he losses tha

e adjustmen an order- he construc f real resour

ure was fin thout sayi billion excee

wns accum m (and in p

ion and curre

ng matters

se does not sis if it wa in Japan an

t the case in

e at the s he process

e more than erent sourc ), indicate th 012 and 20 constructi n. This mig han the fis pain are bei

f the Span ve been due

adjustment d the housi m costs of t

constructi at the banki nt is compl -of-magnitu

tion overha rces wasted nanced mos ing that o eds by far t mulated by t particular t

ent account

s

t have to le s financed nd German n Spain.

still of n 30 ces, hat 013 ion ght scal ing

nish e to t in ing this

ion ing lete ude ang d in stly our the the the

ead by ny).

Fig co acc acc

•

•

Th cu tre by thi be

W

Fig ad slo co ru fur de Th co fur Of lib em the we tra an to rel ma su ho in un cu

6 A Wa no

gure 3 sho nstruction cumulation count).

Over the l stock of fo The Mac scoreboar Spain’s fo Greece (E he foreign urrent accou

ends, it wo y 2016 (abo is point, Sp eing cut off f

What can b

gure 3 s djustment, w

owed consi nstruction s n task for S rther foreig epends on c his can be

nstruction rther resour f course, th berated by t mployed els e economy ell.⁶ This r adable sect nd will requ

the rest of lative to G arket in wh upply. The owever, is r Figure 4 nemployme urve) in Spai

A recent stud

atch, 2012) sh t fast enough

ows that in has clo n of foreig

last decade, oreign debt croeconomic rd of the

oreign deb uropean Co

debt leve unt is still uld increas out the leve pain would from the m

be done?

hows that which was derably wh sector slow Spain is to gn debt so t continuing i

e achieved sector (w rces) were a his can wo the shrinkin sewhere in t y can grow reallocation tor is proce uire a fall in the eurozo Germany.

hich wages Spanish r rather disco 4 from th ent and wa

in.

dy by a Spa hows that exp h to keep unem

nvestment e osely trac gn debt (i.e

, Spain has close to 90%

c Imbalanc Commissio bt already e

ommission, el is rising

l in defici se to about el of Portug d clearly be

arket.

t the cur s very quic hen the adju

ed as well.

stop the ac that the cou inflows of f d quickly which pro allowed to s ork only if ng construc the econom only if ex n of labour

eeding only n wages – a

ne, and thu This requ can fall if record on ouraging – he relation age growth

anish bank ( ports are inde mployment fr

expenditure cked Spa e. the curr

accumulate

% of GDP.

ces Proced on shows t equals that 2012).

g because t. On pres 100% of G gal today).

e in danger

rrent acco ck in 2008–

ustment in The key sh ccumulation untry no lon

foreign capi only if obably wa

shrink furth the resour ction sector my; at this st xports grow r towards y very slow at least relat us in particu ires a lab there is exc

this accou as can be s nship betw h (the Phil

BBVA Econo eed growing, rom rising.

e in ain’s

rent

ed a

dure that t of

the sent GDP At r of

ount –09, the hort-

n of nger ital.

the stes her.

rces are tage w as

the wly tive ular bour cess unt, seen ween llips

omic , but

Fig

It i det wa une pro wh hig of une wa con une

Co

All adj bub uns to shr rea slow wa

gure 4. Spain

is apparent teriorated s as much hig

employmen obably due hich transm gher oil pric this figu employmen age inflatio

ntrast, wag employmen

onclusion

l in all, it a justed to th bble, whic sustainable

fall further rink furthe allocation o wed down ages from fa

n’s recent Phi

that in Spa ince 2007 (t gher in 200 nt as during to the back mits the term

ces to the la ure seems nt rate of ov n close to ge inflation nt rate of ab

appears that he collapse

h propelle path until r and the co

er at the of labour n by a labo alling quickl

illips curve

ain the Phil the rate of w 08 for the g the early 2 kwards wag

ms-of-trade abour mark to sugg ver 20% is n zero. In n went to bout 10%.

t Spain has of its enorm ed its econ

2008. Hou onstruction same tim

towards e ur market ly enough.

lips curve h wage inflati

same level 2000s). This

ge indexati e shocks fro ket. Inspecti gest that needed to ke Germany, o zero at

s not yet fu mous housi nomy on se prices ha n sector has

me that t exportables

that preve has

ion of s is on, om ion an eep by an

ully ing an ave s to

the is nts

Re

BB

Eu

Gr

Mü

Re

eferences

BVA Econ stereotype competitiv any oth Research, (http://w /bin/ing/

Nove348_

uropean Co Report”, 1 ros, Daniel Longer-Te Housing P Working October.

ünchau, W siesta for March.

einhart, Ca years of fi

nomic Wa es behin veness and her eurozo

www.bbvare /publi/esp _197005.jsp?

ommission ( 14 February (2007), “B erm Com Prices in Eu

Document

olfgang (20 the euroz

armen M.

inancial foll

THE SPANIS

atch (201 nd: Spai d productiv

one econo 10 esearch.com

ana/noved

?id=tcm:348 (2012), “Ale y.

Bubbles in mparative

urope and t No. 276, C

012), “There zone”, Finan

(2008), “E ly”, VoxEU

SH HANGOVER

2), “Leav in recov vity faster th

omy”, BB A m/KETD/ke dades/detal

8-183383-64 ert Mechan

real estate?

Analysis the US”, CE CEPS, Bruss

e is no Span ncial Times,

Eight hund .org, 19 Apr

R |4

ving vers han BVA April etd le/

4).

nism

? A of EPS sels,

nish , 18

dred ril.

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