The celebratory soccer binge over, Spaniards are once again having to face up to some unpleasant economic realities and along with the rest of Europe Spain has just published the results of a stress test on its banking system. A report on financial services would not normally be the stuff of conversation in the bars of Madrid but most people are aware that the consequences could be serious. Apprehension has again replaced euphoria. For Prime Minister Zapatero the findings will have far reaching political consequences: confidence in his socialist (PSOE) Government is at a record low and the revealed weaknesses in parts of the Spanish financial system will not improve the national mood. So far, Spain has avoided a Greek style meltdown but renewed trust in the Spanish banking system is essential if Madrid is not to become the new Athens.
Up to now debate on the crisis in Spain has focussed on the state of the public finances and the growing fiscal deficit – the difference between the Government’s income and spending – which is now around 11.5% of annual income. Over the last couple of years unemployment has soared to 20% – the fastest increase in Europe – and nearly two million people have stopped contributing to the social security system. Consumption and investment have slowed (trade between the UK and Spain, for example, fell by more than 30% last year) and Government revenues have collapsed.
