The facts are that:
- Spain’s construction sector dominates the national economy.
- Delinquent loans to the construction sector reportedly total about 20% of GDP, and probably exceed twice that amount.
- The debt of Spanish financial institutions stands at 109% of GDP, double the ratio in France or Germany, and triple the ratio in the United States.
- The debt of Spanish financial institutions since 2003 grew at twice the rate of the US or the UK, and four times the rate of Germany.
The trouble with Spain is that its construction sector is enormous relative to the overall economy, as large as the manufacturing sector. By contrast, America’s construction sector at the height of the real estate bubble was only a third the size of its manufacturing sector. In Germany, construction is just a fifth the size of manufacturing.Exhibit 1: Why Spain is in trouble – construction contribution to GDP as % of manufacturing contribution to GDP
Source: Eurostat.This distortion in Spain’s real economy — the massive misallocation of resources to the construction sector — is reflected in an enormous expansion of the banking sector. Spanish banks’ debt on the international bond market grew twice as fast as in the United States during the past decade, and several times as fast as in Germany.