Before the new British government could assume power in the United Kingdom and inherit the burdens of the global economic crisis, the implications of the European bailout package, deemed the euro crisis shield, were engulfing the euro zone member states. These states have been weakened by economic recession, while their growth has been hampered by the contraction of the real estate sector, which saw its boom as well as its collapse in tandem with that of the real estate sector in the United States. In truth, the destabilization of the foundations of growth in Europe is shaking up governments there: over a full decade, the latter achieved comfortable growth rates overall, such as in the case of the Labour government in Britain, the Socialist government in Spain and then in Portugal, and the right-leaning government in Greece, in addition to the major economies in the European Union and the euro zone, i.e. Germany and France. However, the fact that the economy relied on one particular sector, or depended on analogous sectors, created a ‘fissure' in the economy as a whole. Thus, economies, which rely on a single economic sector for growth, now fear the repercussions of the euro zone crisis, as is the case with [the effects of] oil prices. The European rescue package pushed Spain and Portugal to adopt austerity measures, before their economic conditions deteriorate and become similar to those in Greece. Spain was thus the first to draft an austerity plan, which was subsequently announced by its government. But the fact of the matter is that the crisis, which has proven to be endemic to all member states of the euro zone, or to any bloc of developed economies, would not have been so severe had it not been for the fact that these countries adopted economic policies that are similar to those followed by the reckless economies of the United States, Britain and other countries. The Spanish economy had been able to maintain its positive rating despite its deterioration and the declining rates of growth it is witnessing. For instance, during the first quarter of this year, Spain issued treasury bonds without difficulty, with an interest rate of four percent over ten years in late March and in early April. Unlike Portugal, the rating of whom was lowered by the Fitch Ratings Agency, the rating agencies did not change Spain's rating, which remained positive according to Standard & Poor's. Nevertheless, Spain, which saw a prosperity that was distinct from the rest of the euro zone, could not benefit from this reality, except in terms of preserving a positive, albeit lower, rating, which would help Spain borrow to pay its debts. Spain faced the global crisis with great potential: its general budget achieved a fiscal surplus equivalent to 2.2 percent of the standing GDP in 2007, while its banking system overcame the crisis without being affected by the menacing subprime mortgage crisis, owing to the strength of its institutions and the rigorous regulation in force. The Spanish economy grew at a strong pace between 1999 and 2007, with an average annual growth rate of 3.7 percent, compared to 1.8 percent across the rest of the euro zone. This was driven by Spain's adoption of the unified European currency, and a lower interest provided to both institutions and families, but which drove the debts of the latter to exceed 147 percent of its income after the crisis. Meanwhile, the sudden boom in the construction sector could explain the difference between the growth rate in Spain and that in the rest of the euro zone, and which helped lower unemployment from 15 percent to 8.3 percent shortly before the crisis. The latter then raised unemployment back to twenty percent at the end of last March. In view of revenues from the large tax basket ensuing from rapid growth, the Spanish public debt stood at only 42 percent of the GDP in 2007, compared with 76 percent in the rest of the euro zone and 104 percent in Greece. However, this debt rose last year to 53 percent of the GDP, which is estimated at 1436 billion Euros. Spain was then hit, in parallel with Anglo-Saxon countries, by the collapse of the real estate market. Apartments were selling at several times their actual values, and continued to be 50 percent higher in 2009. However, the decline in construction projects helped raise unemployment to 20 percent, while tax revenues collapsed. The immediate contraction in the numbers of the employed workforce can be explained by the fact that thirty percent of those who are of working age were contracted on a fixed term basis on the eve of the crisis. Like Britain, Ireland and the United States, Spain was trapped in the strenuous net of household debt, which approached 90 percent of the GDP on the eve of the crisis's outbreak, exceeding the level of household income. This in turn hampered the growth of consumption, with the ensuing reduction in both production and employment. While banks were not involved in the management of the crisis, they closely followed the decline in real estate prices, the growing household financial difficulties, and the increasing bankruptcies filed by institutions. This prompted these banks to strengthen their reserves, in order to cope with bad debts, thereby reducing their ability to lend any further. As for the savings funds, which invested in the real estate sector that subsequently deteriorated in value, they soon found themselves in a difficult position. The more mortgaged properties were put for sale, the more prices continued to fall, while financial institutions increased their reserves and production institutions suffered from a sharp lack of competitiveness. The public debt thus increased by 89 percentage points between 2007 and 2010. Without growth, all attempts to curb the crisis will be ineffective. Moreover, the primary factor in reviving the economy is diversification, boosting production and subsequently, consumption. In the meantime, 4.6 million unemployed individuals are still waiting for relief in Spain.
