In last week's weekly newsletter, I explained why Spain was in big trouble. Today I want to present the full context euro zone-wide and why there will be more sovereign defaults to come in the euro zone.
First, the short story on Spain is that Spain had a speculative boom due to low interest rates in the euro zone and the inflow of capital from other euro zone countries associated with those rates. This boom came to an end with the Great Financial Crisis leaving an overindebted Spanish private sector in its wake. Now Spain is suffering from a balance sheet recession in which businesses and households have attempted to increase net savings in order to pay down the debt to levels that are covered by the now depreciated assets which serve as collateral. As long as ...
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Edward Harrison is the founder of Credit Writedowns and a former career diplomat, investment banker and technology executive with over twenty five years of business experience. He has also been a regular economic and financial commentator in print and on television for the past decade. He speaks six languages and reads another five, skills he uses to provide a more global perspective. Edward holds an MBA in Finance from Columbia University and a BA in Economics from Dartmouth College.