Euroland – Eurozone in crisis with a bursting housing bubble in Spain and speculative currency bubbles in Eastern Europe
- Abstract GEAB N°16 (June 16, 2007)

Transformations fuelling the current global systemic crisis within the global system do not apply to China and the US only: they apply to the European Union which is also an emerging power. Indeed it is made of ancient nations, former global powers for some of them (China too ruled the world in the past). However the new combination built by the EU (and in particular by its Euroland centre) is a new power learning about its new role. According to LEAP/E2020, the learning process will be tough over the next six months, because the Euroland will experience its first real systemic crisis, i.e. an asymmetric shock.

This shock is already shaping up and it is coming from Spain. The Spanish economy is following the US lead with a housing bubble beginning to burst since the beginning of this year (as anticipated by LEAP/E2020 at the end of 2006), entailing a collapse of the financial bubble (just like in the US, Spanish households are over indebted, going from 75 percent of their available revenue in 1995 up to 133 percent in 2006) in a configuration where European interest rates (handled from Frankfurt by the ECB) will worsen the Iberian economic rout (ECB interest rates directly affect those mortgage loans Spanish people are so fond of (1)). The reason is that the ECB over the last few years was incredibly lucky and never had to cope with any serious divergence between the various economies of the Eurozone. This luck is now over. Spain, Portugal, Greece, Ireland, and to a lesser extent Italy or even France (2) (to mention only the largest economies concerned) have begun to diverge greatly from the German or the Dutch economic trends. Spain's balance of payments deficit is abyssal: USD 98.6 billion. In 2006 in the world, only the United-States did worse than Spain. It is three times the French deficit and it must be compared to Germany's USD 105 billion surplus.