The International Financial Crisis and its Impact on the Spanish Economy

This paper tries to explain in a summary way the causes and effects of the international financial crisis that is affecting the world; and also gives a glance into its main particular consequences or effects on the Spanish economy. The longest period of continued world economic growth and prosperity that has brought millions of people out of poverty has come to a fast halt with the international financial crisis which appeared quite suddenly after the summer of 2007 and that is causing the world economy to decrease its activity abruptly, sending millions of people into unemployment. The subprime mortgages issue in the US, which backed many other financial products spread through the international financial systems, was the spark when the guarantees could not be made effective. The fire spread together with the realization of the lost trust within the interconnected world financial institutions has created a big contraction of credit, cutting the cash flow to the economy and consumers. Some large banks have gone bust and some industries and countries with credit exposure are “bursting” their bubbles .In Spain ,The financial crunch creates unemployment and particularly in the construction and real estate industry with people not being able to pay their mortgagers and construction companies backing up credits with the shrinking value of land and house properties, the international financial crisis is creating a very hard economic situation with decreasing activity and almost 4 million people unemployed. Banks having to be saved by the state, strong cash injections by the central bank and large public deficits for a country with not enough internal savings and having lived on borrowing money internationally. The global and coordinated answers, measures taken so far, and those that will be taken will, hopefully bring back trust into the system. Nevertheless, after this sudden “wakeup” call, the world financial and economic environment is changing, with a return to less risky, better known policies, and financial products, at least until the financial tsunami gets calm again