Spain: the economic perfect storm?

For what I´ve been reading and listening to lately, it seems to me that we might be headed for an economic Perfect Storm in this dear country of us. What do I mean by economic PS? I mean that everything that could go wrong is in fact going wrong, and that the only good thing about the bad news of today is that they are certainly not as bad as tomorrow´s bad news will be. Let see: after  years of unprecedented increases in housing prices, a large proportion of the Spanish households are "married" to a mortgage for 20,30 or 40 years. A few things are be quite certain about this marriage. One: in many cases it will last longer than the real marriages who signed those mortgages. Two: the mortgage is often worth more than the house is helping to finance. Three: the housing bubble is bursting right before our eyes. Four: salaries have not increased above inflation (or house prices) during these years of bonanza, so it is difficult to see how could they increase now in times of rising unemployment and general economic slowdown. Five: if salaries are not likely to increase in the near future but morgage payments are increasing, how could consumption be maintained at present levels?

And on top of that the banks which all these years have joined the housing party by providing cheap credit are now cutting back on risks, and refuse to lend to those few who are still willing to buy a house. Just as spectations of rising prices and cheap money pushed people into houses they could not affort, now spectations of lower future prices and restrictive lending have brought the housing market to just about a complete halt.

So it seems as if the main economic engine of Spanish growth is just about running dangerously short on fuel.

Well, perhaps if the rest of the world is growing fast, they will buy more of our products and compensate the decline in domestic consumption....I would´t count on it, let´s see. The productivity of the Spanish economy has been declining fast, in part due to the very low productiviy of the jobs that were being created, and in part due to the sorry situation of our school and university system, and the lack of decent budgets for Research and Development of Spanish companies and of Spanish governments at all levels. So the world is not exactly waiting in long lines to buy our products....and turism, the traditional cow of the Spanish economy will suffer from competition in other countries with lower prices and better service.

Furthermore, the world is not expected to grow as fast in 2008, with real worries about the health of the US economy, the rising price of oil (reached 100USD this week), the geopolitical instability in places like Iraq, Pakistan, Nigeria, the rising threat of terrorism (Dakar rally has just been cancelled for fear of attacks!!),  and on top of all that, the finantial crisis originated on the "suprime" mortgages. The finantial markets are dry out of money because banks refuse to lend money to each other because they do not trust the fundamentals of their business. The central banks are pouring money into the world finantial system but the lack of confidence among the institutions is making these attempts all but useless. There has already been a bank run (first time since XIX century in UK), when clients lost faith in the capacity of Northern Rock to guarantee their deposits...How many other banks, in the world, how many in Spain, could be subject to such disturbing lack of confidence?

And to add insult to injury, Spain will have a general election in 3 months, and it looks as if could get messy. If no clear majority can be achieved by either of the two main national parties, the key to the Moncloa could be in the hands of the regional (nationalist) parties. When the economy will be in need of a strong hand to make the difficult changes that the Spanish economy needs to get out the hole it has put itself into, we might have a goverment with its hands tied by very regional and particular interests.

I truly hope I´m wrong, but we could be set for a bumpy ride. Buckle up, friends!