The housing bust that triggered Spain's banking and sovereign-debt crisis

Spain's land prices rose roughly 500% between 1997 and 2007, the sharpest run-up in the OECD, as construction and housing activity swelled to about 18.5% of GDP, roughly twice the euro-area average, while household debt climbed to around 115% of disposable income by 2006. When global credit markets seized up in 2008 the boom reversed abruptly: housing starts collapsed, non-performing loans at Spanish banks surged, and the sovereign-debt crisis that spread across the euro area from 2010 made funding scarcer still. Unable to absorb the losses alone, Spain nationalized eight lenders including Bankia and in mid-2012 requested a European Stability Mechanism credit line of up to 100 billion euros to recapitalize its banking sector, drawing roughly 41 billion. Unemployment, near 8% before the crisis, peaked above 26% in 2013, and GDP contracted in five of the six years from 2008 to 2013. Banco de España's own post-mortem traces the collapse to the interaction of an oversized real-estate sector, heavy private leverage, and a banking system that had financed the boom with wholesale funding that vanished once sentiment turned.