The economic uncertainty plaguing Europe has affected US markets as well, making now the best time to seek the safety of a gold investment. Spain has the 5th largest economy in the European Union, and the 4th largest in the Eurozone. And its numbers don’t look good. According to latest statistics, a quarter of the Spanish population is unemployed, raising the total to over 5 and a half million people out of work. The country is currently trying to work its way out of its 3rd recession in two years, and if the austerity measures passed in 2012 are unsuccessful, Spain be forced to apply for a bailout.
The Breakdown of the Banking System
In 2008, the numbers did not look good for Spain. The nation was faced with a trade deficit that was 10% of the GDP, high inflation, and a loss of competitiveness in the marketplace—and then the housing bubble burst.
Prior to their collapse in 2008, Spain’s banking system had been highly regarded as among the strongest and most stable in all of Europe. They were rather conservative in their rules and practices, had high capital, and strict borrowing and lending requirements. It relaxed its policies as the residential housing market expanded, and more and more people began buying property. As a result, Spain was one of the countries hit hardest by the bursting of the housing bubble.
In 2012 the EU agreed to give Spanish banks a 100 billion euro bailout to inject capital into the financial system. The European Central Bank, determined to save the euro, offered to buy up sovereign debts on the condition that Spain (and other struggling nations) apply for aid and agree to reforms. Since then the bank has embarked on a restructuring and recapitalizing program to return it to solid ground. The creation of the SAREB, is one measure. It is a bank whose purpose is taking over 90 billion euro’s worth of bad property, and turning them around to invigorate the economy.
Spain has passed a multitude of austerity measures and labor reforms set to take hold in 2013, with a goal of making spending cuts over raising taxes. The government’s spending will be severely restricted, and there is a freeze in public sector pay for the third quarter straight. The administration is also working to set up an independent authority that would monitor the government’s finances to hold them accountable in the future and prevent massive debts, as well as 43 new economic reform laws set to be passed this year.
Road to Recovery
So far austerity measures have yielded few positive results, and protestors regularly take to the streets. It is perhaps too early to tell what direction Spain is headed in—whether the government can enforce its policies, and whether they will have the positive impact that is hoped for. A bailout for Spain would be incredibly expensive, and would stretch the limits of the European Union’s funding. What is the best investment in a time like this? The best may vary by person and portfolio, but the key is diversification. And in an economy where currencies, stocks, and government bonds are unreliable, turn to tangible assets like precious metals.