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The Euro Crisis and Its Aftermath$
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Jean Pisani-Ferry

Print publication date: 2014

Print ISBN-13: 9780199993338

Published to Oxford Scholarship Online: May 2014

DOI: 10.1093/acprof:oso/9780199993338.001.0001

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The Golden Decade

The Golden Decade

Chapter:
(p.57) Chapter 8 The Golden Decade
Source:
The Euro Crisis and Its Aftermath
Author(s):

Jean Pisani-Ferry

Publisher:
Oxford University Press
DOI:10.1093/acprof:oso/9780199993338.003.0008

In the 2000s, Spain enjoyed a period of unprecedented economic growth fuelled by a surge in credit. Banks, especially regional saving banks, lent money to nearly anyone, including countless small entrepreneurs, while cheap credit allowed poor households to buy houses they could hardly afford. The picture was broadly the same in Ireland and in both countries, the bursting of the housing bubble had tragic consequences. The boom years led to very unbalanced economies, with the euro playing an important role in the process due to the mechanics of interest rates and the convergence brought on by the monetary union. Also because of the euro, these destabilising processes were not automatically kept in check by economic forces. Although policymakers could not do much about interest rates, there were other ways they could have dealt with these problems head-on. But they failed to act, overlooking the fact that private imbalances could also lead to crises.

Keywords:   Spain, Ireland, economic growth, banks, credit, housing bubble, euro, monetary union, interest rates, loans

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