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Integration, Spurious Convergence, and Financial Fragility: A Post-Keynesian Interpretation of the Spanish Crisis

Author

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  • Esteban Pérez Caldentey
  • Matías Vernengo
Abstract
The Spanish crisis is generally portrayed as resulting from excessive spending by households, associated with a housing bubble and/or excessive welfare spending beyond the economic possibilities of the country. We put forward a different hypothesis. We argue that the Spanish crisis resulted, in the main, from a widening deficit position in the nonfinancial corporate sector--the most important explanatory factor behind the country's rising external imbalance--and a declining trend in profitability under a regime of financial liberalization and loose and unregulated lending practices. This paper argues that the central cause of the crisis is related to the nonfinancial corporate sector's increasingly fragile financial position, which originated from the financial convergence that followed adoption of the euro.

Suggested Citation

  • Esteban Pérez Caldentey & Matías Vernengo, 2015. "Integration, Spurious Convergence, and Financial Fragility: A Post-Keynesian Interpretation of the Spanish Crisis," Economics Working Paper Archive wp_847, Levy Economics Institute.
    • Handle: RePEc:lev:wrkpap:wp_847
    as

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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Euro; Macroeconomic Crisis; Spain;
    All these keywords.

    JEL classification:

    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • F45 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Macroeconomic Issues of Monetary Unions
    • O52 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Europe

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