But step out of the Castilian plain and onto the bustling streets of Madrid – or any other Spanish city for that matter – and the skyline tells a different story.
The horizon is dotted with relics from the country’s now burst property bubble.
Empty apartment blocks stand idle in the suburbs, while downtown the glass towers of Spain’s financial district cast shadows over the people below and a shadow over their children’s future.
Trapped between its cash-strapped banks and weakening public finances Spain is the biggest economy to run the gauntlet of skeptical credit markets that in three years have claimed the scalps of as many eurozone members like Greece, Portugal and Ireland.
The single currency can ill afford a bailout for Spain but neither can its leaders ignore crisis of confidence the country’s banks are causing. As such speculation is rife the country may require a bailout.
Spain’s predicament has less to do with a lack of austerity and more to do with a lack of transparency.
Unlike Greece and Portugal, the country’s public sector finances aren’t really the problem, rather the hit they would take should Spain need to fork out more money to shore up its ailing banks.
The country is already part nationalizing one of its biggest lenders – Bankia- at the cost of 24 billion euros. But the reality is much, much more money will be required for others.
On Monday we may well have a clearer picture of what Spain needs to get its house in order. That’s because the International Monetary Fund is set to publish its survey of the nation’s financial sector and judging by the recent drip feed of leaks emanating from the institution (so characteristic of this crisis) the picture will not be pretty.
The IMF reportedly reckons Spain’s banks will need 40 billion euros to bolster their accounts.
Yet the country’s prognosis is likely to have worsened since such data was collected and economists say more money will need to be earmarked. Indeed at just 40 billion euros, the IMF’s estimate would make Spain’s cash crunch cheaper than Ireland’s bank bailout. Hardly a likely scenario!
Explaining its decision to slash Spain’s sovereign debt rating to within a whisker of ‘junk’ status, Fitch ratings estimated efforts to shore up Spain’s broken banks could cost the country 6 to 9 percent of its GDP – or 60 to 100 billion euros. That’s up to $125 billion.
Megan Greene of Roubini Global Economics reckons Spain’s banks may be just the start of a problem that could be much more expensive than its politicians have let on. She says Spain’s banks may need up to 250 billion euros in total but even if the country manages to save its lenders, keeping the sovereign solvent is another matter
“A bailout for the banks could delay a bailout for the state, but the former could accelerate the latter as well.”