Spain's banks, particularly its savings banks or "cajas," have enormous amounts of bad loans. And as the second recession in three years hits Spain, the number of bad loans is expected to surge. Spain's unemployment has risen to nearly 25 percent, making it increasingly difficult for many Spaniards to pay their mortgages.
The country's central bank, the Bank of Spain, says banks are still burdened with about 175 billion ($220 billion) in "problematic" real estate holdings, including loans and repossessed homes.
Spain's government debt stood at a relatively low 68.5 percent of its gross domestic product at the end of 2011. It is predicted to hit 78 percent by the end of the year. But even that higher figure would still be below the 2011 debt-to-GDP ratios of countries like Italy, Belgium, France and even Germany.
SO WHY IS SPAIN'S BANKING CRISIS SO WORRISOME TO EVERYONE ELSE?Spain is the fourth-largest economy in the 17-country eurozone, behind Germany, France and Italy. Its economy is nearly five times bigger than Greece's, making its financial and economic problems much more worrisome for leaders in Europe. The rising cost of rescuing failed banks risks bankrupting the Spanish government. And since Spanish banks own huge amounts of their country's debt, any threat to the government's finances could boomerang back to the banks and make them even weaker. A widening recession and financial crisis in one of Europe's largest economies would drag down neighboring countries and hurt companies and investors around the world. An international bailout of Spanish banks could relieve some of the pressure on the Spanish government, and decrease anxieties across Europe and the rest of the world. HOW MUCH WILL IT COST TO BAIL OUT SPAIN'S BANKS? Bankia S.A., the country's most stricken lender, announced last month that it needed 19 billion ($23.63 billion) in government aid. Spain only has 5 billion left in a fund that it established in 2009 to help banks. The government has promised to help Bankia but has not mapped out a plan.
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