War of Attrition and Power of Inaction: The Spanish Financial Crisis and its Lessons for the European Banking Union

The aim of this paper is to analyse the main causes of the Spanish financial crisis (2009-12). Risk mismanagement in the saving banks was the main culprit but the intensity of the crisis was due to the “war of attrition” between the main stakeholders (the central and regional governments, the Bank of Spain and the cajas), which was further reinforced by the “power of inaction” of the big Spanish banks: Santander and BBVA. Ultimately, an external actor resolved the stalemate: the European Stability Mechanism, which was able to introduce the necessary reforms after successful completion of the Memorandum of Understanding. The paper sheds new light on the Spanish case by analysing the political and economic factors that led to the crisis. Furthermore, rather than examining the financial crisis from a purely domestic perspective, the paper emphasizes the interplay between domestic and European factors. It closes with lessons for the European Banking Union that can be extracted from the Spanish experience.
Miguel Otero-Iglesias
Sebastián Royo y Federico Steinberg Wechsler
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