About an hour car ride outside of Madrid, Spain, is a tiny rural village that just a few years ago had high hopes for an abundant housing market. Yebes is now an example of the economic crisis that has affected the growth of cities. With an excess of 250 row houses, of which only 50 are settled, bad debt has caused these new homes to fall into disrepair with concrete chipping off the buildings, stolen piping, radiators and doors and ghostly empty streets.
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Yebes is hardly unique. The wreckage of Spain’s once booming construction industry is everywhere. And much of it sits as bad debt on the books of Spain’s banks, which once liberally offered financing to developers and homeowners alike. It is still uncertain as to how big a loss the banks are facing. Spain’s economy, the fifth largest in Europe, is much bigger than Ireland’s or Greece’s, and a bailout of its banks could be far more costly, an event that could push the government into default and end up dooming the euro itself.
