The Banco de España has described the financial system’s exposure to construction and real estate as “problematic” and O’Neill – chief investment officer for Europe, Middle East & Africa at Merrill Lynch Wealth Management – believes current real estate prices could sink further.
O’Neill says: “So far, real estate prices have fallen about 22% from their peak. It is credible to expect a lot more to come, with an ultimate decline of 40-50% looking plausible given the extent of the boom and what we have seen in Ireland and the US.” (article continues below)
Should prices demonstrate a decline of greater than 50%, O’Neill predicts that either government intervention or support from the Troika (the European Commission, the International Monetary Fund and the European Central Bank) will be required.
Last week, Spain’s government unveiled the most austere budget in the country’s modern history, following Spanish prime minister Mariano Rajoy’s announcement that the budget deficit would be 5.3% in 2012, increasing from its current 4.4% level.