The pain in Spain lies mainly on the Costas

Once the full extent of the financial crisis in Greece became apparent, the governments of the EU, the European Commission and the European Central Bank, set about putting together a rescue package which eventually also took account of money market pressures against Portugal and Spain. Owing to several delays in getting this massive project under way, the money markets rapidly lost confidence in any determined action from the EU and Eurozone countries and had started to concentrate, not simply on sovereign debt issues alone but on the trend increases in the deficits and the composition of the economies the markets felt most at risk. Despite having a national debt level of "only 50 per cent", Spain was deemed to be the next most vulnerable to potential default.

During late April 2010, Standard and Poor downgraded Spain's Credit Rating and on 28 May 2010, Fitch followed suit by cutting the country's rating from AAA to AA+. A bitter blow to the Spanish government which had started implementing an unpopular austerity programme worth 15 billion euros this financial year; has drawn up plans to reduce the deficit from 11.2 per cent of GDP in 2009 to three percent by 2013; has recently nationalised one of the struggling savings banks, Cajasur; and was encouraging mergers or "alliances" between the remaining 44 regional savings banks in order to avoid insolvency. Spain had also completely reversed its programme of stimulus spending, extended unemployment benefits and loan guarantee schemes. All this against rising trade union unrest, though thankfully, none of the violence witnessed in Greece.

The rating agencies remained unmoved. Both, no doubt, took account of Spain's 20 per cent unemployment, which surely must increase, and that dubious 0.1 per cent growth figure for this year's first quarter and expressed doubt on Government growth targets. BBC Business News quoted Fitch: "The inflexibility of the labour market and the restructuring of regional and local savings banks will...hinder the pace of adjustment, particularly in the aftermath of the real estate boom." It is that real estate, explosion, in both senses of the word that has caused Spain's current financial crisis.

At first glance Spain is a rich, large economy, usually ranking about 12 in the world, with an estimated 2009 GDP of $1.47 trillion, about $35,000 per head. This is roughly 3.6 per cent lower than 2008 and gloomier estimates think the fall could have been as much as four per cent. Unemployment, which had been as low as eight per cent in 2007, rose to 11.4 per cent in 2008 and further to 19 per cent by December last year. The fiscal deficit which had been less than four per cent in 2008 and was expected to double in 2009, has been estimated at just over 11 per cent by Eurostat.

Although sovereign debt figures flatter, it's Spain's Private Sector Debt rising from $2.98 trillion in December 2007 to $3.45 trillion by the end of 2008 that cause money market concerns, as a great deal of this amount is tied up in the country's recently booming but now very bust real estate. The American Federal Government estimated that the construction industry accounted for some 13 per cent of GDP during the boom.

The small regional savings banks (cajas) have at least 450 billion euros worth of loans outstanding to the property sector and most of this property has been developed along Spain's Costas where the market has crashed by up to 65 per cent - that's if you can find a buyer!

Thankfully, not a problem to worry us Brits. Well, not quite, as up to a million UK citizens live in Spain at or close to the popular holiday destinations - the Canaries, Mallorca and those Costas. Many have retired to Spain and have sold everything in the UK so as to live in Channel 4's "A Place In The Sun". Ample sun maybe but with a collapsing pound, credit crunch, housing bust and general rise in the Spanish cost of living, tens of thousands are now suffering real financial hardship.

Although many have returned to the UK, of those that stay a surprising number have never bothered to apply for a Tarjeta de Residente Comunitario, a Community Residence Card, even although this is a legal necessity and allows one access to all the (welfare) benefits of a Spanish citizen. Only some 350,000 such cards have been issued. Well if these represent the determined to stay in Spain, as many may soon be returning to dear old Blighty, afterall, it will be the rain in Spain they will so miss.