The Independent: At last, German self-discipline is paying off - as the Spanish economic fiesta ends- by Hamish McRae

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At last, German self-discipline is paying off - as the Spanish fiesta ends - by Hamish McRae

The tortoise is catching up with the hare. The continental European economy as a whole is growing strongly at last, with Germany in particular experiencing its fastest growth since 2000. Yet Spain, until recently the fastest-growing of the large European economies, is now falling back, and its property market is in serious trouble. What's up?

The message for Germany is that five years of cold turkey has worked. While it is not likely to become an especially vibrant economy for all sorts of reasons, including demography, it has offset the disadvantage of going into the eurozone at too high an exchange rate and having to experience too high interest rates. What about Spain? There, the reverse has happened. It went into the eurozone with an undervalued currency and, in contrast to the German experience, that has been compounded by a long period of negative real interest rates. When money cheap, people tend to borrow it. When they have borrowed it they tend to buy something with it. That, plus an influx of buyers from other European countries, including Britain, has led to an extraordinary property boom. Spain, with a population of 40 million, is building more homes than France, Germany and Italy put together, and their combined population is 201 million.But now the property boom there is coming to an end with rising eurozone interest rates.

Meanwhile there is a certain biblical morality about the way the single currency has affected the different economies. The wise and prudent Germans are being rewarded and the more profligate Spaniards punished. It is more fun, of course, to be in Spain, but the eurozone is not about fun, and the Spanish party is drawing to a close.