The problem with spanish economy comes from the HUGE construction bubble it had a few years ago. Spain alone was building more than France, Germany and Italy TOGETHER. Government made money, construction enterprises made money, real state companies made lots of money, employment was high, even some citizens speculated buying and selling houses at a higher price some years later. To support that accelerated growth and construction, spanish banks borrowed money (LOTS OF IT) from european banks, mainly german banks. Banks went crazy giving mortgages, just as in the US. Mortgages went up to 25-30 years and beyond. When the bubble burst, prices went down, mortgage interest rates went up, and many people lost their jobs. That led to many people unable to pay for its mortgage, and banks started acumulating real state. Nowadays, banks hold a HUGE real state stock, and they don't want to sell it at current prices, because they would have to admit that their assets aren't worth what they claim. Because of that strategy of the banks, prices haven't go down as much as in other countries which suffered a bubble burst too. There is a very big stock of inmovilized real state in Spain.
And add to it that Spain issues bonds but doesn't easily find buyers now. ECB (European Central Bank) has given spanish banks thousands of millions of euros at an 1% interest rates, and those spanish banks, instead of giving loans and credit to enterprises and people, they buy spanish bonds (at 5%-6% levels).
