The Spanish government needed to deal with the fact that many of its citizens could not make their home mortgage payments and has recently approved a law that reeks of electoral politics, includes requirements that are in flagrant contradiction to some of our recent reforms and invokes disapproval from a financial sector that will be ultimately responsible for applying "means of protection for unprotected mortgage owners."
The established cutoff is that all family members must be unemployed, a condition that could provide incentives for citizens to avoid looking for employment. If the goal is to avoid social exclusion, something that Public Administrations are responsible for, then the law could marginalize a wide range of families and individuals.
For their part, the banks are already working on mortgage restructuring with their clients. The new law would promote a voluntary Code of Best Practices, yet the banks are not in the best position to reject measures that the Spanish government presses on them.
There are examples in recent history of political power forcing financial institutions to perform actions that are beyond their rightful role, leading to expensive and hard-to-find credit. In the United States, sub-prime mortgages blew up disastrously.
In Greece, it was considered impossible to seize properties for home mortgage debts less than 180,000 euros. Spain could go down the same path, paved with good intentions, but terminating in an inferno that?s too hot to handle.
