House prices surged because interest rates were set too low for those nations for several years in a row.
Interest rates are being set to keep a lid on Europe-wide inflation. Even if the ECB lowered borrowing costs to keep the property market afloat in Spain and Ireland, it would risk re-igniting inflation in one of the other euro-area countries. To put up rates when house prices, and new housing starts, are moving into free fall may seem like madness. After all, a significant property collapse could tip economies into recession, and leave mortgage lenders and banks struggling. Yet that is the way the system now works.
Interest rates are being set to keep a lid on Europe-wide inflation. Even if the ECB lowered borrowing costs to keep the property market afloat in Spain and Ireland, it would risk re-igniting inflation in one of the other euro-area countries. To put up rates when house prices, and new housing starts, are moving into free fall may seem like madness. After all, a significant property collapse could tip economies into recession, and leave mortgage lenders and banks struggling. Yet that is the way the system now works.
One consequence of the euro is boom-and-bust property markets in some member economies. We have seen the boom. Now we are about to see the bust -- and there is probably little that anyone can do about it.
http://www.bloomberg.com/apps/news?pid=20601039&refer=columnist_lynn&sid=aHuTdNpPbDmc
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