Over at Bonobo Land, Edward Hugh has an excellent post describing the Spanish economic outlook at this point. The country has a housing oversupply proportionally greater than that of the US market. Edward suggests that Spain today is at the point where Japan was back in 1990 when that country's property bubble sprang a leak.
It appears to me that Edward is on the same page with Fed Chairman Bernanke regarding the value of quick rate cuts in mitigating the effects of a real estate bust. The discussion threads I read at some US blogs have a lot of folks worrying that the Fed is unleashing inevitable inflation through its recent actions. Nobody is bringing up the Japanese case; perhaps its a situation of domestic blinders. I think I am leaning towards agreeing that the rate cuts are appropriate.
Edward mentions that Spain has room for substantial fiscal stimulus and points to Japanese efforts at the same. My view of Japan's attempts at fiscal stimulus in the 1990's is that it was poorly managed. Much of the cash went to construction projects that really added no value to transportation infrastructure; and due to the corruption in Japan's construction sector (bid-rigging) a material chunk of said cash was siphoned off. The stimulus packages would have been better if they were directed towards research in areas such as biotechnology or pharmaceuticals, or even alternative energy sources. Doing this would have at least provided the chance of generating groundbreaking technology. Instead Japan built bullet trains to nowhere and bought the Olympic Games.
This is where Spain can do it right. Spend the fiscal stimulus on educating its workers and building world class research universities. Building a meaningfully sized military would be a diversification, and would give Spain some clout in global security issues. Plus technical spinoffs from military development can be turned into cash-generating exports.