Further during the great recession of 2011 and 2012

Further during the great recession of 2011 and 2012, Spain’s per capita GDP dropped 11 points below that of Italy. However the gap has narrowed down to 4 points as Spain’s economy overtook Italy’s during the property bubble. One of the reason why Spain’s economy has fared better is that the European Central Bank (ECB) has considerably favored Spanish households over their Italian counterparts, in case of monetary repression. In addition to this, Italy is a nation of savers whereas Spain is a nation of debtors. The savers have had a dreadful time over the last 10 years due to ECB’s low, then zero-interest-rate policy and eventually negative interest rate policy, which is focused to keep the Euro project and European Banks from collapsing.
With the decline in interest earnings, the interest payments have also decreased significantly. However, for Italy, the fall in earnings have twice as much as the fall in payments leading to a negative impact on household’s overall net interest income. This has resulted in negative effects on consumption and investment levels. On the other hand, the fall in interest payments is significantly greater than the fall in earnings for Spain, resulting to a positive impact on households’ overall interest income.
The major reason for this larger decline in interest payments for Spain is its’ high stock of household debt at 123% of GDP is almost double than that of Italy (63%) and the interest rates for most of the mortgages are indexed to money market rates and therefore have declined following ECB’s monetary policies. However, as the ECB eventually will begin to increase interest rates, Spanish households would probably be hit harder than Italian households.