Debt is even harder to get rid of in Spain

(CBS News) MADRID - The one thing that worries Wall Street and the White House the most is the crumbling of the European economy. The nations of Europe taken together add up to the largest economy in the world. For the most part, they're in recession; their unemployment rate is over 11 percent. One of several countries in need of a bailout is Spain.

They call themselves "Los Indignados," the indignant ones, a grass-roots protest movement sparked by Spain's economic crisis.

One of their Madrid protests was to help Luz Reyes, a single mother of two, facing eviction. At the height of Spain's housing boom, Reyes bought an apartment for $250,000, and borrowed the entire amount. Now it's worth half that.

Reyes has lost one of her jobs cleaning houses. She earns $620 a month and can no longer afford her payments.

"I don't know what is going to happen now," Reyes said. "I suppose they will put me in the street."

Her lender is Bankia, which last week asked for a $24 billion bailout. There are fears that it could collapse under a load of toxic debt -- mostly bad mortgages -- and that Spain's economic survival could hang in the balance.

Many Spaniards believe their economy is the victim of reckless lending.

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A development in Madrid was supposed to be a symbol of Spain's new prosperity on the back of a major housing boom: There were plans for soccer fields, swimming pools, even an artificial lake. But today it is a ghost town- less than one-quarter of the units there have been sold, a symbol of a boom gone bust.

Under Spanish law, in a foreclosure, you lose your home but keep the debt.

Esther San Ruiz was evicted but still owes the bank more than $200,000. Now she helps people like Reyes fight the banks.

"There would be justice if we did as in the United States, where you would have to give away your home, but at least you wouldn't have to pay off the mortgage to your bank on top of that," San Ruiz said. "Here they take your home, you stay with the debt and will be bankrupt the rest of your life."

San Ruiz said many people are at fault.

"I blame the government and the banks," she said. "The banks were giving mortgages to poor people like they were giving candy to a child."

On this day, Reyes was lucky. The bank representatives backed down and agreed to work out a deal.

It's a reprieve for Reyes, but it is not a solution for Spain's banks, which are struggling under the weight of an estimated $185 billion in bad loans.

Europe's $650 billion bailout fund is ostensibly enough to bail out Spain if needed. The problem is, that wouldn't leave much for the next crisis. Several other economies are teetering on the edge of crisis: Ireland, Portugal, and Italy, just to name a few.

  • Clarissa Ward

    Foreign Correspondent, CBS News