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The inefficient institutional design of the Euro allowed guaranteed bank liabilities to be converted into government debt, deepening the Great-Recession in Southern European countries. A recessive feedback process occurred through an increase in sovereign debt risk premiums in a cycle of global risk aversion. However, there was one fact that limited these negative effects. We refer to the overestimation of Spanish gross domestic product (GDP) in the public accounts for the period 2007-2013. We quantified the unexplained overestimation of Spain's GDP for the period 2007-2013 using three different methodologies, which leads us to a similar conclusion: Spain's GDP was overestimated by between 17% and 18%. We demonstrate that this overestimation allowed for significant savings in interest payments through a lower risk premium. This overestimation, unknown to investors, shows that markets are not efficient, and that information is incomplete. It is necessary to understand the role of debt under Hyman Minsky financial instability hypothesis.
balance sheet recession; euro crisis; financial accounts; private and sovereign debt; system of national accounts