"(spanish and french housing bubble) deflates. that will slow their growth,"  

I don't know about Spain, but I still don't see how the french housing buble deflating will have major effect: french cannot use their house as ATM, construction jobs are not as big as in the US, fixed rate loan are still the overwhelming majority and were taken in a very low fixed rate context (okay they're longer maturity than previous decades but that's about it).

I'd appreciate any insight you have on the french situation.

Thanks for this great post!

The key reason why US housing prices have attracted so much attention is that a property price
crash or just a deceleration of the rate of increase of housing prices in the US would almost certainly weaken private consumption through wealth effects and ncreased uncertainty about the economic outlook. This is well known, but the data presented here imply that the same
danger exists for the euro area. In the euro area, the wealth effect might be less strong and consumers might be less indebted, but a fall in housing prices could instead also lead to an abrupt fall of new construction investment. Moreover, a fall in housing prices may jeopardise a part of the outstanding loans of the banking sector and force banks to raise reserves. This could reduce their willingness to extend credit to businesses and consumers. While the exact details of the transmission mechanism are different on the two sides of the Atlantic, it is clear that both sides face a quite similar risk.

Substantially, he's saying there would be:

• a drop in contruction investment;
  
• tightening of credit;

• a hit on the "wealth effect";
  
• a consumer debt problem.

He also doesn't address why consumer demand has only risen recently, while the property market has been booming for some years.

When locusts move on, they leave nothing behind