I don’t think we are going back far enough on how this got started. The fact that most of the industrialized world is sucked into this points the finger at Central Banks (US, Europe, Japan). For the last fifteen+ years they kept telling us inflation was running at 1-3%, while real estate prices were going up 5-10+ percent every year...and they never added that into the inflation numbers. If they had inflation would have been much higher and the central banks would have been compelled to raise interest rates years ago...and this global real estate bubble would never have occured.
None of the comments seem to directly address the author’s question: why did the world-wide collapse seem to start in Europe with a small proportion of mortgage defaults?
I would suggest reading Anthony Downs’ book Niagara of Capital: How Global Capital Has Transformed Housing and Real Estate Markets (2007). Downs explains how after 9/11, foreign investors were looking for a safe haven for their money from the threats of terrorism and America was looking to stimulate its ailing post 9/11 economy. U.S. investment banks concurrently invented collaterlized mortgage bonds and securitized real estate stocks (derivatives) to raise money for foreign investment in U.S. real estate. What could be safer than American real estate? This resulted in a Tsunami of money into U.S. real estate and a spike in the money supply which drove interest rates down, oil prices sky high, and inflation in good and services down but inflation in real estate and oil prices up. So it was essentially the influx of foreign capital that brought about the real estate bubble - hence it would be no surprise that Europe would be first to feel the pain of even a small amount of defaults. Also, positive loan leverage works great; but in reverse it has an exponential negative effect.