February 27, 2012

Spain creaks louder

Ambrose went through something of a love affair with the Spanish economy, arguing that its innovative exporters could pull it out of slump. Different story now. Although Spanish governments ran the economy prudently - even with surpluses (unheard of in countries like France and the UK) - Spain was undone by negative real rates of interest foisted on it by the ECB. Ambrose now concludes
My guess is that Germany's refusal to countenance any form of EU subsidies, debt-pooling, or fiscal union -- other than policing the budgets of captive states -- has definitively broken the EMU spell. Latin nations by increasingly regard talk euro of solidarity as humbug. It has been a nasty shock. The era of national economic rearmament in Europe has begun.
Richard North has less sympathy for poor little Spain:
As we wipe away the tears, though, one also wonders whether this is the Spain with its rapacious commercial fishing fleet, equipped with generous EU grants, known for its plundering of British and African waters? Is this also the Spain that is so poor that it has been one of the net beneficiaries of the EU budget, hoovering up around €60 billion in EU net payments in the eleven years from 2000-2010, yet which has had enough spare cash to buy up our banks and Heathrow airport?
Some of Spain's economic wheezes are reminiscent of Greece. Big power groups had to sell power below cost for 10 years, and ran up a state backed "tariff deficit" of €20bn. Central government has been failing to rein in the spending of provincial governments. Now, reports a Spanish paper:
The Spanish government has adopted plans to allow private suppliers to recover, by the end of March, between €30bn and €50bn in overdue bills they are owed by Spanish municipalities – a move which is expected to expose the real size of Spain’s public debt.
The poorer countries of Southern Europe were only ever in the EU for the massive subsidies they could get out of it. So they have quite a conundrum now. Under the proposed austerity policy "the unemployment rate would rise to well over 25pc with six million out of work by the end of the year".

How will the bond markets react as the real state of Spanish debt starts to emerge? The property market is already collapsing, unemployment is high, already some municipalities can't pay their bills.

The Spanish confidence trick is drawing to a close. They haven't done out and out lying like the Greeks, but the structure of governance has been too primitive to absorb the floods of money that have poured in.

One can have sympathy with ordinary Spaniards, just as one can with ordinary Greeks. But that is no reason to beggar ourselves to prop them up.

Moral: splitting off the wholesale from the retail banks is beyond urgent. Then let the chips fall where they may.

Will Spain still be in the eurozone by the end of the year? Not if their government is rational.

1 comment:

Weekend Yachtsman said...

"Will Spain still be in the eurozone by the end of the year? Not if their government is rational."

Note - their government, like ours, is in Brussels. And it's not rational: its entire being and all its power is focussed on one objective only - political union in Europe, under its own aegis, without the interference of any electorate.

So Spain will still be in the eurozone by the end of the year.