Skip to comments.Spain's sovereign thunderclap and the end of Merkel's Europe
Posted on 03/05/2012 2:08:10 PM PST by bruinbirdman
The Spanish rebellion has begun, sooner and more dramatically than I expected.
As many readers will already have seen, Premier Mariano Rajoy has refused point blank to comply with the austerity demands of the European Commission and the European Council (hijacked by Merkozy).
Taking what he called a "sovereign decision", he simply announced that he intends to ignore the EU deficit target of 4.4pc of GDP for this year, setting his own target of 5.8pc instead (down from 8.5pc in 2011).
In the twenty years or so that I have been following EU affairs closely, I cannot remember such a bold and open act of defiance by any state. Usually such matters are fudged. Countries stretch the line, but do not actually cross it.
With condign symbolism, Mr Rajoy dropped his bombshell in Brussels after the EU summit, without first notifying the commission or fellow EU leaders. Indeed, he seemed to relish the fact that he was tearing up the rule book and disavowing the whole EU machinery of budgetary control.
He is surely right to seize the initiative. Spains economy will contract by 1.7pc this year under his modified plans and unemployment will reach 24pc (or 29pc under the 1990s method of counting). To compound this with manic fiscal tightening and no offsetting devaluation is intellectually indefensible.
There comes a point when a democracy can no longer sacrifice its citizens to please reactionary ideologues determined to impose 1930s scorched-earth policies. Ya basta.
What is striking is the wave of support for Mr Rajoy from the Spanish commentariat.
This one from Pablo Sebastián left me speechless.
My loose translation:
"Spain isnt any old country that will allow itself to be humiliated by the German Chancellor."
"The behaviour of the European Commission towards Spain over recent
(Excerpt) Read more at blogs.telegraph.co.uk ...
I have no idea what this mean in practical political, and economic effects, but it’s about time someone stood up against the European Union socialists!
Spain is declaring that it is going to continue to spend money it doesn’t have, the Euro be damned. In addition, he’s got zero plans for how to deal with 30 percent real unemployment.
It means that the EU is going to have to look at an exit strategy for Spain, likely also Portugal, and probably Italy.
If Spain persists, then the Euro is toast. If the EU wins, then Spain is likely toast (as is Greece).
Not really. Spain spent way more than it should have under the Socialist governments (and even Aznar was not immune, since the EU was encouraging all of these countries to borrow for infrastructure).
That said, the infrastructure improvements were actually an enormous benefit to Spain, which was very impoverished, at least in part by our refusal to give it the aid we gave to other countries after WWII. This was to punish it for not being left wing. The reason that Franco adopted autarchy is basically because none of the Western powers would give any aid to Spain because, while it had remained neutral and allowed Allied military flights, it was not leftist.
However, it was a very central-government controlled economy, although this was not for Franco’s personal benefit, but because he believed it would be most efficient. This was all loosening up at the end and the reason the Socialists got into power is basically that they promised to continue the government controlled economy.
IMHO, Rajoy is not a great leader, but he’s right in this. That percentage is about what Spain can bear without causing massive social disruption. I think you’ll see many more cuts in the future and much more of a shift to private industry.
Aznar had made some progress in this, but unfortunately the well staged 3/11 disrupted the almost certain victory of the PP (Aznar’s party) and dragged Spain back into a very radical socialism.
“Spain isnt any old country that will allow itself to be humiliated by the German Chancellor.”
And so what is Spain’s plan when the German teat is suddenly dry? I don’t know of any new continents left that have a bunch of indian gold to steal.
Spain’s got a fairly large cushion - about 20 percent of GDP vis-a-vis Germany.
They could afford about 4-5 more years at this pace before they would reach the same indebtedness as Germany.
"It means that the EU is going to have to look at an exit strategy for Spain, likely also Portugal, and probably Italy." ..........and.........If Spain persists, then the Euro is toast. If the EU wins, then Spain is likely toast (as is Greece)."
If things go badly, I think Spanish, Greek or Portugeuse sovereignty will prevail and if Germany and France cannot accomodate themselves to any adjustments needed to accept what that might mean within the Euro, then nations will willingly leave the Euro and a decade later things will not be worse for anyone in spite of it.
Everyone WILL adjust and the most major loss will simply be loss of face over the Euro experiment.
Nigel Farage, call your office.
All right, Spain. You are now in breach of contract.
All debts owed to the EU are now immediately due. Any refusal to pay will result in the seizure of all international Spanish assets to pay this.
Furthermore, you are now ejected from the EU, so there will be no further free-transit into the rest of Europe. Additionally, tariffs will now be placed on Spanish goods... with the proceeds going to repay your debt.
Lastly, all Spaniards living within the EU will forthwith be ejected back to their home country.
Enjoy your decision... and have a *NICE* day!
Now, *THAT’S* what needs to be said.
There seems to be a worldwide epidemic of these "new methods" of accounting - one might almost think that governments were trying to hide something from their unruly subjects.
When the Federal Reserve stopped publishing M3 - the broadest measurement of the money supply - back in 2006, a "crazy" friend told me that it was a sure sign of monetary shenanigans and a harbinger of fiscal doom. He was right, and today we have no idea how much money the Fed has printed out of thin air. Similar obfuscations - like "revised" unemployment calculation methods and the exclusion of food, fuel and healthcare from the Consumer Price Index - are desperate attempts to hide some very ugly measurements.
Smoke and mirrors will only work for so long. Eventually the market will do its vicious work and collapse these houses of cards. If governments will go this far to hide the truth and delay the judgment, it is going to get brutally ugly.
Things are happening fast and furious in Europe right now. In one day:
1) Greece’s 1 year bond yield has broken 1000%.
2) Geert Wilders Freedom Party has called for the Netherlands to leave the Euro and return to the Gilder.
And now this. When the European markets open, I expect some serious fireworks. Track here:
And here are the market futures:
An otherwise interesting article spoiled by Pritchard's ignorance of history. Hoover -- contractionary? Of course, he's in good company: Krugman, Yglesias, etc. all cling to the fiction that Hoover implemented austerity.
How, otherwise, to paint FDR as anything other than a revolutionary?!
Interesting post/informative thread. Thanks.
External Debt to GDP ratio...
Tarp was a blank regulation for SecTreas.
Obammunist Care gives all authority on nationalized health care to the President. Regulations that were never written when it was passed. Osama just fills in the blanks.
Congress would have to pass any disagreements as legislation subject to The Obammunist's veto.