Skip to comments.EU: Spanish epiphany as depression deepens?
Posted on 04/13/2012 3:55:14 PM PDT by bruinbirdman
Spains industrial output is sliding at an accelerating rate, as is entirely predictable if you enforce draconian fiscal tightening on an economy in deep recession with no offsetting monetary stimulus or exchange rate devaluation.
The latest data show that output fell 5.1% (y/y) in February, after 4.3% in January and 3.5% in December.
Durable goods fell 14.8pc, the sixth successive monthly fall. Capital goods output fell 10.6pc, according to Raj Badiani from IHS Global Insight.
This is politically untenable. Unemployment is already 23.6pc on the Eurostat measure. David Owen from Jefferies Fixed Income expects this to reach 27.5pc by the end of the year (which is roughly 32pc using the old measure from the 1990s, based on a Bank of Spain study).
Prof Jesus Fernandez-Villaverde says the German-imposed drive to cut the budget deficit from 8.5pc to 3pc over two years in a slump is a "recipe for disaster". It will not fly in a country where the two main trade unions are "living in the 19th century" and where there is no national consensus on the nature of the problem at hand. There will be a revolt.
Indeed, the interior minister today introduced new measures to prevent plots using "urban guerrila" warfare methods to incite protests that pose a grave threat to public order. Is this the start of coercion? I hope not. Spanish democracy is worth more than a mere currency.
The professor told me that Germans were "crazy" to try to impose such self-defeating austerity. The EU dictates should be resisted. Premier Mariano Rajoy should take a leaf from David Cameron's book and risk a full-fledged showdown, instead of quibbling over details in mini-spats that achieve little. "What is the EU going to do? Send in the army?"
In a joint oped piece with other Spanish economists
(Excerpt) Read more at blogs.telegraph.co.uk ...
no. send in the clowns.
If Spain can get their deficit under control, they should be in excellent shape compared to the rest of the EU. Spain is one of the few countries that can actually afford to take on more debt, unlike Italy (which is doomed), and Greece (which has already defaulted). They are only at 60 percent of GDP.
Wait. They’re already here.
It is a losing battle if their economy continues to contract. Less revenue will make the deficit larger.
Then they simply have to cut enough to get ahead of the game. Cutting less than your economy contracts won’t get you out of the hole.
Cutting more, and making even more drastic cuts to public spending is the only solution.
If the Euro collapses who will benefit and who will be hurt? China depends on Europe as one its major markets while we don’t.Seems to me we’d benefit and China would suffer.
Well, they could always lower taxes (especially on business), shrink government and forget about that green crap. Right.
All is moot if The Obammunist is reelected.
Never bet against the United States of America.
Historical (solid) income (dividend) equities will track inflation.
Uh, no. I think Germany will STOP sending in the money. The socialists have run out of other people's money and flushing good money after bad down the toilet wouldn't make any sense.
Ambrose Evans-Pritchard has surprised and disappointed me with a lot of his recent articles about the ongoing EU crisis.
So, 50% unemployment amongst younger people doesn't bother you then? And I certainly would not use house prices as a sign of financial health. House prices in the UK are also still far too high, but that isn't a good thing, it's a bad thing. I think you are perhaps allowing some national pride to get in the way of logic? Let's face it, Spain is in a mess economically. Hardly surprising with ridiculous rules on employment - I know British businessmen who have said they will never again set up any business in Spain, as you have to find alternative work for staff that you want to fire, how crazy is that? It just deters overseas investment.
It's quite exasperating reading analyses and comments on Spain that miss the fundamental point.
At the root of Spain's economic problems are two basic issues, both relating to employment laws.
(1) A quasi-Soviet public sector providing lifetime employment. Employees receive a modest salary and in return they effectively chose how hard they want to work. Their job description is almost impossible to change and they can't be fired. So they are an unmanageable workforce.
(2) Exorbitant redundancy payments at 45 days per year worked. Several generations of Spaniards have accrued potential redundancy payments that make it impossible for their firms to fire them. As with public sector workers, these people are effectively unmanageable. (Redundancy has now be changed to 30 days although accrued rights are preserved, so the problem remains fundamentally unchanged.)
Almost every family in Spain has one or several members in one or both of those two categories. So resistance to reform is enormous.
THAT is the problem in Spain.
A new currency and devaluation would only prolong and extend the misery of this inefficiency, in the form of lost purchasing power. The fundamental problem would remain.