Posted on 02/26/2012 5:44:29 PM PST by bruinbirdman
Spain's new prime minister has looked into the abyss and recoiled.
Though he swept into office as an apostle of orthodoxy, Mariano Rajoy has since delved into Madrid’s ghastly accounts and concluded that it would be "suicidal" to try to slash the budget deficit from 8pc of GDP to 4.4pc of GDP this year, as demanded by Europe's fiscal Calvinists.
Such a policy would require a further €40bn or €50bn of cuts and accelerate the downward spiral already underway, beyond the 1.7pc contraction expected this year by the International Monetary Fund.
The unemployment rate would rise to well over 25pc with six million out of work by the end of the year, equivalent to 30pc under the old definition used in the last jobless crisis in the early 1990s.
A study by BBVA of 173 cases of fiscal squeezes in OECD countries over the last thirty years concluded that demands on Spain are almost unprecedented. They found only four such cases, and three were offset by devaluations. Fourth was Ireland in 2009. The country crashed into slump, culminating in a 54pc fall in Dublin house prices.
There is near unanimity across the political spectrum that drastic pro-cyclical tightening at this stage is unwarranted and dangerous. Josep Borrell, ex-president of the European Parliament and the voice of Spain's pro-European establishment, said such debt-deflation risks pushing the banking system over the edge. "To cut the deficit almost four points in one year would be a true depressionary shock for an anaemic economy, made worse by the requirement for banks to mark their real estate losses to market prices."
"We have reached the point where `taxes kill taxation'. The therapy is turning fatal and is starting to take on a highly political tone. Sixty years after the end of the war,
(Excerpt) Read more at telegraph.co.uk ...
The ECB creating the next Greece?
The Spanish are creating the next Greece.
The ECB was hoping they could contain the damage to Greece, but in the end, there are a lot of EU countries that will be greatly affected, even Germany. The only question is who is next in line?
This is going to get soo bad the the EU will have to try and inflate their way out, just like we will.
If Spain goes down the drain, how much worse would that make the EU economic crisis?
We may be the next Greece.
The collective joke of the EU will be tested when, Spain drifts toward the natural response of nationalism. Expect the elite to use the threat of depression and other useful terms to promote subjection.
I know Ambrose Evans-Pritchard is popular here, but he really is just a deluded Keynesian who can’t understand that cutting spending will help an economy. It is the big government spending and borrowing that is the cause of the problem in Spain, and Greece, and here in the US.
The Spanish are revolting.
Arrogant and revolting.
Notice how governments everywhere are changing how things are calculated?
The unemployment rate of the US would be 22% if the definition when Clinton was president were used.
Inflation calculations do not include food and gasoline anymore.
Amen! So true! This is what is happening here in the United States. obamma, Pelooski, Reid and the Democrats response?
More taxes!!
When it happens, we will be Greece X 50, because of a more volatile population.
Greece, Spain, Potugal....someone should create a “The Euro-default Tour 2012” tee shirt. They could sell for a billion drachmas each. That’s about $7 US.
Yes. But that won't work either because all of us have so many people on some sort of government funding, that the outlays will just keep up with inflation.
Everyone forgot about the wonders of productivity that brought the world out of poverty. Now, countries around the world think they can legislate productivity with more spending -- the Paul Krugman insane clown school of economics.
Spain is a great example. They blew billions--- a significant percent of their GDP, on politically correct but totally impracticable and wasteful Green Energy crap that is now driving them into the ditch. They screwed their infrastructure and ate their seed corn at the same time.
We're heading down the same path as long as we let Obamics run.
The Dollar is one of the unifying and underlining strengths of America but our history and economic environment are completely different from a Europe of 20 plus genuine nation states and widely varying national characters. They wanted a Festung Europa by non-military means, but run from Berlin just the same as the original model (with Brussels and Strasbourg as the smiling front men).
Compliance was to be bought, and the Euro did work for awhile to simplify and expand intra-European trade. But they forgot that it really is possible to run out of money and the patience of even the German people to support second world nations who don't have a work ethic or character to live off anything but tourism and loans.
[Chancellor of the Exchequer] Osborne: "UK has run out of money."
yitbos
Thanks for saving me the trouble of pointing this out. AEP is a Keynesian fundamentalist, which might have been intellectually respectable in 1962, but today it tends to indicate a limited intellect.
On that occasion, but consider the naivete of thinking that the fed isn’t political and inflationary...
Worse, like Krugman and others, AEP seems to think that by having heroic economists throw the right economic “levers” they can manage the macro-economy and thereby assure prosperity, full employment, and stability. This is absolutely delusional.
The problem is that trying to cut pensions and benefits is political suicide. The people don't want the austerity measures dictated by the EU. The Greek government may have passed legislation for the next round of cuts, but implementing them will be impossible. The people will resist.
We are heading in the same direction and the American public will react the same way as the Greeks and Spainards and Italians if we really start to cut government spending.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.