Saturday, January 17, 2009

The Spanish government is finally coming clean about the state of the economic wasteland facing the country. Against the backcloth of commentary and developments elsewhere – such as the downgrading of the country’s credit rating - it could hardly do otherwise. Perhaps it’ll now move on to serious solutions – whatever these might be in a country grown rich and complacent on the back of an economic motor – construction – that has quite simply vanished. The initial step in this direction seems to be the Economics minister distancing himself from the President’s fairyland suggestion that all Spain’s regions would be receiving more money under his new financing scheme. Thus confirming the recently-expressed pessimism of readers of the Voz de Galicia that this would never actually happen in their region at least.

There’s a photo of the last get-together of the presidents of Spain’s 17 autonomous regions in today’s El Pais. Only one of these is a woman, which is an interesting contrast with the more-than-50% female national cabinet. It rather raises the question of where real power lies in this de facto federal state. Which could well get even harder to govern than usual in the difficult two to five years ahead.

Reader Moscow confirms that he views the EU as a solution to Spain’s woes and a spur to essential structural reform. So it seems apt for me to make a few quotations from the chapter headed The Discovery of Europe that I read this morning in the book I recently cited – The Disinherited, by Henry Kamen. . . .
- By the end of the 16th century many elite Spaniards, weary of the economic disaster, political collapse and intellectual isolation of their country, were pinning their hopes on a new and promising horizon, namely Europe.
- Many generations later, the writer José Ortega y Gasset, who liked succinct phrases, coined one that stated: ‘Spain is the problem and Europe is the solution.’ It was a fantasy vision that political leaders would persist in nurturing from the 17th century until today.
- The essentially love-hate relationship with the rest of the continent had its origins many generations before but began in earnest only in December 1700, when the crown passed [from the Hapsburgs to the Bourbons].
- Spain entered upon a political system that split the country down the middle, intensified internal conflicts, made exile into a permanent reality of cultural life and converted half of the political elite into opponents of the monarchy.

Having seen the issue of Europe do much the same to the UK in the last 20 years, I'll be an interested observer of what the next decade brings to Spain. I guess the question is - Once the measures that Moscow and I agree are necessary start to bite, will the relationship turn from the greatest love the EU has ever known – and which it handsomely paid for – to one of unremitting hate?

Or will the 'temporary' departure of Greece, Italy or Ireland from the eurozone offer a too-tempting escape route from harsh realties born of the collapse of castles made from sand?

Vamos a ver, I guess.

12 comments:

moscow said...

Colin,
I recommed you read this, please:
http://www.voxeu.org/index.php?q=node/729

Colin said...

Moscow,

Have read it and, of course, find it very persuasive. But the views and prognostications of all economists have become non-credible since late 2007. I certainly have no idea what will happen and, as I say, will be in an interested observer.

But I certainly accept the odds against a member leaving can't be high. Especially if your favourite idiot, Ambrose Evans Pritchard, is right in his column today that the EU is being covertly turned into a debt union in order to reduce the chances even further.

Que sera, sera. I'm only prepared to bet on pound-euro rate.

Colin said...

Sorry.

"odds ON a member leaving . ." not 'against'.

moscow said...

loThe next 18 months are going to be very interesting. I assume you will continue to bombard us with DT and Times articles, all of which will assure us with unflailing stubbornness that the end (of the Euro) is nigh, and that either the Spanish or the Italians or both (Ireland and Greece are too small too matter, I'm afraid) will blink in the face of mounting difficulties, and pull the final trigger.

Surely some inner core within yourself realises, that 80% of the content of those articles responds purely to emotion, and that rational critic within them is just merely a convenient fassade used to hide the same little englander patriotism of old, still hoping in vain that Europe will revert back to being a multitude of nations at odds with each other. The sort of Europe where Britain can just hover on top of the fray with flegmatic aloofness like a beacon of common sense and impartiality. Ho-hum........there is a problem with that...and that is that we are in 2009 now, not in 1850.

65% of Germans would like the Deutschmark back. But I know the Germans (all too well). They are like most people in most countries. Know little, and care little about what happens beyond their borders.
If you think, that pretending to 'know better' is elitist, I would like to remind you that Hitler got to power after an election.

Which country do you think would lose most if Spain and Italy get out of the Euro? No prizes for guessing. And it's not the UK, although the UK would obviously also get burnt in the process.

I know what I want. But what do you want? Join the USA? Get serious. You could as well have said hop on a space-ship and fly to Mars. I have no arguments against that. It's in the realms of fantasy, and would the option ever be presented seriously to the British, the whole nation would recoil back in horror - and you know that's true.

So, what is your alternative? or do you know only what you don't want, but not what you actually want?

If the Euro survives the next 18 months, I guess you might as well call it a day, because if it is still in existence after the 'Mother' of all recessions, surely it's future must be assured. Forever? Well, nothing is forever, but for a vewy, vewy long time indeed.

Even if Zapatero introduces no reforms (sad but likely), Spain will return to (paltry) growth in
mid-2010, and the worst will definitely have come to pass. So, you've got only 18 months. After that, it's 'Game over'. Sorry. No tears, and no Schadenfreude.

Colin said...

Moscow,

Well, firstly a couple of general points . . .

As this is a blog and not a newspaper or journal that’s paid for, I do feel that anyone that takes the trouble to log on and read it knowing what they will get is effectively bombarding himself.

I have never said the end of the Euro is nigh. Nor do I believe it is. I can’t for the life of me see why citing the possibility of one country leaving it means that the EU would be mortally undermined, any more than it means the institution is already moribud because one or more of the 27 members of the EU stays out of it.

As I’ve said, as someone with significant assets here, I certainly don’t want to see Spain leave the eurozone and devalue its currency.

I believe I am on record as saying a month or so ago that the EU will emerge either stronger or weaker [possibly fatally so] from this crisis. Personally, I have no idea which it will be but have no difficulty in agreeing with you that we will know either way within 18 months or so.


Now, the problem with your analysis is that you seem to think that any Brit who disagrees with you must, by definition, be some sort of arrogant Little Englander. Or that any Brit who doesn’t favour the EU must believe in some other sort of alternative union, most obviously one with the USA. You give the impression of thinking that no one intelligent could ever imagine that Britain might be better off simply staying – or reverting to the status of – an independent nation state. Or, putting this another way, you have complete faith in the EU and are extremely frustrated when others don’t share your faith. Though it’s true you haven’t yet hinted they should be burned at a stake.

As for what I want, this is very different from what I expect to happen. I couldn’t care less about which party or coalition wins the Galician elections but I might make a prediction. As with the general elections in 2012 and Zapatero’s chances. To say that Rajoy might win because of Zapatero’s incompetence does not mean that I WANT Zapatero to lose. And that I would revel in schadenfreude, if he did.

So, we come back to the EU. I don’t, of course, have the detailed knowledge of economics that allows you to argue why the EU is necessary and exactly why it is that it will succeed in the short term – come what may – and that it will continue for a very, very long time. Maybe it will, maybe it won’t. I don’t know. But I know that I do not like the idea of a supranational European state for all the reasons that Myers itemised and I do not believe it will be an effective competitor to the USA, China and/or India. And I do believe that it ultimately stands a chance of collapsing under the weight of its own internal contradictions. I may be right, I may be wrong. According to you, it makes no difference whether I am or I aren’t - the EU is a one-way bet, a guaranteed success. Which rather leaves me wondering why on earth is upsets you so much what I think and write.

Mr Handcart said...

The Euro cannot survive without political union. In effect, that means hegemony by France and Germany. That may suit some people just fine, but politicians are a strange breed. The only reason they back the EU now is that they had their mouths stuffed with gold by the Germans and, to a lesser extent, the French. These times are passing. Something must give. Without structural reforms (reforms that must go against local democracy) there will be no future for the weaker members of the Euro zone. As inflation and unemployment increase, civil unrest will break out. In order to keep the Eurozone stable, the EU's rapid reaction force (German and French army) must move in. It's not much different from the situation in Hungary in 1956. It will end in tears. As far as the UK goes, I don't see why we can't be another Norway or Switzerland and exist in EFTA.

Colin said...

Yes.

I see that a senior Irish economist is reported to be calling for Ireland to leave the eurozone if Brussels [Germany and France] don't act to help them. If this is just brinkmanship, I guess it won't be surprising to see weaker members getting together to form a group making similar demands for all of them. If the EU bends its rules to assist them and to stave even the threat of any departure, it will be one of those things which reveal the true nature of the institution. Which I think is the seed of its possible destruction. Good economics will give way to expedient politics. True, this happens in nation states too but there are countervailing forces in these which keep them together. As someone has asked, for how long can German taxpayers be expected to subsidise profligacy and incompetence elsewhere, to their own long-term cost? This is a political question, not an economics one.

Moscow, If you are still reading this, here's the blog of a UK MEP who does not fit the Little Englander caricature you drew but certainly thinks the UK would do better outside the organisation he knows a good deal about, from the inside.
http://blogs.telegraph.co.uk/daniel_hannan/blog/

Mr Handcart said...

Having fiscal union instead of just monetary union will cause huge problems. Look at the problem we have in the UK where the Barnett formula awards Scotland about £1600 a year per person more in public funding than England. Can you imagine what sort of pork barrel politics we'd descend into if such a thing were to happen. I simply cannot see how the EU model can continue. It's been hard enough for the USA where there is one language and a common culture. In Europe we simply don't have that cultural adhesive. It can only end in tears.

Colin said...

Yes, I saw the term 'debt union' the other day but am not sure if this is the same thing as a fiscal union or just a step along the way.

Mr Handcart said...

I think the Ambrose Evans-Pritchard term Debt Union is accurate. Fiscal union though is a further step where taxes are set and collected by a single EU treasury. That is the ultimate goal. The architects of the EU have always favoured the salami technique of implementing their plans for a super state. The problem with fiscal union is that there will be a democratic deficit as the EU simply doesn't have a democratic structure that's directly accountable to the voters. It's this lack of flexibility that's giving rise to riots in Greece, Bulgaria and the Baltic states. This will spread as the straight jacket of the Euro forces less competitive economies into higher inflation and higher unemployment. With spending already restricted by the EU and devaluation no longer an option, some countries in the EU will have no option but to pull out of the Euro/EMU or firmly suppress home-grown dissent and grievances.

Colin said...

Thanks.

I assume full fiscal union would bring with it greater clarity and transparency as to the [tax] flows between one state/region and another. As opposed to the obscure way it is done now via various subvention funds. You only have to look at Spain to see what happens when people in one region [Oh, let's say Cataluña] become aware that their money is 'subsidising lazy bastards' in another [let's say Andalucia]. Or I guess it could be 'corrupt bastards' in, say, Bulgaria.

One can see why obfuscation would be a prime EU goal. Less achievable in hard times than in easy times, I'd guess.

Smack on cue, the EC has announced today that things this year will be even tougher than they thought only in November. They must be worried about the stresses and strains. And the socio-politico consequences.

Mr Handcart said...

Greater transparency? Hmm that would be a problem. The whole of the EU then gets decloaked for what it is. A massive socialist organ that takes funds from the rich and hard working areas and diverts them to the corrupt, lazy and downright incompetent, taking the opportunity along the way to siphon off a bit fat portion to oil the wheels of politics.

it's never gonna work, is it?

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