Wednesday, April 13, 2011

I’ve been catching up on my reading . . .

In November, Paul Krugman declared that Spain was, in effect, a prisoner of the euro, “leaving it no good options”.

Against this, our Ambrose has realised that Spain is not the basket case he thought it was and that it has the capacity to export its way out of current difficulties. Which is what Moscow has always said, of course. “Anthropologically, you could say that Spain has refound its 14th Century creativity when it was the most dynamic society on earth, before Conquista gold corrupted the Iberian soul. Its chefs are sought everywhere, its sportsmen are triumphant. Even its boom-bust ordeal is the symptom of a thrusting nation in a great secular upswing, like Holland in the 1630s, or England in the 1720s."

Back in the negative (or anti-Ambrose) corner, there’s the Guardian:- “The notion that Spain is somehow different to Portugal is based on a somewhat fanciful belief that it is a more dynamic economy and is immune from speculative attacks by virtue of its size. In reality, it is living proof of what would have happened had Britain joined the euro in 2003; it milked the benefits of low interest rates for an unsustainable housing and construction boom that has infected its financial system. So while it may be comforting for policymakers in Brussels and Frankfurt to believe that the sovereign debt crisis comes to an end with the Portuguese bailout, it is far more likely that Wednesday night's call for help from Lisbon marks the start of a new and more dangerous phase of the crisis. Madrid is insisting that there is no reason to fret, but there is. Spain has deep-seated economic problems that make it an obvious candidate for some close attention from the bond market vigilantes. Yet, it would be prohibitively expensive and politically untenable to bail out the eurozone's fourth biggest economy. A crisis in Spain will put at risk the future of monetary union in its current form.

The third bailout of a eurozone member in 11 months is a significant event. For a start, the eurozone has reached the point where further bailouts cannot be contemplated; a lot of faith is being invested in Spain’s ability to stay out of the firing line. Such faith is not shared unanimously by economists. Everybody applauds the Spanish government's efforts to force more capital into its banks and tighten government spending. But unemployment is still rising and the country's budget deficit as a proportion of GDP is higher than Portugal's – an estimated 9.2% versus 8.6% in 2010. The vital Spanish ingredient – the one that is supposed to carry the day – is growth in exports, generated by the warm inflationary breezes originating in boomtime Germany. The story may turn out so happily – Spain, after all, has many multinational companies and is the eurozone's fourth-largest economy. But Lombard Street Research, for one, thinks that Spain can have fiscal consolidation or growth, but not both. So the effect of the ECB's rate rise now becomes critical. Does German growth reach Andalucía, which is how the single currency is meant to work to mutual advantage? Or will the Spanish recovery be squashed by its households' and companies' dependence on floating-rate loans and German fear of inflation?

But Portugal should also remind investors of the much bigger question: can the bailed-out countries ever hope to repay their debts? Reuters reported today that further upward revisions to Greece's budget gap are looming – the final number could be 10.4% to 10.7%. Is that a taste of what lies in store for Portugal, whose economy is also essentially uncompetitive within the single currency? If so, Angela Merkel will struggle to keep talk of debt-default off the political agenda. Default, or restructuring, is where the crises in Greece, Ireland and Portugal still seem to end. Don't expect the calm to last."

And then there’s the FT . . . "Getting the Portuguese rescue right matters for all of Europe, and most of all for Spain. Madrid has done all that Lisbon has not: it has taken drastic measures to cut the deficit, embarked on reforms to make the economy more efficient, and spared no effort to communicate with bond investors. There is no solid reason why Portugal’s failure should reflect on Spain. Undeserved as this would be, however, it cannot be excluded. Spanish banks are overexposed to Portugal. The mere uncertainty triggered by Lisbon could make jittery markets think twice about funding Spain. If Madrid redoubles its vigilance it is likely to retain the credibility it deserves. For the second EFSF rescue to be the last, the line in the Iberian sand must be turned into a trench between credible and non-credible governments."

So, that's all clear, then.

Less seriously . . . Having had a French partner for several years - plus a daughter who’s lived in Paris - I’m not entirely unfamiliar with the view that “Something terrible happens to the croissant, and to a lesser extent pastry in general, when you cross the Pyrenees and enter Spain." See here and here.

And now for a real pot pourri . . .

Spanish working hours Could productivity be a factor?

The Portuguese – A fascinating people? "[This] is a must-read for first-timers wanting to know more about the country, but it is also a constant delight for those already well-versed in a fascinating nation."

Spanish Bullfighting Dying?

Spain’s smoking banSenseless?

Spain’s savings banksGoodbye?

Spain’s brothelsHappy places?


moscow said...

Of course Krugman has been saying since the beginning of times that the Euro is doomed, and therefore he must continue saying so, otherwise he would lose face. Ambrose is a pathological (or simply well paid) liar, the only question being when was he lying? Now or then? Las year he praised the Irish economy through the rough - 4 months later Ireland crashed. I prefer the FT. A bail-out is still possible, even likely, but undeserved. Which leads me to state what I have always said, that this last stage of the crisis is being artificially cooked up by parties with a stake in the demise of the Euro. Apparently, the hedge funderos, bond traders and agency raters think they go to work everyday. As did the SS men at Auschwitz, I am sure. What a waste of energy and time.

moscow said...

"Last year he praised the Irish economy through the rough - 4 months later Ireland crashed." Christ!......I meant "through the roof"

Colin said...

OK he may be prejudiced/jaundiced but do you think he is right or wrong when he says "What all this means for Spain is very poor economic prospects over the next few years. "

What I want is what helps me most. I have a pension entitlement in pounds sterling. . . . . and I don't want to leave Spain. From this perspective, I guess it doesn't matter whether Spain prospers or not as the value of the euro won't depend on this.

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