Sunday, August 21, 2011

Another Midday EU Special

This is an extract from an article (by Emma Duncan in The Times) on the consequences of the financial mayhem which followed Lehman's filing for bankruptcy on the 15th of September in 2008:-

When the euro was created, everybody knew that Northern Europe was both more productive and better run than Southern Europe, but the eurozone’s members hoped [Query: did they really believe?] that as they grew closer politically and economically, the productivity of the south would rise, and its economic management would improve. That might have happened over time, but there wasn’t much time: the first stage of the economic crisis started less than six years after the introduction of the euro.

My favourite piece of Warren Buffett’s homespun wisdom is: “It’s only when the tide goes out that you learn who’s been swimming naked.” That’s just what happened in Europe. As the credit crunch bit, it became embarrassingly clear that while the Germans, the Dutch and (maybe) the French were wearing capacious trunks, the Greeks, Portuguese, Spanish and Italians were in minuscule or non-existent Speedos. The weak countries’ borrowing costs shot up, threatening to bankrupt them, and their membership of the euro prevented them from devaluing their way out of trouble.

Northern Europe is, at the moment, trying to rescue Southern Europe.

It may succeed in doing so; but if it does, its governments will demand power over the taxation and spending policies of Southern European governments dreamt of only by swivel-eyed federalists.

Or it may fail; and if it does, the euro will break up, and so too may the European Union. 

Either way, the consequences for the continent will be immense.

Economic determinism is rather gloomy stuff. It leaves little room for politicians on white chargers to rescue their countries from disaster. That said, those in America and Europe have made a spectacularly poor fist of things in the past three years

Implicit in this commentary is the view that many of us hold - viz. that it's impossible to know how this imbroglio is going to resolve itself.

As for Spain, who now can oppose the view that a huge opportunity was missed - by both PP and PSOE governments - to make key structural changes when the cows were (very) fat between 2000 and 2008? Where then was the pressure to converge Spain's economy with those of the North that the euro was supposed to bring?

In fact, what happened is exactly what we saw on the streets of London - Given the opportunity to enrich itself with other peoples' money, Spain seized this with both hands and went on a lunatic debt-financed binge. Is it any wonder that the Germans are now, to say the least, unimpressed with this? After all, during this same period, they were visiting austerity on themselves while financing the madness in Spain and elsewhere.

Who's for a decade of stagnation here in Spain? Unless, of course, we get our own (devalued) currency. And a chance to make another mess of things.


Victor B. said...

Well... I've been resisting for the last few years, but it might be time to abandon ship. You wouldn't happen to have an empty house in the UK I could rent?

Colin said...

Sorry, Victor. But my daughter in Leeds has a room for temporary rent while you find something else . . .

CafeMark said...

"Given the opportunity to enrich itself with other peoples' money, Spain seized this with both hands and went on a lunatic debt-financed binge." If you start with an untruth, it's very hard to follow the rest, even if there is truth in there. Look at this article "More important, Spain has recently demonstrated a great deal of fiscal responsibility. From 2000 to 2008 it often ran budget surpluses. The moderate public debt went down from 66% to 47% of GDP in this period. Other countries that were also growing saw their debt increase during the same period, for instance the United States (54% to 71%) and the UK (from 45% to 57%), or they maintained debt at very high levels, as Greece did (from 115% to 105%)." The big problem is that the construction boom was allowed to grow so big. Various ways of stopping that of course eg increasing VAT on house sales, legally stopping new developments, but no-one did. The fall-out is now large amounts of unemployment. But I don't see a country that has increasing numbers of tourists, and has had 15 months of export growth in double figures, as a place that struggles to compete due to currency values.

CafeMark said...

Here's a great video on the housing boom - started (it claims) by la ley de suelo in 1998, and helped by cheap credit from the banks. Of course it occurred elsewhere (UK, Ireland, US etc) but Spain was probably the biggest culprit/victim, possibly because of foreign buyers. see House price crash website in the UK, or Burbuja in Spain

Colin said...

Budget surpluses: Possibly helped by the huge amounts coming in from transaction taxes, CGTs and municipal taxes on a more million
properties which are now empty. Possibly two million if we include the second and third properties in the hands of buyers who are not
developers or banks. Easy money for the governments, who appeared to think it would go on forever.

Exports: Still not a big enough factor to make any impact on 21% unemployment. Quite the opposite really, as summer brings many SA
workers to do the (hard) work even unemployed Spaniards don't want to do. Check the nationality of the next waiter/waitress to serve you.

Construction sector: Was 'el motor' of economic growth, reaching 22% of GDP, as I recall. Caused the population to rise by more than 10% in
less than 5 years thanks to immigration of workers for the construction sector booming purely because of speculation born of very
low interest rates, very high inflation (relative to the EU) average and extraordinarily easy credit. Did any one do anything to stop this?Or the consequences it has today and will have for a while to come.

British property market growth. Different. Essentially reflects poor supply. cf Spain!!

Tourism: Even Franco's governments managed to make this grow. But did Spain use the fat years to move sufficiently away from the cheap end? Ask the Floret del Mar folk. Will they pay the price for this as competition continues to grow from even cheaper places in Eastern

Ferrolano said...

Colin, to pick up on a point made by you, it would be great if Spain and Spanish society could pursued both the young and the unemployed to take on any job, no matter how menial, they and the country would be far better off and the economy would start to move in the right direction. There is no shame in carrying out some of these tasks, but there is when you have to import others to do it, leaving you on the street.

Colin said...

Agreed. As I think I've said, the attitude of those who lost their jobs at the Siglo amazes me. Essentially "Well, now I'm on the paro I don't have to work for two years". While bar staff jobs are going to (temporary/permanent) immigrants.

Colin said...

@ CafeMarkç

BTW - What are you referring to as the initial lie?

If you mean my obviously contentious, tendentious and possibly far-fetched analogy, this is a view. A parallel. Not a statement of fact. So it can't be a lie. It might be mistaken but it can't be a lie.

Colin said...


Have cited the video at least twice in my blog in the last month or so. Please keep up . . .

Victor B. said...

I think it's kind of cynical to say that foreigners are the only ones taking the crappy jobs, as there are virtually no immigrants in Galicia -at least not in Coruña.- Sadly, I know plenty of Spanish people that would be very willing to take any kind of job they were offered, but it just seems impossible for them to find a job nowadays. I wouldn't mind leaving Spain, not because I need a job, but because I'm tired of taking such loads of crap from the administration. Those of you that have had to deal with them already know how frustrating it is. And what's worst for us is Spain's inability to react to the situation. Don't ask me to do anything for my country when the politicians representing us are worried only about their own arses. I'm just too much of a coward to make the move without having first found a job, but if I were offered a position abroad, I wouldn't think it twice. Por mí, que les folle un pez.

Colin said...

HI, Victor. You have my sympathies, of course.

In the bar I'm writing this in, both of the staff are immigrants. Edi from S America, and Leida from Eastern Europe. Both work extremely hard.

Victor B. said...

Thank you very much for letting me know about that available room, but I'm afraid Leeds might be too large for my taste. I think I would feel way more comfortable in a place like Kendal - no intention of being fastidious- Anyway, thanks again. I may very well have to give your daughter a call in the near future...(not sure if that sounds like something I don't mean to say, sorry for the solecism in case it exists)

Colin said...

Well, from tonight she's here until Sept. 3. So you could drive down and meet her. Or meet up at the cathedral in Santiago . . .

Victor B. said...

Thanks again Colin, but as I said before, I'm not brave enough to move abroad with only a backpack. To tell you the truth, my most immediate plans are to move to Cotobade within the next couple of months (which could be considered an even more brave move) and open our office over there. That'll be our last ditch effort to hold the line.

Colin said...

Good luck. My 2nd house is, of course, in Cotobade . .

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