Thoughts from Galicia: 20.7.17

Spanish life is not always likeable but it is compellingly loveable.

- Christopher Howse: A Pilgrim in Spain. 

If you've arrived here because of an interest in Galicia or Pontevedra, see my web page here.

Life in Spain:-

• The Spanish guardian of the language - The Royal Academy - has conceded that the de facto plural imperative for the verb Irse ('to go') can be Iros and as well as Idos. But this laxity is not to be extended, for example, to Marcharse (Marcharos!) or Sentarse(Sentaros). Here I have to admit that, as there as so many forms of the Spanish imperative, I probably always get it wrong anyway. So this won't make much difference to my grasp or use of Castellano. Or cristiano as it's occasionally called - to distinguish it for regional/'national' dialects/languages.
• This development naturally caused a 'Twitter storm', initiated by Spain's purists and pedants. A commentator noticed the wonderful irony that these were the worst spellers of all those involved in the 'dialogue'.
• I made another internal observation yesterday, when - for the millionth time - someone cut across my path: The 2 sides of the coin are: 1. You have a responsibility to look after yourself here. The Spanish don't go in for consideration of strangers. So, the devil takes the hindmost. And 2. When you do make your wishes/views known - e. g. that the person at the next table stops smoking when you're eating, or that the music is too loud - the acceptance of your direct or indirect request is immediate. And, further, if someone does actually bump into you or otherwise upset you, the apology is always profuse. I guess this is why the Spanish regard themselves as very polite and get very upset when told that - by the standards of other cultures - they aren't. And I don't just mean by comparison with the ludicrous norms of English politeness. Such as apologising when someone else bumps into you. Done by 80% of English people, it's claimed.
• Sad to read that road deaths in Spain, which fell enormously between 2000 and 2013, rose by 7% last year. I can only guess at one factor - more traffic on the roads after the end of La Crisis.

The writer of the article at the end of this post suggests that Europe is going to have huge problems when the German taxpaying public finally realises just how much of its money has - despite public denials - been transferred to 'lazy, corrupt' southern EU members. As he puts it, the ECB has effectively trapped Germany in a Latinised eurozone where the region’s debt obligations are increasingly mutualised between nations. And where there are no prizes for guessing who picks up the tab. And where no-bailout rules designed to protect German taxpayers from fiscal transfers have come to mean nothing.

And then there's France . . . See here for Don Quijones' view of their aspirations vis-a-vis the UK's financial sector. And, indeed, the whole UK economy. With friends like this . . .

Strange Facts:-

1. The incidence of Parkinson's disease in the UK is said to be between 1 and 2% of people over 65. So how come 3 of the 12 people I'm still in touch with from university have it? Is there some correlation with intelligence? I've heard it said it's particularly common among teachers. But this would argue against such a conclusion, of course. Only joking . . . .
2. It seems that Jeremy Corbyn and I share more than just a beard, as it were. We were both given a Triumph Palm Beach bike when we were 11. But I bet he didn't have his stolen when he left it unsecured outside the public swimming pool in a rough part of Birkenhead.
3. The repugnant Chris Evans turns out to be the highest paid 'performer' on the BBC. Astonishing.

Finally . . . The poor quality of sub-editing at the UK's Daily Telegraph is now well established. This morning I was brought up short by this headline: Sarah Payne: A Mother's Story treaded softly and let the terrible facts speak for themselves. This turned out to be a review of a TV program. At the end of it came the line: To Channel 5’s credit, "Sarah Payne: A Mother’s Story" treaded softly and let the terrible facts speak for themselves. So, there's a journalist in the UK who thinks - like a 3 year old - that the past participle of 'tread' isn't 'trod' but 'treaded'. Unlike the authors of this.

Today's Cartoon:-

Sort of. Private Eye's brilliant take on the possible visit of Donald Trump to the UK . . . .

THE ARTICLE

Brexit is the least of Europe's problems: how Germany is picking up the tab for Southern Europe's burgeoning debt pile

Sometimes, a picture is worth a thousand words. So it was this week with the photo of David Davis, the Brexit Secretary, and team, facing up to their EU counterparts for the start of the second round of talks over Britain’s departure from the EU. 

Like lambs to the slaughter, Mr Davis and colleagues sat without notes and papers, grinning for the cameras, before the svelte looking Michel Barnier, and his unsmiling support staff, briefing documents stacked before them as if going in for the kill.

It seemed like almost heroic unpreparedness - similar to the marathon runner who turns up at the starting line having done no training whatsoever but still incredibly expects to complete the distance in winning time.

Nevermind that the British team’s papers had been left in their bags, the image none the less stuck. Here were Britain’s hopes for a successful Brexit, sent forth on a wing and a prayer with nothing more substantive behind them than the desire to have cake and eat it too. That this won’t be possible has only now begun to dawn.

This is the way the EU likes it. As is ever more apparent, leaving the EU is an immensely complicated business, perhaps too complicated, in the end, to allow for meaningful implementation; it has been deliberately made so in order to deter departures. Britain has become so deeply integrated into the European economy that it seems virtually impossible to leave – except in cosmetic, EEA-like manner – without some degree of resulting economic hardship.

And so it is too with European Monetary Union, where the consequences of departure have been made so severe as to be utterly ruinous. Indeed, set against the challenges of extraction from the euro, merely leaving the EU should be a stroll in the park. 

Participating member states find themselves locked in, none more so than Germany, trapped in a Latinised eurozone where the region’s debt obligations are increasingly mutualised between nations by an all powerful European Central Bank. No prizes for guessing who picks up the tab – the eurozone’s most credit worthy nation, Germany.

No bailout rules designed to protect German taxpayers from fiscal transfers have come to mean nothing.

For the moment, all seems good in Europe, in marked contrast to the apparent chaos back home in the UK. For the first time since the financial crisis, a fully fledged cyclical recovery has taken hold across the Continent. Yet our friends across the Channel should enjoy the schadenfreude while it lasts, for below the surface, the eurozone is incubating another lorry load of trouble.

Mario Draghi, president of the European Central Bank, has been as good as his word in promising to do whatever it takes to save the euro, engaging in large scale, and persistent purchases of government bonds to drive down yields and get the economy moving again. Heavily indebted, fiscally weak periphery sovereign bond markets have been stabilised, reviving credit markets and creating room for easier fiscal policy. 

The medicine has worked, but it has also prompted renewed and widening so-called “Target II” imbalances. Over the past year, these imbalances have risen back to record levels, such that at the last count the German Bundesbank’s claim on the system had reached €861bn, its highest ever. I say claim, but nobody should be under any illusion; little if any of this money will ever be repaid. To all intents and purposes, responsibility for the debt has been assumed by the German taxpayer.

It works like this. When Banca d’Italia or Banco de Espana buy government bonds as part of the ECB’s asset purchase programme, they do so substantially from big foreign investors such as BlackRock and PIMCO. Such is the suspicion among these investors of the Italian and Spanish banking system, that they are highly likely to bank the proceeds elsewhere, most probably in Frankfurt, where for lack of alternatives, the money is placed on reserve with the Bundesbank and shows up as an increased claim on Target II.

Conversely, the money created from buying the bonds by the likes of Banca d’Italia shows up as a liability on the system. At the last count the Banca d’Italia liability was €421bn.

The ECB likes to think of this phenomenon as no more than a somewhat arcane and relatively benign book keeping issue, or one of the idiosyncrasies of a currency made up of multiple sovereign nations.

That’s certainly one way of looking at it – that it doesn’t really matter. But it is also a disingenuous one.

A more accurate depiction is that popularised by the maverick German economist Hans-Werner Sinn as in effect an interest free loan which can never be called from the German state to the European periphery, or basically a fiscal transfer in all but name. 

The effect of the ECB asset purchase programme has been to reduce Italian sovereign debt from 135pc of GDP to around 100pc, great news for Italy, which has seen past profligacies monetised, but very bad news for German savers, who have seen their wealth correspondingly eroded.

Germany’s “Target II” claims are basically an accounting fiction. If Italy left the euro, these losses would be immediately crystallised, but in reality the loss has already occurred. It’s debt write off by the backdoor.

In the eyes of the German high command, the supposed benefits of more Europe still outweigh its ever more manifest costs. But it is possibly just as well most Germans don’t fully appreciate what’s going on. They’d be up in arms if they did.

For Britain, the challenge is one of disengagement without undue economic damage. For Europe, it’s one of further, centrally imposed integration, together with eventual acknowledgement of the already existing reality of fiscal transfers from the prosperous North to the needy South. I’d bet that our task, complicated and divisive though it is proving, is still rather easier than theirs.