Thursday, March 08, 2018

Thoughts from Galicia, Spain: 8.3.18

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.

  • Today is International Women's Day. It incorporates a strike here in Spain against such things as machismo, lower wages and violence. Says a leading female politician: It’s to do with women, not with politics. All women in Spain, whatever their ideology, know that this is a macho society. Click here and here
  • This should really be in the Nutters Corner but fits almost as well here: The bishop of San Sebastian might never have partnered nor lived with a woman but I'm sure he's convinced he understands them well. Or as well as any other (theoretically) celibate Catholic prelate anyway. Ahead of today's Women's Day, he pronounced that the Devil had taken over some women and, via feminism, had caused them to ' undermine their dignity'. I'm sure his housekeeper is impressed by his concern. You know, the one who does all the cooking and cleaning, while he does a real man's job. Dressed as a woman.
  • Spain is one of only two European countries — the other being San Marino — without an agency devoted to tackling racism. Brussels has asked Madrid to pull up its socks.
  • One wonders how many more of these there are in Spain
  • In the notes I make for myself, a capital C stands for Cash in my financial stuff but for Corruption in scribblings about Spain. It comes up a lot. Here's the admirable Guy Hedgecoe on the subject. The headline: The stench of corruption clings to Spanish politics — and especially to the ruling Popular Party of Mariano Rajoy. I'll say. But not everyone cares much.
  • For the EU Commission's detailed view of the (per Werner, malfunctioning) Spanish economy, click here.
Life in Spain
  • Bearing in mind things our Dutch friend complained about . . . .
  1. Of the 3 lawyers I contacted about signing my form, two I spoke to face-to-face. The third I sent an email to. A week later, she has yet to reply.
  2. Two days ago – since I was going to be in Vigo – I advised the courier to deliver a packet to a shop in my barrio that day or yesterday. They confirmed they would. I just went to collect it and it isn't there. As Werner says, this sort of thing happens all the time here, helping to explain why things are slow (and irritating) by the standards of other countries. 
  3. Postscript: An email I've just sent to the courier has been returned as 'undeliverable'. Their web page gives a phone number but no email address. But I suppose that precludes another waste of time.
  4. Postscript 2: No, it didn't. Phoning results is a calvario of input requests on a poor line from a central computer. It will be easier for me to go to their Pontevedra office and deal with them face-to-face. As ever. It all reminds me of how introduction of new technology at the central post office has actually slowed things down.
  5. Postscript 3: I just tried the tracking system. It says the delivery to the shop has been 'In process' for 2 days.
  6. By way of another example . . . The huge granite wall below the pilgrims' hostel in Pontevedra was repaired last week. It took more than a month, during time which the entire road – a major route into the town – was closed. The locals merely shrugged.
  7. One of the things Werner didn't mention – but why should he have? - is that Spain ranks second only to Malta when it comes to child obesity. I thought of this yesterday when both in Vigo and Pontevedra I was again one of only 2 or 3 people using the stairs. The other 30 odd folk were on the escalator. Most of them young.
  8. I actually mounted the stairs – at a normal pace – faster than those on the escalator. But I doubt any of them noticed me 'overtaking' them. Or cared, if they did. Speed is not often a consideration here in Spain. Unless you're driving a large car on the autovia.
  9. Well, I finally did get my form signed by an 'Independent Financial Adviser' in Vigo yesterday, to the tune of €66. For which I could get an awful lot more in the UK from a high street lawyer. But, hey, as Werner keeps saying Es lo que hay aquí. That's how things are here. Inefficient/useless and cheap (like the notario in Pontevedra) or efficient/useful and expensive, as in Vigo. Así son las cosas
  • This is the nice cafe I mentioned.
  • Another strong article from Ambrose Evans Pritchard below, re the threat to the EU from inside it.
The EU
  • Here's a comment from a Brexit Remainer . . . At what point does the EU stop to think whether its insistence that political integration comes before everything might not be so wise? . . . The EU feels it must stand pat because if Britain were to get good terms then the rest will want to leave. This is a hilarious argument. It basically suggests that the EU is so lacking in confidence in its own institutions it thinks every country would leave if they got half a chance. So they need to be stopped, not by improving the EU, but by damaging trade and jobs in European countries just to teach Britain a lesson. . . . I don’t think the EU would fall apart if it decided to agree a bespoke deal with Britain. On the contrary, some flexibility and leadership on the part of Brussels would strengthen the EU and increase its solidarity. It just requires some imagination.
  • The same writer then expressed the same sentiment re imagination as I did yesterday re sensible change of the model: Fat chance. As I say, the tide of history will surely wash over them, if they don't change. As I've believed for more than 20 years.
  1. El bullying inmobiliario: The practice of forcing tenants out by endlessly irritating them. It's illegal.
  2. Testar: This really means to witness a document or to underline something. Guess what it now also means.
  • I see that both Amazon and Airbnb get more like Ryanair every day. A cable I ordered from the former this week was priced a €6.19. The hit to my bank account: €13. 48
Today's Cartoon


Whoever governs Italy will destroy the euro from within

Italy has progressed from pre-insurrectional anger to outright revolt. Insouciant markets are betting that this can somehow be contained. It smacks of delusion.

Risk spreads on Italian 10-year bonds are exactly where they were a week ago before the "anti-system" parties of Left and Right swept away the post-War establishment. The euro has shrugged off the vote entirely, rising 2pc against the dollar since the earthquake.

Investors are acting as if they think Italy’s "poteri forti" and its eternal mandarin class will organize another technocrat government regardless of what has happened, or that the Five Star movement’s Luigi Di Maio will cobble together a co-opted centre-Left coalition that scarcely differs from the last one. 

Just months ago, the business lobby Confindustria was still describing Five Star’s neo-anarchist "Grillini" as an extremist and dangerous rabble, horrified by their plans to reverse pension reform, reverse the labour reform (Jobs Act), and to launch a budget-busting blitz with a universal basic income. Now damage control has begun. Praise is suddenly effusive for the elegant choir-boy leader sitting on 33pc of the vote. “Five Star does not frighten us, we have lived through worse,” it says.
This is to play down the genesis of the Five Star phenomenon and the party’s avowed intent to push an eclectic anti-capitalist agenda inspired by the neo-Marxist writings of Thomas Piketty. Mr Di Maio cannot be Italy’s Emmanuel Macron because his mandate is a 21st century variant of Corbynism. 

“These people are totally hopeless. I had to sit on the budget committee with them and I can assure you that they are incompetent,” said Lorenzo Codogno, former chief economist for the Italian treasury and now at LC Macro Advisors.

“Their policy programme is a patchwork put together by 40,000 activists online and is internally incoherent. They don’t have a single person with any economic understanding, and they have had to hire some junior professors that I have never heard of. If they reverse the Jobs Act, every company in Italy will be relocating outside the country,” he said.

Markets take comfort that the immediate threat of a euro referendum and "Italexit" has been taken off the table, but seem not to grasp that the policies of Five Star and the Right’s Lega-led bloc are fundamentally incompatible with membership of monetary union. They amount to subversion of the euro from within, a slower process but more menacing for Berlin and Brussels. 

Marco Tronchetti Provera, head of Pirelli, fears we may be seeing the calm before the storm. “Spreads will soar within minutes once we see parties coming into government that tear up the fiscal rules and propose illusory intervention in the economy,” he said.

He warned too that Italy could soon find itself under a draconian bail-out regime along Greek lines. That is where he is wrong. If the EU policy elites try to crush the Italian Spring as they crushed the Greek Spring, they will blow up the European Project.  

For now the European Central Bank is shielding Italian debt with bond purchases (QE). The programme will expire in September, leaving Italy nakedly exposed to markets with no buyer-of-last-resort. The ECB has in effect been covering the budget deficit for the last two years, accumulating €320bn of Italian bonds. 

It cannot easily extend the purchases because it has pinned its colours to the mast, signalling that further QE would amount to illegal financing of governments. The Bundesbank would resist such a move tooth and nail, especially if the purpose was to bail out a populist Italian government in brazen defiance over EU budget caps.

Italy has no margin for error. It missed the global recovery – thanks to the criminal contractionary policies of the ECB from 2010-2012,  the austerity overkill imposed by Germany from 2012-2014, and then the EU "bail-in" policies for bank that shattered confidence and stamped on recovery yet again. The long depression shrank the economic base, pushing the debt ratio higher. 

Nine years into an ageing world expansion, Italy has only just begun to stabilize public debt at 132pc of GDP.  It comes very late. The eurozone’s QE-driven mini-boom is already fading as the ECB tapers bond purchases. The forward-looking money data – six-month real M1 – has dropped to the lowest since the Great Recession and is pointing to a marked economic slowdown later this year.

It is not hard to imagine a global recession in 2019 arriving before Europe has built up monetary and fiscal safety buffers. It that happens, ground zero will be in Italy. Monetary union will be tested to destruction on the Campidoglio.

The eurosceptic ultras in the Lega already think the next downturn will precipitate a solvency crisis in Italy. They are preparing contingency options to ensure that the country can defend itself and will not fall into the clutches of the eurozone bail-out police. 

Almost unnoticed by markets, they inserted plans for a parallel currency into the manifesto of the conservative bloc, which is claiming the right to govern as the biggest of the official coalition groupings with 37pc of the vote. It is to be a perpetual treasury note (BOT) used to pay off €70bn in state arrears to Italian companies and citizens, and would be set in motion quickly.

Ex-premier Silvio Berlusconi – the last elected leader of Italy, before four stitch-ups – has long flirted with such an idea to create liquidity and overcome the credit crunch for small Italian companies. It is modelled on the military currency introduced by allied forces after the liberation of Sicily in 1943, and known to Italians as the AM-Lira.   

The banknotes were prepared by the Washington Bureau of Engraving and Printing and fixed at an inflationary exchange rate of 100 lire to the dollar. The hybrid paper marched up the peninsular with the troops and served as the lubricant of economic recovery, circulating across Italy until 1951. 
Greece’s Yanis Varoufakis wanted to the launch such a parallel scrip when the ECB cut off liquidity support for Greek private banks (arguably illegally) and brought the financial system to its knees. He was overruled by the Syriza war cabinet, who knew it would lead ineluctably to the drachma.

Claudio Borghi, the Lega’s economics chief and the architect of Italy’s plan, states openly that the scheme will evolve over time into a secondary currency under Italian sovereign control, confident that there is nothing that the EU can do about it. “We are not Greece: we are a much bigger country, and we are net contributors to the EU budget, so how is Brussels going to stop us?” he told me. If it leads to the lira, so be it.

Such a plan would subvert the ECB’s control over the money supply and would destroy German and Dutch political consent for the euro project. Northern states would see parallels with the Latin Monetary Union in the 19th century, undermined by the Vatican’s debasement of silver coinage, and then by Italian use of a loophole to print paper money.  

But that is the point. Italian economists pushing this plan want to create circumstances in which Germany chooses to leave the euro in disgust. That is the "cleanest" way to break up the system and prevent a devaluation spiral for the weaker states. Euro debt contracts could then be upheld.

“Everybody now knows that there will have to be a negotiated orderly dismantling of the euro,” said Lega senator Alberto Bagnai, the eminence grise of the Italian eurosceptic movement.  A new struggle is already underway to shape and control the post-euro dispensation.

The EU has handled Italy extremely badly – just as it is now handling Britain badly – and it will not like the consequences.


Maria said...

As for the bishop and those of his ilk, one of the chants last night was directed at them: "vamos queimar, vamos queimar! A conferencia episcopal" Apt.

Colin Davies said...

VEry good to hear, Maria. Hope you don't mind getting mentioned in today's blog, jsut posted . . .