Tuesday, May 22, 2018

Thoughts from Galicia, Spain: 22.5.18

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 pagehere.

  • Spain's president Sr Rajoy – the man who caused the mess – has urged the Catalans to put forward a viable government with whom he can deal. This, of course, means a government to his liking, not to that of the Catalans. Rajoy seems to think this is what constitutes democracy.
Life in Spain
  • Just in case you didn't read yesterday's cited article, here's a very interesting bit from it:- It was the French who had pushed the rapid adoption of the euro on a reluctant Germany. The French President, François Mitterrand, saw a reunified Germany with the mighty Deutschmark as too powerful an independent force and believed that somehow the loss of its own currency would make that country, with which it had fought three bloody wars since the 1870s, a less threatening neighbour. 
  • An ex British Foreign Secretary says this of developments in Italy:-
  1. As Italy has shown, the euro is a far bigger threat to Europe than Brexit.
  2. At the moment, the common assumption in the financial and political worlds is that the new Italian government will ultimately back down. Like the radical Greek Syriza party, it will end up toeing the line, screaming and protesting but eventually and dutifully implementing spending cuts and explaining the facts of life in a single currency to its despondent supporters. It will be a very difficult year, so it is thought, but the costs and risks of leaving the euro are so high that order will be preserved and the populists will be tamed. I am not so sure. 
  3. When Italians blame the euro for many of their problems they are actually right. 
  4. Joining the euro in 1999 imposed permanent stagnation on Italy, with a huge human cost of high unemployment and struggling businesses. It has meant no devaluation of its currency against the highly efficient German economy is possible, and made it harder to export to the rest of the world. For nearly 20 years, the economy has barely grown at all, while Germany has forged ahead.
  • Below is the article you'd expect from Ambrose Evans Pritchard on this subject
  • Reading about de Gaulle in Duff Cooper's diary, I got to wondering whether he doesn't rank with Napoleon as someone whom the French worship in the face of contrary opinions around the rest of the world. Except for that old duffer, Alfie Mittington. Who certainly admired the smaller of the two.
The UK
  • The ex Foreign Secretary's final comment on Italy is: None of this, unfortunately, will help the UK with the complex process of negotiating Brexit. The more the EU feels threatened, the less ground it will give. But it shows our departure in its proper perspective – not a one-off event, but as the beginning of a long, slow disintegration.
  • I wanted to post a nice video, in English, on Galicia but, as ever, Blogspot hasn't delivered. Instead, here's a page of videos on Galicia that I arrived at. 
  • And here and here are specific youtube videos on Galician faces, for you to check how 'Spanish' they look. 
  • Finally, here's a Scosman talking rot about Galicia's age old Celtic character. Until the 18th century, the Galicians didn't know they had it. The Romantics developed it, and modern Galicians – as in every other Spanish region – use it to show how different they are from the arrogant Castilians. As for the comment that all Galicians hate Franco . . . he was Galician, for goodness sake. So hardly likely. Plus the heirs-to-Franco PP party is entrenched here. And as for the accordion . . . I don't get the impression it features much in Galician 'Celtic' music, though Cunningham is certainly right about Carlos Nuñez. As for Santiago being 'shaped' by the camino pilgrimage . . . it virtually died out a few decades ago. It would have been a rare thing to see a pilgrim back then. Though it's true that, now, you can't get away from the buggers. Many of whom roam the streets in packs, with earphones glued to the side of their heads.
Duff Cooper
  • I don't know if it's still the case but, back in his day, there were some pretty odd names or nicknames given to sons and daughters of the British aristocracy. His own strange forename also means 1. a boiled or steamed pudding, 2. the partly decayed organic matter on the forest floor, and 3. a type of coal. In at least some parts of the UK, it also means a failure, as in 'duff shot' in golf. Not to mention 'bum/buttocks'. Here are just a few of the other bizarre names I've come across so far:-
Scatters, and

Finally . . .
  • I mentioned that I'd complained to booking.com about a room reservation not turning out to be what it had been on their page. They asked for my booking reference. I gave it, 2 weeks ago. And have heard nothing since.

© David Colin Davies, Pontevedra: 22.5.18


Italy's insurgents defiant as bond spreads surge and EU threats build: Ambrose Evans Pritchard

The warnings are coming fast and thick. Fitch Ratings has issue a red alert, deeming Italy’s insurgent government a threat to market stability and sovereign solvency. The conservative leader in the European Parliament, Manfred Weber, said Italians are “playing with fire” as anti-euro Lega nationalists and the alt-Left Five Star Movement join forces to smash the euro austerity regime - and to deport 500,000 illegal immigrants. “This could provoke another eurozone crisis,” he said. France’s finance minister warns of a “Greek-like” disaster if the new government goes ahead with plans for a flat tax (15% and 20%), a monthly €780 basic income for the poor,  a reversal of pension reform and a VAT rise, and a “minibot” parallel currency that subverts the monetary control of the European Central Bank.

Citigroup estimates that these measures will cost 6% of GDP, pushing the budget deficit towards double digits. The Lega-Grillini rebels aim to overthrow the new banking and bail-in rules, and halt the privatisation of Monte dei Paschi di Siena. They will ignore EU state aid rules for Alitalia and the steel industry. It is a total revolt.

The bond markets have woken up to the enormity of what is happening a country that cannot be easily crushed into submission “à la Grecque”, and that is big enough to destroy monetary union. Risk spreads on Italian 10-year debt have jumped 65 basis points to 189 over the last three weeks. The worry has begun spreading to Spanish and Portuguese debt, a belated recognition that a euro rupture in Italy plausibly could not be contained.

“Nobody has anything to fear from our economic policies,” said Lega strongman, Matteo Salvini, who prides himself on nonchalant defiance of market theatrics. Soaring growth will bring down the debt ratio though the magic of the denominator effect - he said - with help from the Laffer Curve.

The drama in the bond markets is still symbolic at this stage. Italy has ‘prefunded’ much of its borrowing requirement for this year. The European Central Bank is still mopping up much of Italy’s debt issuance through quantitative easing. The problem arises at the end of the year when the ECB turns off the QE spigot.

At that moment, Italy will no longer have a lender of last resort standing behind it. The country will be nakedly exposed to market forces again. A rescue will be available only if the country activates a formal bail-out (ESM-OMT) under draconian conditions, requiring a vote in the German Bundestag and Dutch Tweede Kamer.

There is zero possibility that the Lega and ‘Grillini’ would accept the terms. They would start to activate the parallel currency and set in motion a withdrawal from monetary union, restoring full sovereign control over the Bank of Italy and the Italian commercial banking system.

The EU-Italy showdown over spending plans is likely to come to ahead long before that. Claudio Borghi, the Lega economics chief, said threats from Berlin to cut off central bank liquidity and Target2 payments to Italy are very dangerous for Germany. The Bundesbank’s Target2 credits to the ECB system - mostly to Italy and Spain - are €927bn and rising. “If they really want to play hardball, it will backfire. Germany is the creditor of Target2, not us, and it is they who will suffer the losses if we default. I would urge a little bit of caution,” he told the Telegraph.

“If anybody in Europe thinks they can push up the bond spreads and that we will be ousted, they are very wrong. We have been through all this before with Mario Monti in 2011. Everybody in Italy understands that political manipulation of the spreads is the way they enforce their austerity on us. We are going to have a very frank discussion with the EU,” he said.

The new government was at last taking shape last night. The compromise pick for prime minister, Giuseppe Conte, is an unknown lawyer with no political experience. If accepted by President Sergio Mattarella, he will be a figurehead. Power resides with the Lega’s Salvini and the hydra-headed Five Star led by Luigi di Maio. They plan a special body made up of the two parties to resolve disputes, arguably outside Italy’s constitutional structure.

Paulo Savona, the scourge of the Maastricht Treaty and the ‘German euro', looks poised to take charge of the finance ministry. A former minister from the 1990s - well-known in European capitals - he is in one sense a safe pair of hands.But he long ago concluded that monetary union has trapped Italy in a bad equilibrium. “The country is being pushed deeper into economic under-development,” he wrote during the crisis 2011. He called at the time for a “Plan  B” to leave the euro. “Accords that are badly constructed or signed by countries with hegemonic intentions do not last long,” he said. This is not a man likely to succumb meekly to EU demands at the first sign of pressure. He is in any case bound by the terms of Lega-Grillini “contract for government”.

Senator Alberto Bagnai, a Lega senator and a key economic strategist, said the new government will press ahead quickly with the minibot scrip currency to cover €70bn of state arrears to contractors and households. “We aim to start within a year and possibly as soon as this year. There are many companies in deep financial distress,” he said. “The minibots have huge political appeal. People want them, and they will have them. If the EU says we can’t do it, we will do it anyway. France has been violating the fiscal rule for the last 10 years,” he said. “If Germany or the EU authorities try to blackmail Italy, this will fuel nationalist resentment and people will vote for us massively. They are already very angry,” he said. The latest polls suggest that anti-EU populist forces would win a bigger landslide in a snap election.

The EU will have to tread with great care. It is already facing twin crises over Brexit and the authoritarian lurch in Eastern Europe. It risks a strategic rift with the US.  Europe may have to go along with more of what the Lega-Grillini are demanding than it lets on. “The appetite for a clash in Brussels is pretty much zero,” said Lorenzo Codogno, the former chief economist of the Italian treasury and now at LC Macro Advisors.

Italy is entering a maelstrom of two powerful and opposing currents. On the one hand, net fiscal stimulus of 2% or 3% of GDP implies a surge in economic growth as slack is used up and the output gap is closed. On the other, surging bond yields and capital flight hint an almighty crisis for a country with a public debt of 132% of GDP.

It is far from clear which these conflicting stories prevails over the next two years. What is certain is that the EU cannot risk making any more mistakes.


Alfred B. Mittington said...

Not only does the Old Duffer still admire the Emperor, but he also admires, indeed, Mon Général! Who was the only one in the French army who saw what was coming, was not listened to, did what he could to save the situation, and then refused to capitulate to the Kraut (others were less resilient...) Kindly give some credit where it is due.

As to the fact that the French admire one whom the rest of the world does not care for: what would you say the reputation is of one like Francis Drake, for instance? Lord Kitchener? Even old Winston himself?

Everything is relative...

Perry said...

reference your list of nicknames, how about the Aussie name of "Blue" for a "Ginger"?

I suggested that our youngest son be called Elliott with two Ls & two Ts, in the vain hope that one T would be pronounced. The riff raff say Eliar----, his brothers say El, which unbeknownst to them, means he's a deity. https://en.wikipedia.org/wiki/El_(deity)

I owe a 1965 debt of thanks to James A. Michener for the emergence of that pearl of wisdom.