Friday, June 08, 2018

Thoughts from Galicia, Spain: 8.6.18

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.

Spain
  • Here's Guy Hedgcoe with his overview of recent political events. Abstract: The developments leading up to the June 1 no-confidence vote that removed Rajoy were a shot in the arm for Spanish democracy at a time when it was looking decidedly ragged round the edges. Rajoy and his Popular Party (PP) leave a shabby legacy. The economy, in such trouble when he arrived, has been stabilised, although inequality has grown and the social scars of the recent recession run deep; the Catalan issue proved to be beyond Rajoy’s rigid, political abilities, leading to a full-blown political crisis; historical memory has been swept under the carpet; the separation of powers has been assiduously chipped away at as the PP has questioned everything from the credibility of court decisions to the legality of new political parties when it suited; a new climate of legalistic overreaction has been created, cultivated by legislation like the Ley Mordaza; and then there is the corruption.
Life in Spain
  • Last night there was a table of 6 young women 20m away from mine. I could tell they were foreign because:- 1. none of them was smoking; and 2. I couldn't hear their conversation.
  • The Local's list of great Madrid bookshops.
  • This happened recently in Madrid. Not what you want to see if you've paid to be close to the ring . . .

The EU
  • A Times columnist feels that Mrs Merkel recently came out in support of President Macron's dream of a more powerful EU. Others differed markedly with this interpretation. One of these was Ambrose Evans Pritchard, whose views are posted below. In brief:- FiskalUnion will remain what is has always meant in German: EU control and surveillance over spending, banking systems, and debt resolution; and enforcement of the Fiscal Compact by EU commissars. It is what critics call a "disciplinary union". It is a far cry from Mr Macron's Carolingian dream.
  • The second article below goes so far as to suggest - not an original thought - that it would be best for all for Germany to leave the EU. Can't really see this happening. Though it's not an impossibility, of course.
The UK/Brexit
  • Here's the latest tirade against the British government from Richard North. Quite amusing at times.
Galicia/Pontevedra
  • So, it isn't Galicia, after all . . . Cocaine use among young people in England and Wales is the highest in Europe. The two countries are cocaine hubs in a continent where there is growing evidence of increased availability of the drug. I guess it depends on what 'hub' means. The usage hub, or the importation hub. Perhaps Galicia still retains the latter honour.
  • Talking of drugs . . . . An Albanian living here in Pontevedra city has confessed to the distribution of heroin here in Galicia and in neighbouring Portugal. I'm surprised he's still alive. But maybe his niche activity was no threat to our cocaine-oriented narcotraficos.
Finally . . .
  • I drive regularly to and from Santander on the A8, which includes a stretch over a spectacularly high viaduct near Mondoñedo. The problem is that, as this struts over a river valley, it's often hit by fog. Even closed because of it. But the solution to a problem which should have been anticipated is to be a 'virtual tunnel'. Whatever this is, it's bound to be expensive. I do hope it works.

© David Colin Davies, Pontevedra: 8.6.18

THE ARTICLES

1. Merkel pours ice cold water over Macron's Carolingian vision:
Ambrose Evans-Pritchard

Germany has swept aside France's grand plan for eurozone reform, refusing to concede any substantive step towards fiscal union or a federal EU crisis machinery to cope with the next global recession.

The minimalist proposals offered by Chancellor Angela Merkel after months of silence rehearse long-standing German objections to a shared budget, and retreat from concessions briefly floated last year. “Solidarity among euro partners should never lead to a debt union," she said.

Her carefully-crafted interview in the Frankfurter Allgemeine over the weekend is a watershed moment in the history of EU integration. It guarantees that monetary union will remain deformed and dangerously unstable when the next global downturn arrives.

“Sovereignty rules,” said David Marsh, head of the Official Monetary and Financial Institutions Forum. “She has made it absolutely clear that the German parliament must have the last word whenever it comes to spending the money of German taxpayers. This is the crucial point,” he said.

There had been a flurry of excitement late last year when Mrs Merkel’s Christian Democrats (CDU) agreed a coalition text with the Social Democrats (SPD) suggesting that Euro-MPs rather than the Bundestag might have control over bail-out operations. It would have been a constitutional shift of the first order. The idea faded as the arch-EU federalist Martin Schulz lost control over the SPD. It is now dead.

While Mrs Merkel has agreed to a European Monetary Fund (EMF), it is to be an "intergovernmental" body outside the EU treaty structure. This preserves Germany’s veto. Any rescue package requires the assent of the Bundestag with strict conditions, typically austerity and what Berlin deems to be "reforms".

The EMF essentially replicates the existing system, but with a new element that frightens Paris, Rome, and Madrid. Mrs Merkel wants to enforce private sector haircuts and sovereign debt restructuring before any rescue. Former Italian finance minister, Pier Carlo Padoan said such a plan would set off a self-fulfilling financial crisis. “The markets will discount the outcome immediately,” he said.

Mr Marsh said the election of a rebel government in Italy – openly vowing to flout EU spending rules – has made it easier for Berlin to justify what it wanted to do anyway. “It gave them the excuse they were dreaming of,” he said.

Guillaume Menuet from Citigroup said the plan falls “considerably short of what we judge to be necessary to deliver genuine stability when the next potential adverse shock arises”. It is the “bare minimum” needed to cover up the yawning chasm between Paris and Berlin.

Adam Tooze, director of the European Institute at Columbia University, said the German riposte to French president Emmanuel Macron was depressingly empty. “She is turning a deaf ear,” he said.

Le Monde called it an “utter disappointment”. Mr Macron has bet his political fortunes on a "grand bargain", hoping that a burst of reform by France would mollify Berlin and secure assent for a eurozone treasury to back up the orphan euro.

Mrs Merkel is more open to his ideas for European defence, yet talk of an EU "intervention force" smacks of institutional furniture shuffling. The reality is that EU security remains anchored in NATO, which will provide 80% of the alliance’s military capability after Brexit. French and German foreign policy are not aligned in any case.

The urgent issue is the euro. Mr Macron concluded during the debt crisis that the EMU policy regime rests on the central fallacy that all members of a currency block can deflate their way to competitiveness. This leads to contractionary bias, trapping vulnerable nations in a bad equilibrium until they rebel.

Mrs Merkel has given the nod for an EMU investment fund to help backward areas but this would be phased in slowly and would be limited to the “low two-digit billions”. A cap of €30bn (£26bn) has been mooted in the German press. This would be 0.2% of eurozone GDP, a token compared to the 6% to 7% target first floated by Mr Macron. There is little prospect of a pan-EU backstop for banks. The "doom loop" lives on, tying together the fates of sovereign states and national banking systems.

Chancellor Merkel opened the door to five-year credit lines, modeled on the facilities of the International Monetary Fund for well-behaved states. “We would be able to take under our wing countries that get into difficulties because of extraordinary circumstances," she said, citing the case of Brexit fall-out for Ireland.

Yet these would be loans. The proposal has nothing in common with the automatic stabilisers and fiscal transfers that shift money to distressed regions in full-fledged monetary unions –  the US, Canada, India, or Brazil – when hit by an asymmetric shock.

The hard line from Berlin is no surprise. Chancellor Merkel’s hands are tied by the German constitutional court. It has ruled that the Bundestag may not surrender its budgetary powers over tax and spending to any supranational body, for to do so would be to eviscerate German democracy. Nor may the government enter into unlimited debt commitments beyond its control. Any fiscal union would require a change in the German Grundgesetz.

The anti-euro AfD party is chipping away at the traditional base of both the SPD and the CDU, especially its Bavarian Social Christian wing. The AfD is now the official opposition in the Bundestag and controls the budget committee.

A group of 154 German economists signed a joint letter in late May warning that the country was being led by the nose into a eurozone debt union. They warned that the Macron plan is not only ruinous but also poses a threat to the integrity of Germany democracy.

Chancellor Merkel has heard the message. FiskalUnion will remain what is has always meant in German: EU control and surveillance over spending, banking systems, and debt resolution; and enforcement of the Fiscal Compact by EU commissars.

It is what critics call a "disciplinary union". It is a far cry from Mr Macron's Carolingian dream.

2. The best thing Germany could do for Europe is quit the single currency – but it won’t: Larry Elliott

EU leaders are saddled with a mechanism that doesn’t work. There are ways to fix that, but not the will

Even when it was clearly in decline, the Soviet Union commanded loyal devotion. Its admirers could never quite grasp that the nation instrumental in winning the second world war had a broken economy.

The same cognitive dissonance applies to the European Union today. There is the EU as it exists in the minds of its most avid supporters: fast-growing, a defender of progressive values, fighting the good fight against Thatcherism, and marching steadfastly towards greater integration.

Then there is the EU as it really is: struggling economically; wedded to an aggressive form of neoliberal economics; insistent that there is no alternative to a top-down, ever-closer union; and spawning anti-elite parties across the continent.

Like the USSR under Gorbachev, Europe needs radical reform before it is too late because, as George Soros noted last week, everything that could go wrong has gone wrong. The EU is saddled with a single currency that doesn’t work but unable to admit it.It has forced its weaker members to suffer the consequences of the euro’s design weaknesses with austerity policies; it has told those who complain about low growth and high unemployment to sort out their own problems through structural reforms (wage cuts and privatisation); and it has failed to comprehend the anger felt at mass immigration, which has increased the pool of readily available cheap labour.

A particularly serious form of this cognitive dissonance seems to afflict some left-leaning remainers in the UK. They appear to have forced Jeremy Corbyn and John McDonnell into softening (or fudging) Labour’s stance on the single market, even though they were two of the very few Labour MPs who rightly predicted where Europe would end up if it insisted on following rightwing economic policies.

And their insistence that the best way to help those who voted for Brexit is a reformed UK in a reformed EU glides over the fact that they rarely come up with any ideas for what these reforms might look like or how they might come about. That, of course, is because they have no plan other than to return Britain to its blissful prelapsarian state before the referendum. Gordon Brown’s plan to tackle the causes of Brexit – low wages, the sense of being cast adrift, the pressures from migration, the loss of sovereignty and concerns about the NHS – is a welcome and timely exception to this rule. But Brown’s warning that serious change is needed to prevent Britain being permanently paralysed applies equally to the rest of Europe, divided between social liberals and conservatives, between a rich north and a poorer south, and between those for whom globalisation works and those for whom it doesn’t.

Those who think that Euroscepticism is just a British phenomenon need to take a long, hard look at the populism on the march across Europe and ask themselves why it is happening. Then they need to work out what they are going to do about it.


One option, proposed by Emmanuel Macron, is to make Europe more like the US. Macron’s argument, which makes a lot of sense, is that the single currency is an unfinished and hence inherently unstable construct, which needs a much bigger budget, run by a single finance minister, to even out variations in economic performance. But there is little appetite in the rest of the EU for Macron’s plan, particularly where it really counts: in Germany.

Another option would be for Italy to precipitate change by leaving the euro. This is even less likely than adoption of Macron’s plans, because as soon as the financial markets got whiff of the idea it would result in sky-high Italian interest rates and the collapse of an already shaky banking system. Italians with savings would see their value decimated by a return to the lira. The only way Italy will leave the euro is by mistake, and then it would be catastrophic.

A third option would be for the conduct of European economic policy to become less fixated on austerity. There could be less emphasis on hitting arbitrary budget deficit targets, a move away from the neoliberal structural adjustment policies imposed on those countries seeking support, an acceptance that those countries trying to cope with migration flows across the Mediterranean need much more financial help than they are currently getting, and a Marshall plan for Africa of the sort floated by Soros. All would be welcome: all would meet with strong opposition from Angela Merkel.

By far the best option would be for Germany to take the initiative and announce that it was leaving the single currency, taking a small group of northern European countries with it. This would have a number of clear advantages. First, it would remove the stigma of leaving the euro because the decision would be taken from a position of strength not weakness. Second, the new mark would be a lot stronger than the euro and that would help iron out some of the imbalances in Europe’s economy by making German exports dearer and German imports cheaper. Third, the new hard eurozone would be more like Germany’s original vision of what it imagined monetary union would look like.

Fourth, it would breathe new life into plans for European integration because it could start small and get bigger over time. Countries such as the Netherlands and Austria would be obvious choices as founder members of a smaller club bound by common fiscal rules.

Finally, it would make a reality of a multispeed Europe in which some countries would be members of the hard eurozone, some would be actively planning to join it once their economies were ready, and some would decide they never wanted to join.

As things stand, this is just as big a fantasy as Macron’s integrationist blueprint. Germany is the one country that has really benefited from the single currency and is not going to propose a hard-mark zone that might exclude France. Macron would throw a wobbly if it did.

But if European leaders had the opportunity to turn the clock back to before the euro was introduced, this is the sort of plan they would probably come up with. And if this sort of EU had seemed feasible in June 2016, the UK would never have voted for Brexit.

2 comments:

Sierra said...

There seems to be conflicting schemes for dealing with fog on the A8 - thought the multi-coloured beacons were the latest favourite?

https://www.lavozdegalicia.es/noticia/galicia/2018/03/10/horas-cierre-gracias-actual-sistema-alerta/0003_201803G10P4992.htm

https://www.elprogreso.es/articulo/galicia/el-tramo-de-la-8-en-o-fiouco-continua-cerrado-por-cuarto-dia-consecutivo/20150609095142350434.html

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