Spanish life is not always likeable but it is compellingly loveable.
Christopher Howse: A Pilgrim in Spain
Spain- The “cesspit of the Spanish state,” is under scrutiny by the courts, says El País here.
- Regionalisation: As well as being annoyed that they can't get control of the local autopista, Galicians are also angry that Andalucia has more Competencias delegated to the local government than they have, despite being one of Spain's 3 'historic nationalities'. Here's 3 columns comparing Cataluña, the Basque Country and Galicia on this. The Galicians seem to have a point:-
- If you're doing the Camino francés any time soon, be aware that lighting in the localities in the bottom half of this list is poor. And so possibly dangerous if you're walking on the main roads:-
- Modern Spain:-
The UK, the EU and Brexit
- Richard North's view of the latest Westminster development: The whole exercise is not quite the equivalent of fiddling while Rome burns but it is most certainly an exercise in fatuity which will long stand in the record books as an example of what happens when second-rate nonentities take over a legislature after the grown-ups have left town. If this is what happens when parliament "takes control", then we are better off altogether without it. . . . Needless to say, the effort will be entirely wasted. Mrs May has already passed the political initiative to the European Union and it is the European Council which will decide on how long the extension will be, if indeed there is to be one.
- A telling statistic: Since Maastricht (and excluding Brexit), the EU has been beaten in a member state referendum 9 times. In every single instance, the result has either been explicitly reversed, circumvented or fudged. Local politicians have been instrumental to these reversals. There’s a pattern. The population of a member state turns ugly; Brussels negotiates; the national parties rally to the EU’s position, the revolution is cancelled in a flurry of semantics and special arrangements. The EU has survived despite all of its inherent contradictions because it has an instinct for self-preservation. And while the EU has expanded its responsibilities and concentrated power, national institutions have withered. Witness the Westminster farce. But: The EU is not the Soviet-era throwback that many Brexiteers claim; it is very much the direction of travel, the terminus of pan-European bureaucratic liberalism. WYSIWYG.
- Cultural values have become much more important to voters than the economic issues on which the traditional parties are based. This is a massive destabilising factor within party allegiances. For the vast majority of people Brexit isn’t about the EU, it is a proxy for a world view that includes their attitude to diversity and climate change as well as Europe. They would prefer to have parties which much more clearly reflect those values. Either Labour and the Tories rotate into those positions or they will be challenged by new parties rooted there. The European elections will provide the first big test of the reconfiguration.
- Fascinating times aren’t much fun to live through. How true
- Can the world's central banks rescue the slowing global economy even if they try? See Ambrose Evan's Pritchard on this question below.
- Word of the Day: Ligar
- Odd Old Word: Bat-fowling: 'A method of catching birds at night by setting straw alight near a bush and driving them into a net'.
- A headline in a serious UK newspaper: Netflix walruses were driven to death by polar bears not climate change, claims zoologist. Sic. Just in case you needed evidence that British schools stopped teaching punctuation decades ago,
Can the world's central banks rescue the slowing global economy even if they try? Ambrose Evans-Pritchard, in Cernobbio, Italy
The fear is palpable. Central bankers and policy strategists gathered at the intimate ‘euro Davos’ on Lake Como are shell-shocked by the collapse of bond yields and recessionary warnings across the world.
Monetary ammunition is exhausted or running low across the G10 economic universe. The US Federal Reserve has been stripped of key tools needed to fight a financial crisis. It may not be able to rescue the international system as did in 2008.
The eurozone is sliding into a ‘Japanese’ deflationary quagmire but without Japan’s political cohesion and without a fiscal machinery to step into the breach.
Lifelong advocates of Europe’s monetary union fret – behind the doors at the magnificent Villa d’Este – that the euro as we know it may not survive the next big recession. The worry is that Donald Trump’s fiscal stimulus will fade before China stabilizes its economy, leaving the eurozone nakedly exposed.
“Of all the things that keep me awake at night it is if the US and Europe both go into recession,” said Adam Posen, president of the Peterson Institute in Washington and a former rate-setter for the Bank of England.
Interest rates have peaked at 2.5pc in the US for this cycle. The European Central Bank is stuck at minus 0.4pc. The 10-year German Bund yield has plunged back to zero.
“It normally takes 400 to 500 basis points of rate cuts (in the US) to fight off recession. There is very little that central banks are going to be able to do at this point. They may have to get radical but that will happen only if things get really bad,” he told the Daily Telegraph of the Ambrosetti forum.
Fresh quantitative easing could perhaps halt a market panic but is useless against a deeper slide into perma-slump or ‘secular stagnation’. “If we get that kind of problem it could be very serious. I would like to think the eurozone can survive but I can’t say that for sure,” he said.
Mr Posen said the Dodd-Frank Act passed after the Lehman crisis has tied the hands of the Fed. It will be much harder for the Fed to halt fire-sale liquidation next time.
The new rules have stripped the institution of its Great Depression authority to lend to anybody – even vegetable growers in the 1930s – in “exigent and unusual circumstances” under Section 13 (3) of the Federal Reserve Act. “Dodd Frank took away their Section 13 (3) powers. The Fed can only by Treasuries now,” he said.
What saved capitalism in 2008 was Fed intervention to shore up the commercial paper and asset-backed securities market to prevent a melt-down of the money market industry. It took instant action and $1.5 trillion of emergency loans. Today can lend only to “insured depository institutions” through its discount window.
What also saved the world was the Fed’s currency ‘swap line’ to fellow central banks. This guaranteed unlimited dollar liquidity after Europe’s wholesale funding markets froze. It may no longer be available automatically in Mr Trump’s Washington. “The swap lines are extremely unpopular. Congress sees it as helping foreigners,” said Mr Posen.
Mohamed El-Erian, chief economic adviser to Allianz, said the Fed’s policy U-turn over the New Year is the most dramatic and startling of his long career. It may also prove ineffective.
“Central banks can buy some time but the transmission mechanism is stretched to the limits. More money going into QE ends up ‘pushing on a string’,” he said.
“The costs of QE are mounting. It pushes asset prices higher and higher but who owns the assets? The rich. They don’t spend enough in the real economy,” he said.
Mr El-Erian said banks now much safer but the risks have migrated into the shadows and into the untested the non-bank sector. The rules have slashed the level of working liquidity in the engine rooms of finance. He cited the latest shareholder letter of JP Morgan’s Jamie Dimon as a clear warning.
Heiner Flassbeck, Germany’s former economic secretary, says the ECB is powerless against the deeper forces of deflation and insufficient global deman
Mr Dimon said recent episodes of stress had seen liquidity drop “much further and faster than it did before the crisis” and this is a foretaste of worse to come. “There is no doubt that new regulations dramatically reduce the ability of the Fed to increase bank lending today by shoring up bank reserves. Expect banks to be far more constrained going into the next real downturn,” he said.
The immediate danger is the eurozone. The economy is sliding into a deeper manufacturing recession, suggesting that the ECB jumped the gun by shutting down QE in January. “It is on the verge of a stall,” said Nouriel Roubini, the roving Dr Doom from New York University.
“The question is whether the eurozone with its incomplete monetary and fiscal union is going to survive the next downturn,” he said at the Ambrosetti forum.
Professor Clemens Fuest, head of Germany’s IFO Institute, said European manufacturing has seen a precipitous decline over recent months. Risks of a self-feeding collapse of confidence are rising. “There is a fundamental shift towards pessimism. People think the future is very bad,” he said.
New orders in Germany crashed by 8.4pc in February from a year earlier. “We may get a soft-landing but that is only if there is no hard Brexit, no US car tariffs, China stabilizes, and there is no crisis in Italy,” he told the Telegraph.
The end of QE means that Italy no longer has a lender-of-last resort behind its debt market even as it grapples with a third quarter of recession and a rising debt ratio. The danger is a sudden spike in bond yields akin to events in 2011. This would eat into the capital ratios of Italian banks with €370bn of state bonds, reigniting the sovereign/bank ‘doom loop’.
Prof Fuest said markets do not seem to grasp that the ECB is unable to activate its rescue machinery (OMT-ESM) unless there is formal programme (requiring the political assent of the Bundestag). The insurgent Lega-Five Star alliance in Italy would resist the tough terms. It might instead activate its ‘mini-bot’ parallel currency.
“It is hard to imagine the Troika visiting Rome with this government. The OMT is no longer available for Italy. Markets are being complacent,” he said.
It was clear from private talks at Villa d’Este that the ECB is already resigned to its own impotence. It is talking up the capital markets union as a way to boost investment and carry the load. “It shows that they are really worried about the limits of monetary policy,” said Mr Posen.
Heiner Flassbeck, Germany’s former economic secretary, says the ECB is powerless against the deeper forces of deflation and insufficient global demand. “It would not make any difference if they did do QE at this stage,” he said.
Prof Flassbeck said the only way out of the impasse is coordinated and massive fiscal stimulus but this is blocked by the Stability Pact and the budget surveillance machinery of the eurozone. “Europe has banned the one instrument we can use,” he said.
“Germany is going into recession and the rest of the eurozone will follow at a time when unemployment is still extremely high in parts of Europe. We have to change our own rules drastically,” he said.
There is no sign of that.
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