Tuesday, June 18, 2019

Thoughts from Galicia, Spain: 18.6.19

Spanish life is not always likeable but it is compellingly loveable. 
                  Christopher Howse: A Pilgrim in Spain
  • Just in case there's anyone under 25 reading this blog . . . Advice on summer life in Spain.
  • And here, for everyone. is The Local on Spanish estival celebrations. In July and, especially, August it sometimes feels there's nothing else going on . . .
  • The way of all extremists, from the Right and the Left.
  • Prostitution and related people-smuggling is a real scandal in Spain. Here - in Spanish - is El País on the subject of shocking maltreatment. In Galicia, as it happens.
  • Last weekend, up near A Lamas, saw one of Galicia's strangest ceremonies - the procession around a church of (live) people in open coffins. I attended it a few years ago and seem to recall that the 'corpses' are infirm folk hoping for a miraculous recovery. Weird. And possibly pagan in origin:-
  • My guess is few people know that Galicia has its own separatists, Resistencia Galega. And that they occasionally indulge in violence. Though this is on a small scale and I don't think they've killed - or even injured - anyone. I believe the last episode was 6 years ago and involved the blowing up of an ATM. Anyway, 2 alleged leaders of RG were arrested in Vigo last weekend.
  • More than a couple of decades ago, my elder daughter commented it was a great shame that so many beautiful buildings in Lisbon were in a state of dereliction. Much has changed since then but it's still not difficult to come across tat among the glossy new buildings and the renovated old ones. For example, this was the view from my room in a Lisbon barrio which is being gentrified. I guess it has a certain charm. At least, that's what someone said in a booking.com review . . . 
  • Here's a foto of one of the piles of marble I saw on the edge of Estremoz:-
  • In Elvas , I parked my care in a space in front of this sign but then worried I wasn't permitted to:-

I had no idea what the initials stood for but was sure the receptionist of my hotel 5 metres away would know. But she didn't and just shrugged. So, I moved the car to the public car park 15m away. So far, the internet has only been able to tell me that D.R.A.P.A.L stands for Direcção Regional De Agricultura e Pescas Do Alentejo. But I'm stumped with S.R.N.A. I doubt it's a reference to a Croatian football player. . . Anyone know?

The EU
  • See the article on Italy below.
The USA 
Finally . . .
  • Several years ago, a couple of collared doves nested in the bougainvillea just below my bedroom window and I snapped the two-weeks development of the squabs from eggs to first flight. Now, there's another nest, just above the door to the garden, and I'm wondering if this is the same couple, or perhaps their progeny. Either way, it means I can't use this door for a couple of weeks:-


It’s only a matter of time before Italy’s Black Wednesday moment: Roger Bootle, Daily Telegraph

One of the items for discussion at this week’s meeting of the European Council will surely be the situation in Italy. The recent European elections were a great victory for Matteo Salvini, the leader of the League, one of the two partners in the governing coalition. No doubt emboldened by this result, he has called for tax cuts that would, if implemented, surely cause Italy to break the EU’s borrowing limits. The EU Commission is supposedly contemplating whether it should begin a disciplinary process against Italy that could end up with the imposition of substantial fines.

The markets seem to be fairly relaxed about the Italian situation. But you shouldn’t take comfort from this. They are focused on the immediate future. For all the sabre-rattling, the Italian government will not want an early showdown with the commission. And the commission would probably accept some sort of fudge. It will surely strive to avoid fining Italy.

Yet the Italian public finances are in a frightful mess. The ratio of government debt to GDP is now at 132%. Danger territory is supposed to begin at 90%. Even so, excluding interest payments, the government actually runs a budget surplus. Indeed, it has done so for 25 of the last 27 years. Italy shouldn’t have to squeeze its budget still further. The fiscal problem derives from a combination of a heavy weight of debt incurred in the past and very sluggish economic growth, continuing into the present.

A dose of decent economic growth in the future would work wonders. But it is difficult to see how Italy is going to grow at all, never mind strongly. Accordingly, the debt burden may rise. More importantly, even though it has fallen by 3% since late 2014, unemployment is still at 10%. Youth unemployment is over 30%. Since the euro was formed in 1999, the Italian economy has barely grown at all and living standards have been stagnant.

What is the way out? Mr Salvini’s proposed tax cuts might help a bit, although alone they are unlikely to achieve much. What Italy needs in the long term is a root-and-branch reform of both the economy and the political system. But in the short term it needs more aggregate demand.

Yet, if Italy’s sclerotic economy has hardly managed to achieve any growth when its leading trading partners have been growing well, then what is going to happen if and when they experience a serious economic slowdown, such as is now under way?

The answer is that Italy will slip into economic contraction and unemployment will start to rise. It is difficult to see how the Italian people or their political leaders will accept such a result meekly.

The course that would be open to Italy if it were not a member of the euro would be a depreciation of its exchange rate, combined with a more stimulatory fiscal and monetary policy. This is the policy that dare not speak its name. From originally being overwhelmingly staunch supporters of the European project, the Italian people have recently turned distinctly sceptical about the EU. Even so, a majority of Italians still do not want to leave the euro. This is a major political barrier stopping any Italian government from taking Italy out of the euro.

The prevailing attitude towards the euro is not surprising. If there had been a poll of British people before we left the Gold Standard in 1931 I am sure that there would have been an overwhelming majority for staying on it, even though it was the cause of major economic difficulties. Similarly, if you had conducted a poll of British voters on continued membership of the European Exchange Rate Mechanism before we were forcibly ejected on Sept 16 1992, a day that was soon dubbed Black Wednesday, a majority would have voted to stay in. People tend not to like such radical shifts. Accordingly, they need to occur through some sort of shock, without people having a choice in the matter.

In the Italian case, the most promising route to that result is through the introduction of a parallel currency, such as the so-called “mini-BOTs”, that have been touted for some time. (The name derives from the acronym for Buoni Ordinari del Tesoro – short-dated Italian government bonds.) These mini-BOTs are zero interest perpetual bonds. They look like bank notes and could serve as money. If Brussels would at least covertly allow Italy to introduce such “bonds” then they could finance increased government spending, and/or reductions in taxes.

But if the ECB reacted by cutting off, or even limiting, support for the Italian banking system then Italy would be ready with a new currency in waiting. Italy could support the banks with its newly issued currency. To all intents and purposes, Italy would then be out of the euro. This result could be presented as deriving, not from the Italian government’s choices, but from the European Central Bank’s actions.

This could be Italy’s Black Wednesday moment, with the president of the bank cast in the role of George Soros. Before long, Black Wednesday became known as Golden Wednesday, as the British economy surged ahead. This could happen to Italy too. But there is a major political risk. In September 1992, the Conservative Party trashed its reputation for economic competence and, after losing the next general election, it was out of power for 13 years. For Mr Salvini and the League to avoid a similar fate, or worse, might require the greatest political skill – and luck.

No one should expect such events in the next few months, let alone this week. The politics haven’t yet reached boiling point. But unless and until the economy produces some decent growth, you should expect something like this to happen one day. It is only a matter of time.

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