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Official opposition to the eurozone austerity fetish becomes a bad joke

It’s been a sweet and sour cou­ple of days for Angela Merkel and the Frank­furt Group (and The Enlight­en­ment, which most­ly has sour news these daysdecades).

First, yes­ter­day’s good news (well, ‘good’ for Merkel & Friends): The results came in on Thurs­day’s his­toric vote in Ire­land to rat­i­fy Berlin’s ‘fis­cal com­pact’ treaty and, as expect­ed, the Irish vot­ed 60–40 in favor of rat­i­fi­ca­tion. Yes, Ire­land just out­lawed Key­ne­sian eco­nom­ics in exchange for the pos­si­bil­i­ty of anoth­er bailout:

Ire­land Approves Treaty to Set Euro­pean Union Bud­get Con­trols
Pub­lished: June 1, 2012

DUBLIN — Ire­land vot­ed over­whelm­ing­ly to rat­i­fy a treaty intend­ed to bind Euro­pean Union mem­ber states to tighter bud­getary con­trols in an effort to address the sov­er­eign debt cri­sis that is threat­en­ing the euro.

But turnout was low, 50.3 per­cent; 60.3 per­cent of those who vot­ed approved the new mea­sures.

The result was also wel­comed by the pres­i­dent of the Euro­pean Com­mis­sion, José Manuel Bar­roso, who described the treaty as “a key com­po­nent of the E.U.’s response to the cur­rent eco­nom­ic cri­sis.”

The Sinn Fein leader, Ger­ry Adams, who opposed the pact, said he was not dis­ap­point­ed by the result but accused the gov­ern­ment of scare­mon­ger­ing, par­tic­u­lar­ly in regard to access to future financ­ing if the mea­sure were reject­ed. Mr. Adams said he had met many peo­ple who had vot­ed for the treaty “through grit­ted teeth.”

Much of the debate in the run-up to the vote had con­cen­trat­ed on whether Ire­land would require anoth­er bailout on top of the cur­rent one, which is due to run out at the end of 2013, or whether it would regain access to the bond mar­kets by then.

Although the gov­ern­ment coali­tion of Fine Gael and the Labour Par­ty remains adamant that Ire­land will not require anoth­er bailout, finan­cial experts say it is increas­ing­ly like­ly that it will, giv­en the over­all slug­gish­ness of the domes­tic and Euro­pean economies.


Yes, Ire­land just out­lawed Key­ne­sian eco­nom­ics because of all those valu­able lessons its learned about the dan­gers of Keyn­sian­ism. For instance, unless there’s a law ban­ning ‘exces­sive’ deficit spend­ing (even in a reces­sion) and unless the a nation guts its pub­lic sec­tor per­ma­nent­ly, a coun­try just might spend a decade embrac­ing neo-lib­er­al ‘reforms’, dereg­u­late its econ­o­my and allow its unreg­u­lat­ed banks to grow so large that the fail­ure of a hand­ful of finan­cial insti­tu­tion could end up implod­ing the whole econ­o­my. Yes, at least at least one of the P.I.I.G.S. has clear­ly demon­strat­ed that it learned its lessons about the pro­found dan­gers of ‘Big Gov­ern­ment’.

But all of yes­ter­day’s news was­n’t so pos­i­tive for Merkel. The two biggest P.I.I.G.S., Italy and Spain, appear to be waver­ing in their com­mit­ments to an aus­tere awe­some future. And since Spain and Italy have been two of the more ‘well behaved’ lit­tle pig­gies up to this point, this is a most dis­tress­ing devel­op­ment. It’s not all bad, though...Spain’s prime min­is­ter Mario Rajoy — a paragon of hon­esty and virtue — is still call­ing for the for­ma­tion of a euro­zone ‘fis­cal author­i­ty’ that would over­see nation­al spend­ing and would lim­it mem­ber­ship of that author­i­ty to only those nations that meet strict bud­get con­di­tions. AND he wants to see this author­i­ty put in place SOON. Now that does­n’t sound so bad.

Rajoy also wants a bank­ing union, as does the Euro­pean Com­mis­sion, but Rajoy wants it all put in place as soon as pos­si­ble. And why the rush? Well, one rea­son might be that the ‘expan­sion­ary aus­ter­i­ty’ Rajoy has been impos­ing on Spain appears to be most­ly good at expand­ing bank bailouts. On top of all that, at the same time Rajoy was call­ing for a new bank­ing union and strong fis­cal author­i­ty to impose ‘strict’ bud­get con­di­tions on ail­ing euro­zone mem­bers, Rajoy was also ask­ing for an extra year to meet Spain’s own bud­get require­ments (of a deficit under 3%). An extra year?! ?! Patience Angela, patience:

Spain calls for new euro fis­cal author­i­ty

By Julien Toy­er

MADRID | Sat Jun 2, 2012 5:34pm EDT

(Reuters) — Spain, the lat­est com­bat zone in Europe’s long-run­ning debt wars, urged the euro zone to set up a new fis­cal author­i­ty to man­age the bloc’s finances and send a clear sig­nal to mar­kets that the sin­gle cur­ren­cy project is irre­versible.

Prime Min­is­ter Mar­i­ano Rajoy said the author­i­ty would also go a long way to alle­vi­at­ing Spain’s woes which, along with the prospect of a Greek euro exit, have threat­ened to derail the sin­gle cur­ren­cy project.

It is not the first time a Euro­pean leader has pro­posed cre­at­ing such an author­i­ty but the prob­lems and the size of Spain — a coun­try deemed too big to fail — have prompt­ed EU pol­i­cy­mak­ers to hur­ried­ly con­sid­er mea­sures such as cre­at­ing a fis­cal and bank­ing union ahead of a EU sum­mit on June 28–29.

Ger­many, the pay­mas­ter of the euro zone, and oth­ers insist such a move can only hap­pen as part of a dri­ve to much clos­er fis­cal union and relin­quish­ing of nation­al sov­er­eign­ty.

Over­spend­ing in the regions and trou­bles with a bank­ing sec­tor bad­ly hit by a prop­er­ty crash four years ago have sent Spain’s bor­row­ing costs to record highs and pushed the coun­try clos­er to seek­ing an inter­na­tion­al bailout.

The risk pre­mi­um investors demand to hold Span­ish 10-year debt rather than Ger­man bonds rose to its high­est since the launch of the euro — 548 basis points — on Fri­day.

The Span­ish gov­ern­ment, which has hiked tax­es, slashed spend­ing, cut social ben­e­fits and bailed out trou­bled banks, argues that there is lit­tle else it can do and the Euro­pean Union should now act to ease the coun­try’s liq­uid­i­ty con­cerns.

In pri­vate, senior Span­ish offi­cials have said this could be done by using Euro­pean mon­ey to recap­i­tal­ize direct­ly ail­ing banks or through a direct inter­ven­tion of the Euro­pean Cen­tral Bank on the bond mar­ket.

They have also said the euro zone should quick­ly move towards a fis­cal union to com­plete its 13-year mon­e­tary union but Rajoy went a step fur­ther by mak­ing a for­mal offer.

“The Euro­pean Union needs to rein­force its archi­tec­ture,” Rajoy said at an event in Sit­ges, in the north-east­ern province of Cat­alo­nia. “This entails mov­ing towards more inte­gra­tion, trans­fer­ring more sov­er­eign­ty, espe­cial­ly in the fis­cal field.

“And this means a com­pro­mise to cre­ate a new Euro­pean fis­cal author­i­ty which would guide the fis­cal pol­i­cy in the euro zone, har­monies the fis­cal pol­i­cy of mem­ber states and enable a cen­tral­ized con­trol of (pub­lic) finances,” he added.


He also said the author­i­ty would be in charge of man­ag­ing Euro­pean debts and should be con­sti­tut­ed by coun­tries of the euro zone meet­ing strict con­di­tions.


A spokesman for Olli Rehn, the EU com­mis­sion­er in charge of eco­nom­ic and mon­e­tary affairs, said draft leg­is­la­tion designed to step up finan­cial dis­ci­pline in the euro zone, would cre­ate such a fis­cal author­i­ty by grant­i­ng new pow­ers to the EU’s exec­u­tive.

“This would grant enhanced pow­ers to the Euro­pean Com­mis­sion on fis­cal sur­veil­lance, includ­ing allow­ing the sanc­tion­ing of coun­tries,” said Amadeu Altafaj.

“Even before a bud­get is draft­ed and reach­es the nation­al par­lia­ment, the Com­mis­sion could ask for a revi­sion of the bud­getary plans if it con­sid­ers this would not allow a coun­try to meet its fis­cal com­mit­ments, and there­by could endan­ger finan­cial sta­bil­i­ty.”


A day after Berlin sup­port­ed giv­ing Spain an extra year to cut its deficit down to the 3 per­cent of GDP thresh­old, Chan­cel­lor Angela Merkel said it should be pos­si­ble for coun­tries that vio­late fis­cal rules to be sued in the Euro­pean Court of Jus­tice.


Poor, poor Angela. At least her allies in the Frank­furt Group, like EU Com­mis­sion­er Olli Rehn, is ahead of things. His new planned cen­tral­ized author­i­ty gets to ‘revise’ nation­al bud­getary plans even before the bud­gets are draft­ed. Talk about being proac­tive! And Rajoy seems like his heart’s in the right place...he still wants to turn Spain into a pri­va­tized fief­dom. He’s just a lit­tle slow.

And then there’s Italy:

May 31, 2012, 8:47 a.m. ET
UPDATE: Italy’s Mon­ti Urges Ger­many To Recon­sid­er Aus­ter­i­ty Push

(Updates through­out with more quotes, details. Adds in Rehn com­ments)

– Mon­ti warns that soon­er or lat­er there will be aus­ter­i­ty back­lash

– Mon­ti says there should be no change to ECB man­date

– EU Rehn says low­er­ing bor­row­ing costs is mat­ter of sur­vival for euro bloc

By Mati­na Ste­vis


BRUSSELS (Dow Jones)–Italian pre­mier Mario Mon­ti on Thurs­day urged Ger­many to recon­sid­er its push for aus­ter­i­ty, warn­ing that Berlin’s approach is gen­er­at­ing a pop­u­lar back­lash that could under­cut the region’s chances of over­com­ing the cri­sis.

Speak­ing at a con­fer­ence in Brus­sels, Mon­ti said that there will “soon­er or lat­er be a back­lash against the fis­cal dis­ci­pline” that Euro­pean gov­ern­ments are impos­ing.

“Europe should accel­er­ate its efforts in order to lim­it con­ta­gion not sim­ply because a huge financial...crisis will be a fright­ful event but even more because this would dis­man­tle the sup­port for sus­tain­able fis­cal dis­ci­pline,” he said. “Most notably, Ger­many should reflect quick­ly but deeply and act on these mat­ters,” Mon­ti said.

Mon­ti has been one of the main pro­po­nents of a growth agen­da to help the region’s econ­o­my get back on its feet. Last week, he also joined new French Pres­i­dent Fran­cois Hol­lande in call­ing for some form of com­mon debt issuance for the euro zone. How­ev­er Berlin has insist­ed that fis­cal con­sol­i­da­tion must be the cen­ter­piece of the anti-cri­sis response.


The Ital­ian pre­mier also weighed in on the debate over the Euro­pean Cen­tral Bank’s infla­tion-only man­date, fol­low­ing calls from some mem­ber states to expand it to include growth-pro­mot­ing mon­e­tary pol­i­cy.

Mon­ti said he was against such ideas.

“Maybe I’m too Ger­man but I believe that the ECB has been real­ly extra­or­di­nary in acquir­ing in a few years a very excel­lent rep­u­ta­tion,” he said. He added that the man­date has not pre­vent­ed the ECB devis­ing “new modal­i­ties of inter­ven­tion.”

He added that urg­ing the ECB to imple­ment bold­er expan­sion­ist meth­ods to sup­port growth would be a dis­in­cen­tive to euro-zone gov­ern­ments to press on with imple­ment­ing reforms and pur­su­ing pro-growth invest­ments.

How­ev­er he sig­nalled he would like to see the cen­tral bank become slight­ly more activist.

He said the ECB should look at the func­tion­ing of mon­e­tary-pol­i­cy trans­mis­sion mech­a­nisms as they have become “increasingly...disconnected from the real pol­i­cy­mak­ing in the dif­fer­ent coun­tries.”

That pesky Monti...how dare he ques­tion the aus­ter­i­ty-only approach. Italy, why can’t you be more like Spain. Grant­ed, Mon­ti also appear to oppose any actu­al pro-growth actions by the ECB, like rais­ing it’s infla­tion tar­get above the already astro­nom­i­cal 2%, so it’s not real­ly clear what part of the aus­ter­i­ty agen­da Mon­ti oppos­es. But still...bad EU-installed tech­no­crat!

And what’s this? Et tu Sil­vio?

ECB Must Print Euros Or Italy May Say ‘Ciao:’ Berlus­coni
By Loren­zo Totaro and Jef­frey Dono­van — Jun 1, 2012 8:12 AM CT

For­mer Pre­mier Sil­vio Berlus­coni said Italy should say “ciao, euro” if the Euro­pean Cen­tral Bank doesn’t start print­ing mon­ey to tack­le the debt cri­sis and Ger­many should quit the sin­gle cur­ren­cy if it won’t back a bold­er role for ECB.
“The eco­nom­ic cri­sis can’t be solved” in Italy, Berlus­coni said in com­ments post­ed on his party’s web­site today. He called on Prime Min­is­ter Mario Mon­ti to “change his polit­i­cal line” and lob­by Euro­pean lead­ers to back a mon­ey- print­ing cam­paign by the Frank­furt-based ECB. If the cen­tral bank doesn’t become a “lender of last resort,” Italy should say “ciao, euro,” the for­mer pre­mier said.
The media tycoon-turned-politi­cian became the lat­est Euro­pean lead­ers to step up pres­sure on Ger­man Chan­cel­lor Angela Merkel and the ECB to per­mit a more aggres­sive response to the region’s debt cri­sis. Mon­ti yes­ter­day called on Merkel to drop her oppo­si­tion to allow­ing the euro region’s res­cue mech­a­nism to lend direct­ly to banks.

‘Our Cur­ren­cy’
Berlus­coni, 75, who resigned as pre­mier in Novem­ber as Ital­ian bor­row­ing costs surged amid a wors­en­ing debt cri­sis, said Italy should remain in the Euro­pean Union even if it exits the euro. He added that anoth­er of his pro­pos­als was that the “Bank of Italy prints euros or our own cur­ren­cy.”
“It’s a crazy idea of mine,” he said, with­out spec­i­fy­ing if he meant reviv­ing the lira.
On May 25 Berlus­coni, who heads the par­ty with the most seats in the Rome-based par­lia­ment and whose sup­port is cru­cial for Monti’s gov­ern­ment, called for an over­haul of the country’s con­sti­tu­tion to strength­en the pow­ers of the pres­i­dent. He also said he would seek the office if his par­ty request­ed him to.

Oh wait, nev­er mind!

Berlus­coni says idea Italy should dump euro was “joke”

By Steve Scher­er

ROME | Sat Jun 2, 2012 10:35am EDT

(Reuters) — For­mer Pre­mier Sil­vio Berlus­coni said on Sat­ur­day he was only jok­ing when he sug­gest­ed that Italy should dump the euro unless the Euro­pean Cen­tral Bank agreed to inject more cash into the econ­o­my.

“We have to go to Europe and say force­ful­ly that the ECB should start print­ing mon­ey. If it does­n’t, we should have the strength to say ‘ciao, ciao’ and leave the euro,” Berlus­coni said on Fri­day in an entry on his Face­book page.

Less than 24 hours lat­er, the for­mer leader reversed his posi­tion, which clashed with that of Prime Min­is­ter Mario Mon­ti and threat­ened to under­mine the gov­ern­ment almost a year ahead of the next nation­al vote.

“That a joke ... could be mis­tak­en for a pro­pos­al is cer­tain­ly a seri­ous mis­take for who­ev­er claims to pro­vide polit­i­cal news,” Berlus­coni wrote on Sat­ur­day on his Face­book page.

He said the press had tak­en seri­ous­ly what he had said “with a smile and irony”.


Ahhhh....HA HA HA. Ok, that was a good one Sil­vio. I bet you had Angela real­ly scared there for a sec­ond.

What a joke.


30 comments for “Official opposition to the eurozone austerity fetish becomes a bad joke”

  1. I find it remark­able that in the U.S., the fol­low­ing argu­ment is not being made any­where — not even by the astute Paul Krug­man:

    • Ratio of debt to GDP dur­ing Great Depres­sion: 40% of GDP.
    • Ratio of debt to GDP BEFORE the 2008 crash: 70% of GDP.
    • Ratio of debt to GDP DURING 2008 crash: 102% of GDP.
    • Ratio of debt to GDP in 1950s, pay­ing-off WW2 Key­ne­sian stim­u­lus debt: 120% of GDP.

    Source for sta­tis­tics: see link at bot­tom of com­ment.

    As you can see, debt was at its all-time-high in the 1950s.

    But there were NO spend­ing cuts.

    IN FACT, tax­es were RAISED to 91% on the top tax brack­et.

    And spend­ing INCREASED.

    The fact is: The Unit­ed States SPENT its way out of WW2 debt.

    How? The U.S. went on a mas­sive print-run and spend­ing spree that built the U.S. Inter­state Free­way Sys­tem (100% social­ist in nature), pub­lic schools, munic­i­pal water sys­tems, hydro­elec­tric dam projects, rur­al elec­tri­fi­ca­tion (much of the rur­al U.S. still did not have elec­tric­i­ty), hos­pi­tals (which used to be non-prof­it), ports, bridges, air­ports, fire depart­ments, and the G.I. Bill, which paid for vet­er­ans to go to col­lege and become Mid­dle Class tax­pay­ers.

    This spend­ing-spree cre­at­ed a boom that cre­at­ed a new class of tax­pay­ers that bare­ly exist­ed before the Great Depres­sion: the Mid­dle Class.

    By 1974, the debt-to-GDP ratio fell to 32 PERCENT. (Source: See link at bot­tom of com­ment).

    Because of deficit-spend­ing on infra­struc­ture, the U.S. “out­grew” and “absorbed” its own biggest-ever debt.

    Accu­sa­tions of “spend­ing mon­ey we don’t have” need to explain how the U.S. spent its way out of WW2 debt.

    Some­body please beg Paul Krug­man to men­tion this.


    Posted by R. Wilson | June 8, 2012, 5:51 pm
  2. I think we have a new record here: Spain’s finan­cial cri­sis has gone from a bad joke to a $125 bil­lion pathet­ic farce in 4:40. It’s good to see all the aus­ter­i­ty “cred” that the euro­zone has been build­ing up with “the mar­kets” final­ly pay off:

    Spain’s bailout bought just 4 hours and 40 min­utes of calm
    Post­ed by Brad Plumer at 10:42 AM ET, 06/11/2012

    In the past, every time Euro­pean lead­ers have hud­dled togeth­er and announced a plan to douse the lat­est fire in Europe, the finan­cial mar­kets have usu­al­ly been pla­cat­ed for a brief while — say, a few weeks or months. Then anoth­er cri­sis flares up, and every­one starts pan­ick­ing again.

    Now, though, it seems we only get a few hours of post-bailout eupho­ria before pan­ic sets in again. On Sat­ur­day, euro zone lead­ers declared they were ready to loan the Span­ish gov­ern­ment up to $125 bil­lion to prop up the country’s trou­bled banks. The hope was that this would instill con­fi­dence in Spain’s bank­ing sec­tor, stop Spainards from yank­ing their deposits out, and make every­body more con­fi­dent in Spain’s over­all future.

    That didn’t quite hap­pen. As you can see from the chart below , the calm last­ed about 4 hours and 40 min­utes. As mar­kets opened on Mon­day, Spain’s bor­row­ing costs (in orange) dropped for a brief while before sky­rock­et­ing well above the wor­ri­some 6 per­cent lev­el. Italy’s bor­row­ing costs (in gray) have also jolt­ed upward. Investors are skit­tish about lend­ing both coun­tries mon­ey, because they’re wor­ried about get­ting repaid:[see graph­ic]

    So why didn’t the Span­ish bailout reas­sure any­one? The line from most ana­lysts is that the deal didn’t, as Wolf­gang Mun­chau puts it, “ren­der Spain’s posi­tion in the euro­zone sus­tain­able.” Under the agree­ment, Europe will lend the Span­ish gov­ern­ment up to $125 bil­lion. A Span­ish gov­ern­ment agency will use that mon­ey to buy par­tial stakes in Span­ish banks, giv­ing the banks more cap­i­tal — sim­i­lar to how the Unit­ed States recap­i­tal­ized its banks with TARP. (Spain’s ver­sion, by the way, is called “FROB,” the Fund for Order­ly Recap­i­tal­iza­tion of Banks.)

    Trou­ble is, the Span­ish gov­ern­ment itself already has a high debt load — about 81 per­cent of GDP. That fig­ure is expect­ed to soar above 90 per­cent of GDP if Spain takes the full $125 bil­lion loan. Giv­en that Spain is now slog­ging through a reces­sion that’s being exac­er­bat­ed by large aus­ter­i­ty mea­sures, those debts are look­ing fair­ly unsus­tain­able.


    Posted by Pterrafractyl | June 11, 2012, 8:11 am
  3. Spain right-wing pres­i­dent just “declared war” on the EU’s cen­tral bankers. Italy’s installed tech­no­crat Preznit agrees, it’s time for bat­tle. Them’s fight­in’ words:

    Rajoy Bat­tles ECB for Loans; Mon­ti Appeals for EU Action
    By Ben Sills and Ange­line Benoit — Jun 13, 2012 7:59 AM CT

    Spain and Italy appealed to Euro­pean pol­i­cy mak­ers to step up their response to the finan­cial cri­sis after a 100 bil­lion-euro ($125 bil­lion) life­line for Span­ish banks failed to calm mar­kets.

    Span­ish Prime Min­is­ter Mar­i­ano Rajoy said today he’ll “bat­tle” cen­tral bankers refus­ing to buy debt from periph­er­al nations. Rajoy pub­lished a let­ter to Euro­pean Union lead­ers call­ing for the Euro­pean Cen­tral Bank to buy debt from the coun­tries strug­gling to shore up their finances.

    “That is the bat­tle we have to wage in Europe,” Rajoy told the Span­ish par­lia­ment in Madrid today. “I am wag­ing it.” His Ital­ian coun­ter­part, Mario Mon­ti, told law­mak­ers in Rome Europe faces a “cru­cial” moment.

    The lead­ers of south­ern Europe’s biggest economies went on the offen­sive as bond yields jumped fol­low­ing the announce­ment of a bailout for Span­ish banks that was intend­ed to quell con­cern over the coun­tries’ finances. The decline wiped out the effects of 1 tril­lion euros in ECB loans for euro-region banks that had held yields in check since Decem­ber.


    Yes, the ECB must now expect the much feared “please take us over” roll-over-and-play-dead attack. Its effec­tive­ness lies in its abil­i­ty to con­found:

    Europe’s ‘Worst Cri­sis’ Requires Fis­cal Union: Spain
    Pub­lished: Wednes­day, 13 Jun 2012 | 8:12 AM ET

    By: Katy Bar­na­to
    Assis­tant Edi­tor, CNBC

    Europe needs a fis­cal and bank­ing union if it is to sur­vive “the worst cri­sis” since the Euro­pean Union’s cre­ation, Span­ish Prime Min­is­ter Mar­i­ano Rajoy said in an open let­ter to lead­ers on Wednes­day.

    In the let­ter, which was addressed to Jose Manuel Bar­roso, pres­i­dent of the Euro­pean Com­mis­sion and Her­man Van Rompuy, pres­i­dent of the Euro­pean Coun­cil, Rajoy said fis­cal and bank­ing union, as well as mon­e­tary union, will be nec­es­sary to counter finan­cial volatil­i­ty and restore con­fi­dence in the euro zone.

    “We must cre­ate a Euro­pean fis­cal author­i­ty that can direct fis­cal poli­cies in the euro zone, that can har­mo­nize mem­ber states’ fis­cal poli­cies, and that can con­trol cen­tral finances, as well as man­age Euro­pean debt,” Rajoy wrote.

    Rajoy added that the Euro­pean Council’s next meet­ing on June 28–29 pro­vides an “urgent” oppor­tu­ni­ty to out­line these plans, and that lead­ers must sent a “clear and deter­mined” mes­sage about the irrev­o­ca­bil­i­ty of the euro and the com­mon mar­ket.


    Mar­i­o’s pos­sum-style kung fu is nev­er to be under­es­ti­mat­ed.

    Posted by Pterrafractyl | June 13, 2012, 8:27 am
  4. One of the dan­gers of S&M play is the risk that the sadist for­gets the “safe word”. So, umm, Mario, “the mar­kets” might be try­ing to tell you some­thing:

    Spain to unveil new aus­ter­i­ty steps soon: sources

    Wed Jul 4, 2012 8:41am EDT

    (Reuters) — Spain’s gov­ern­ment is putting fin­ish­ing touch­es to an up to 30 bil­lion euro ($38 bil­lion) pack­age of spend­ing cuts and tax hikes to help it meet this year’s deficit tar­gets, sources with knowl­edge of the mat­ter said.

    Run­ning over sev­er­al years, the pro­gram could involve rais­ing Spain’s main con­sumer tax, a new ener­gy levy, reforms to the pen­sion sys­tem, pay cuts for civ­il ser­vants, new motor­way tolls and anoth­er dras­tic reduc­tion in min­istry and region­al spend­ing, the sources said.

    Some mea­sures may be announced next week, when the EU is like­ly to grant the gov­ern­ment an extra year to cut its deficit below 3 per­cent of out­put, and oth­ers could be pre­sent­ed over the sum­mer and includ­ed in a mul­ti-year bud­get plan due to be pre­pared in August.

    Spain’s high­ly-indebt­ed regions and banks bad­ly hit by a prop­er­ty crash four years ago have put the coun­try firm­ly in the sights of investors who fear that, giv­en its size, it could derail the entire sin­gle cur­ren­cy project if its econ­o­my col­laps­es.

    The new aus­ter­i­ty dri­ve aims to put Spain back on track to meet its deficit goals for 2012, though some ques­tioned whether it would sim­ply add to the coun­try’s prob­lems by entrench­ing its reces­sion even more deeply.

    Data for the first five months of the year revealed spend­ing and rev­enue slip­page that makes the cur­rent objec­tive unat­tain­able with­out new cuts.

    The idea is to imple­ment cuts worth three per­cent of gross domes­tic prod­uct. Every­thing is under review,” said one of the sources with knowl­edge of the gov­ern­men­t’s think­ing.



    Spain is nego­ti­at­ing an up to 100-bil­lion-euro Euro­pean res­cue for its banks and press­ing for an EU inter­ven­tion on its bond mar­ket to cut soar­ing bor­row­ing costs.

    But it is unclear if the new aus­ter­i­ty plan will be well received by mar­kets wary that too much belt-tight­en­ing would choke off any hope of eco­nom­ic recov­ery.

    “More aus­ter­i­ty will only make things worse in the short-term,” said Nicholas Spiro, from Spiro Sov­er­eign Strat­e­gy.

    “The mar­ket does not need to be con­vinced that (Prime Min­is­ter Mar­i­ano) Rajoy’s gov­ern­ment is seri­ous about fis­cal retrench­ment. While there are seri­ous doubts about the gov­ern­men­t’s abil­i­ty to enforce dis­ci­pline in the regions, the real wor­ry is the lack of growth,” he said.

    Both the Euro­pean Com­mis­sion and the Inter­na­tion­al Mon­e­tary Fund have said Spain should not rush to cut its pub­lic deficit after the econ­o­my fell into its sec­ond reces­sion in three years in the first quar­ter.

    The Com­mis­sion has repeat­ed­ly called on Spain to shift the tax bur­den towards indi­rect con­sumer and ener­gy tax­es and to bet­ter con­trol its devolved regions.

    In its lat­est eco­nom­ic assess­ment, the IMF also urged Spain to raise its VAT rate — one of the low­est in Europe — and imple­ment pay cuts for civ­il ser­vants.

    Rajoy said on Mon­day he would speed up his struc­tur­al reform and spend­ing cuts dri­ve, espe­cial­ly in the regions, while For­eign Min­is­ter Jose Manuel Gar­cia-Mar­gal­lo said the gov­ern­ment would soon imple­ment “severe” bud­get cuts.


    Posted by Pterrafractyl | July 4, 2012, 11:14 pm
  5. Greece new­ly formed gov­ern­ment is about to make a push to get its aus­ter­i­ty goals eased up a bit in order to give the coun­try a lit­tle breath­ing room. The new gov­ern­ment is also appar­ent­ly tak­ing a page from the “Mario Rajoy School of Aus­ter­i­ty Nego­ti­at­ing”: The bold new mea­sure being offered to the “troi­ka” — in exchange for reduc­ing the man­dat­ed tax hikes, lay­offs, and wage cuts — is to speed up and expand the pri­va­ti­za­tion of state assets:

    Greece press­es case to change bailout terms

    ATHENS | Thu Jul 5, 2012 4:08am EDT

    (Reuters) — Greece’s new gov­ern­ment took up the task on Thurs­day of per­suad­ing skep­ti­cal lenders vis­it­ing Athens to ease the pun­ish­ing terms of the bailout sav­ing the debt-laden coun­try from bank­rupt­cy.

    Just hours after being sworn in, Finance Min­is­ter Yan­nis Stournaras was due to meet senior offi­cials from Greece’s trio of inter­na­tion­al lenders — the Euro­pean Union, Euro­pean Cen­tral Bank and Inter­na­tion­al Mon­e­tary Fund.

    The so-called ‘troi­ka’ is in Athens to review Greece’s fal­ter­ing progress on fis­cal adjust­ment and reforms under a 130 bil­lion euro ($162.63 bil­lion) bailout pack­age.

    Try­ing to take advan­tage of a shift in Europe towards more growth-ori­ent­ed eco­nom­ic pol­i­cy mea­sures, Greece’s coali­tion gov­ern­ment wants to soft­en the con­di­tions attached to the bailout — with­er­ing tax hikes, job loss­es and wage cuts that have deep­ened a reces­sion now into its fifth year.

    It faces huge pub­lic pres­sure fol­low­ing a re-run elec­tion on June 17 that saw the rad­i­cal left­ist Syriza bloc surge into sec­ond place on a promise to tear up the bailout terms, rais­ing the prospect of a cat­a­stroph­ic Greek exit from Europe’s sin­gle cur­ren­cy.

    But the three-par­ty coali­tion gov­ern­ment led by Con­ser­v­a­tive Anto­nis Sama­ras faces stiff resis­tance from Euro­pean part­ners, notably pay­mas­ter Ger­many, who say that while they are open to adjust­ing the pro­gram, they will not change the tar­gets.

    In Stock­holm, Swedish Finance Min­is­ter Anders Borg said on Swedish Radio on Thurs­day there was a major risk would fail to ful­fill its oblig­a­tions to its lenders and end up in “some sort of default”.

    Greece will run out of cash with­in weeks if it fails to secure the next 31.5 bil­lion-euro install­ment of bailout funds.


    The gov­ern­ment says it wants tax cuts, a freeze on pub­lic sec­tor lay­offs, extra help for the poor and unem­ployed and an addi­tion­al two years to cut its deficit.

    If imple­ment­ed in full, that pro­gram would undo many aus­ter­i­ty mea­sures the coun­try agreed to ear­li­er this year to clinch its sec­ond bailout since 2010.

    It is offer­ing in exchange to expand and speed up the pri­va­ti­za­tion process.

    Stournaras, a lib­er­al econ­o­mist who helped nego­ti­ate Greece’s entry into the euro in 2001, took on the job after Sama­ras’s first choice, banker Vas­silis Rapanos, with­drew cit­ing ill health.


    Posted by Pterrafractyl | July 5, 2012, 12:56 am
  6. Posted by Pterrafractyl | July 7, 2012, 9:50 am
  7. @Rob. That site has a good cross-sec­tion of com­ments from peo­ple try­ing to make sense of the eco­nom­ic sys­tem and sug­gest repairs with­in the frame­work of that sys­tem. They seem to have some back­ground and not be stuck in ide­o­log­i­cal mud­holes ( except for the guy who thinks gold backed mon­ey will cure the com­mon cold ).

    Cap­i­tal­ism can be so many dif­fer­ent things and be prac­ticed with such a bewil­der­ing vari­ety of out­comes that peo­ple lose them­selves in sec­ond tier dis­cus­sions of the­o­ret­i­cal mat­ters and avoid con­fronting first prin­ci­ples. What is the pur­pose of an eco­nom­ic sys­tem? While I don’t advo­cate any kind of prop­erty­less soci­ety or ‘flat’ out­come, it’s just obvi­ous that present­ly too much wealth has accu­mu­lat­ed in too few hands for any­thing but a few slight­ly vary­ing dis­as­ter sce­nar­ios to unfold, unless the direct solu­tion of forcible redis­tri­b­u­tion of prop­er­ty is applied soon. By this, I don’t mean a few tax increas­es, con­ced­ed after much wran­gling. or some mea­ger expan­sion of the wel­fare state. I mean forcible appro­pri­a­tion of any cor­po­rate and indi­vid­ual net worth over some rea­son­able lim­its and the per­ma­nent insti­tu­tion­al­iz­ing of those lim­its into the social and eco­nom­ic fab­ric. This can’t be done by nego­ti­at­ing with the peo­ple whose pow­er we are remov­ing.

    The result­ing gra­di­ent of pro­duc­tion and wealth won’t be ‘equal’. but it could be liv­able, i.e., not requir­ing that a large por­tion of the pop­u­lace live in mis­ery and enslave­ment or sim­ply die. That min­i­mal­ly good result is iden­ti­cal to what is promised by all the fla­vors of cap­i­tal­ism and social­ist vari­ants, so why not bypass the­o­ry and go direct­ly there, espe­cial­ly since their own ver­sions of the promised land recede fur­ther by the minute?

    The rea­son we don’t is twofold, involv­ing both shared eco­nom­ic delu­sions and phys­i­cal fear. The cur­rent kings on the hill have delud­ed the pop­u­lace into the idea that prop­er­ty is so sacred that many of us must be con­tin­u­al­ly sac­ri­ficed on its altar. We have accept­ed the notion that the cur­rent dis­tri­b­u­tion of wealth and the mech­a­nisms for gain­ing it are iden­ti­cal to jus­tice, moral­i­ty and order. They have con­fused us over the dif­fer­ence between hav­ing some or enough and hav­ing it all. If that meme ever fails, as it seems to be fail­ing now, we will see sim­ple raw vio­lence revealed as the force that props up their car­tel world. Fas­cism or Nature ( as they see nature ), red in tooth and claw, has always been there behind the cor­po­rate glass and we coop­er­ate in not see­ing it, hold­ing to our com­fort­able illu­sions of civ­i­liza­tion.

    So, is wish­ing to see less mis­ery and death rather than more — and say­ing so — the new def­i­n­i­tion of ter­ror­ism? Yes.

    The broad­er things occu­py me more than the pass­ing details, so it’s hard to get too intense­ly inter­est­ed in mod­ern mon­ey the­o­ry or in what con­vo­lut­ed mech­a­nism the ECB will use to write off unpayable debt while not seem­ing to do so.

    Posted by Dwight | July 7, 2012, 10:04 am
  8. @Dwight: I think the main rea­son we unfor­tu­nate­ly have to delve into all this mon­e­tary the­o­ry stuff is because ill-advised mon­e­tary (and fis­cal) pol­i­cy is one of the pri­ma­ry fascist/corporatist tools of choice. It’s an unavoid­able task to attempt to counter or at least high­light the per­va­sive fool­ish­ness ped­dled as seri­ous eco­nom­ic pol­i­cy. Per­sua­sive bad ideas: the most potent weapon ever imag­ined.

    And regard­ing a wealth cap, I’ve often won­dered why our income top tax rates kick in around $350,000 (at least in the US) when there are bil­lions in annu­al income for the top earn­ers. The top tax brack­et has­n’t always been that low, espe­cial­ly dur­ing times of war. It’s like cap­ping the tax rate at the %0.01 mark­er on the income scale.

    Some­thing that would be inter­est­ing to see from a game-the­o­ry per­spec­tive would be an income tax rate that is lit­er­al­ly pegged to who­ev­er makes the most in a giv­en year. So if the top earn­er makes $1 bil­lion that year, some pro­gres­sive scale is applied to every­one with $1 bil­lion as the top “tax brack­et”, but if there’s $2 bil­lion made by the top earn­er the next year, that same tax brack­et gra­di­ent is applied, but scaled from a $0 — $2 bil­lion scale. And make it REALLY pro­gres­sive, so you real­ly don’t want to be #1 or any­where near the top tier. And then add the stip­u­la­tion that top earn­ers are free to use char­i­ta­ble dona­tions as write offs to reduce their incomes. Sud­den­ly, there’s still a race to get rich but not TOO rich rel­a­tive to every­one else. Don’t like your ris­ing income tax rates? Talk to Uncle Mon­ey Bags that made AND KEPT the most. Grant­ed, there would prob­a­bly be unin­tend­ed con­se­quences like wide­spread pub­lic sup­port of the rich­est per­son in the nation using income-shel­ters and tax havens (because it would bring EVERY­ONE’s tax­es down), but it’s a fun thought exper­i­ment. Hope­ful­ly it’s also not one of those destruc­tive bad ideas. A sort of unin­tend­ed weapon of mass destruc­tion. We have enough those already.

    Posted by Pterrafractyl | July 9, 2012, 8:17 am
  9. @ PTERRAFRACTYL .. your game-the­o­ry inspired pro­pos­al about empir­i­cal­ly tar­get­ing top earn­ers ( ‘earn’ being a ques­tion­able term ) opens up the moral and psy­cho­log­i­cal issues involved in the pur­suit of obscene lev­els of wealth.

    I invol­un­tar­i­ly chan­nel Ayn Rand. She would say that such a thing was a witch­hunt by evil, jeal­ous and mediocre peo­ple against the cre­ative and inno­v­a­tive minor­i­ty who are respon­si­ble for main­tain­ing civ­i­liza­tion in the face of demon­ic social­ism.

    I am grate­ful that Rand exist­ed and wrote because she presents her twist­ed Nordic eco­nom­ic cos­mol­o­gy with­out nuance or apol­o­gy. It’s all very raw and pri­mal. You can clear­ly imag­ine the Entre­pre­neur, sword in hand, atop a rocky crag with a fierce storm blow­ing all around, rag­ing at the ele­ments, at God him­self, and at the vile sex­u­al­ly-infe­ri­or Lil­liputans whose only goal in life is to stop him from mak­ing a buck.

    Such a tax struc­ture as you sug­gest implies strong­ly that wealth is not proof of virtue. That’s down­right UnAmer­i­can.

    Posted by Dwight | July 9, 2012, 10:53 am
  10. @Rob: Well I was being some­what face­tious with my lit­tle tax pro­pos­al, but not entire­ly . It was a sil­ly exer­cise in the kind of “think­ing out­side the box” re-imag­in­ing of our eco­nom­ic struc­ture that we need. But you’re right that to real­ly “think out­side the box” we need bet­ter con­cepts of what con­sti­tutes “wealth”. Or bet­ter than “wealth”, what con­sti­tutes a “mean­ing­ful goal” for peo­ple doing what they do every day. Or “suc­cess”. Peo­ple may not inher­ent­ly all want to all be obscene­ly wealthy, but I do sus­pect near­ly every­one wants to be “suc­cess­ful” by some def­i­n­i­tion. We just need to fig­ure out a bet­ter way to chan­nel that dri­ve. Sim­i­lar­ly, what about “pow­er”? For some rea­son pow­er is always “my pow­er over some­thing else”, but rarely “our pow­er to get shit down we could­n’t do alone”. As mor­tal beings, the need for power/security prob­a­bly is instilled in us pret­ty heavily...that need just seems to dri­ve us sort of nuts. We’re a weird social species at this point in time. Pub­lic safe­ty, pension/security, a viable future for our chil­dren, or world with­out suf­fer­ing and, yes, even some per­son­al pos­ses­sions, should all fall into the cat­e­go­ry of “mean­ing­ful things I work for every­day because I real­ly val­ue that stuff”. As you point out, it’s sim­ply all in the “per­son­al pos­ses­sions” cat­e­go­ry now and that’s real­ly messed up.

    But even if we can con­ceive of a bet­ter def­i­n­i­tion of wealth, goals, suc­cess or what­ev­er it is that defines our envi­sioned shin­ing city on the hill, one of the val­ues of my fun lit­tle tax pro­pos­al is that, at the end of the day, the Ran­doid sys­tem of life has a HUGE advan­tage over almost all oth­er forms of self-gov­ern­ment: It’s a sur­pris­ing­ly robust “sys­tem”. What­ev­er hap­pens in a free-for-all free-mar­ket is what is sup­posed to hap­pen. Let the chips fall where they may. If we spi­ral into an aus­ter­i­ty-induced decades-long depres­sion, well, that’s just what should have hap­pened. And if you and up with a bil­lion dol­lars or noth­ing, well, that’s just a reflec­tion of who you were as a per­son. And if the whole econ­o­my col­laps­es in an spec­u­la­tive clus­ter­fuck, well, the “sys­tem” can still rebuild...just with a lot more endem­ic pover­ty. At its core, the rules of the Ran­di­an word are remark­ably sim­ple to cre­ate and self-per­pet­u­ate: as long as you have a basic legal sys­tem to enforce prop­er­ty-rights and a force avail­able to phys­i­cal­ly enforce those law, it’ll keep going for­ev­er. Or at least until we pol­lute our­selves into obliv­ion (bar­ring the ‘Avatar’ sce­nario, where we get to pol­lute oth­er worlds). The “peg our tax rates to the rich­est guy around” pro­pos­al was more just an attempt at think­ing about self-cor­rect­ing mech­a­nism that pre­vent an over-con­cen­tra­tion of pri­vate wealth with­in the con­text of a sys­tem that still pro­motes the accu­mu­la­tion of these wid­gets we call mon­ey.

    So I think we have to rethink what it is that defines “wealth”, “suc­cess”, “pow­er”, etc. But we also need to think “sys­tem­i­cal­ly” about how peo­ple can live their day to day lives “suc­cess­ful­ly” in as much of a self-auto­mat­ed way as pos­si­ble. The world is too com­pli­cat­ed for the Ran­di­an solu­tion, but that does­n’t mean we can’t come up with some snazzy self-cor­rect­ing/­self-per­pet­u­at­ing sys­tems too. And we don’t real­ly have a choice. Build­ing social cohe­sion is a tricky and get­ting every­one to vol­un­tar­i­ly get done what needs to get done is a real­ly tricky task. The best solu­tions tend to be ele­gant­ly, sim­ple, but not nec­es­sar­i­ly obvi­ous. It does­n’t have to be a strict­ly “eco­nom­ic” system...but we need some­thing that we can pass down to our kids and they can pass down to their kids and it sort of works. And it has to work with­in the con­text of where we are now: a dying, over­pop­u­lat­ed, over-pol­lut­ed, psy­cho­log­i­cal­ly dis­turbed world. That may seem like an excep­tion­al­ly daunt­ing task because it is. But it’s hard to imag­ine all the dif­fer­ent ways in which a “democ­ra­cy” and “self-gov­ern­ing” soci­ety can run itself. Human­i­ty has bare­ly scratched the sur­face of those pos­si­bil­i­ties. The more alter­na­tive sys­tems we have, the eas­i­er it’s going to be in decrim­i­nal­iz­ing our soci­eties and replac­ing our exist­ing clus­ter­fuck of a plan­e­tary sys­tem with some­thing bet­ter. But those new sys­tems have got to work.

    And yes, there are a huge num­ber of flaws with my pro­pos­al, hence the WMD warn­ing at the end. Hehe.

    Posted by Pterrafractyl | July 10, 2012, 9:45 am
  11. @Rob:
    No, I was being seri­ous, but I prob­a­bly should have clar­i­fied it bet­ter. There’s the pure “Ran­di­an” sys­tem with almost no gov­ern­ment or any­thing. “Soma­lia”, as it’s often referred to. We haven’t real­ly seen how “robust” that would be in too many oth­er instances because few soci­eties are yet crazy enough to com­plete­ly “go there”. But there’s the Ran­di­an-lite sys­tem, sort of like what the US had for much of the 19th and ear­ly 20th cen­tu­ry. As a “sys­tem”, that Ran­di­an-lite “free-mar­ket but not actu­al­ly because we’ll bail out or pro­tect the pow­er­ful” sys­tem is, to a large extent, account­abil­i­ty-free. There are no stan­dards like pro­vid­ing ade­quate food, shel­ter, med­i­cine, edu­ca­tion, a bet­ter future, etc. That’s ALL up to the indi­vid­ual, fam­i­ly or maybe local com­mu­ni­ty. And assum­ing peo­ple accept it as a just sys­tem or, more fre­quent­ly, as the ONLY just sys­tem, it can keep chug­ging along regard­less of how much it trash­es the place. And yes, it’s shock­ing­ly frag­ile too, in that it, well, ends up trash­ing the place. But again, as long as peo­ple accept its out­comes as what should have hap­pened or the ONLY viable option, the “sys­tem” can keep reboot­ing itself, ris­ing from the ash­es once again. There are no mean­ing­ful stan­dards for per­for­mance.

    And yes, the mass­es do get pissed and make attempts at reform, but that’s part of the sys­tem too...each “reboot” might include some reforms here and there, but then it’s just back to union-bust­ing time until the reforms have been reversed. That’s part of what this whole boom/bust/austerity cycle is all about right now. The sys­tem is reboot­ing.

    Whether it works or not remains to be seen, but the fact that it has such a sim­ple solu­tion for every­thing (impov­er­ish almost every­one!) and that solu­tion is being pret­ty suc­cess­ful­ly imple­ment­ed across an entire con­ti­nent right now (and is com­ing to a con­ti­nent near you in the near future) strikes me as a form of sys­temic robust­ness. It can work in an “democ­ra­cy”, a fas­cist state, a dic­ta­tor­ship, what­ev­er. The form of gov­ern­ment is irrel­e­vant as long as it’s a form of gov­ern­ment run by and for the pow­er­ful. That strikes me as a sur­pris­ing­ly robust “Ran­di­an-ish” sys­tem giv­en what a train wreck it’s been.

    And yes, once it destroys the resources of the world our cur­rent Ran­di­an-lite glob­al sys­tem will show itself to lack any mean­ing­ful long-term robust­ness. Medi­um-term robust­ness per­haps?

    Posted by Pterrafractyl | July 10, 2012, 11:21 am
  12. @Rob: lol. Yep, it’s a bust alright.

    @Dwight: Regard­ing our sense of what it is to be unamer­i­can, is it just me, or have we become the High­lander soci­ety? THERE CAN BE ONLY ONE!

    Posted by Pterrafractyl | July 10, 2012, 12:55 pm
  13. Mario, this isn’t easy to bring up...but you have a prob­lem and need help. This can’t con­tin­ue:

    The Tele­graph
    Span­ish PM Mar­i­ano Rajoy rais­es VAT 3pc in shock U‑turn
    Span­ish Prime Min­is­ter Mar­i­ano Rajoy has per­formed an aston­ish­ing U‑turn and raised VAT by 3pc.

    By Andrew Trot­man

    10:12AM BST 11 Jul 2012

    The mea­sure is part of a plan to cut €65bn from the strug­gling coun­try’s bud­get over the next two-and-a-half years, and comes as hun­dreds of min­ers arrive in Madrid to protest against gov­ern­ment cuts to sub­si­dies.

    The increase in Val­ue Added Tax to 21pc from 18pc direct­ly con­tra­dicts Mr Rajoy’s pre­vi­ous promise that he would not raise tax­es.

    “I said I would cut tax­es and I’m rais­ing them,” he said. “But the cir­cum­stances have changed and I have to adapt to them.”

    The prime min­is­ter’s fourth aus­ter­i­ty pack­age in sev­en months will scrap a tax rebate for home buy­ers, scale back unem­ploy­ment ben­e­fits, con­sol­i­date local gov­ern­ments — help­ing to cut €3.5bn from local author­i­ty bud­gets — and elim­i­nate the year-end bonus for some pub­lic work­ers.

    Air­ports, ports and rail­way assets will also be pri­va­tised, in an effort to min­imise the impact of a euro­zone debt cri­sis that has plunged Spain into a dou­ble-dip reces­sion and pushed unem­ploy­ment up to 24.4pc.

    Spain is also strug­gling to meet tough deficit cut­ting tar­gets set with the EU, despite Europe agree­ing to give the coun­try more time.

    This week the EU allowed Spain until 2014 instead of 2013 to reach a pub­lic deficit of 3pc (down from 3.5pc), and to cut the coun­try’s deficit for this year to 6.3pc of GDP.

    The Span­ish gov­ern­ment fore­casts a con­trac­tion of 1.7pc this year and the reces­sion prob­a­bly inten­si­fied in the sec­ond quar­ter, the Bank of Spain esti­mat­ed late last month.

    In June the IMF advised Spain that it should raise tax­es and cut gov­ern­ment work­ers’ pay to nar­row its bud­get deficit.

    “I know that the mea­sures I’ve announced aren’t agree­able,” Mr Rajoy said in his 70-minute speech to law­mak­ers. “They aren’t agree­able but they are essen­tial. We are in an extra­or­di­nar­i­ly seri­ous sit­u­a­tion.

    “Our pub­lic spend­ing exceeds our income by tens of bil­lions of euros.

    “We are liv­ing in a cru­cial moment that will deter­mine the future of our fam­i­lies, our youth, our social wel­fare and all our hopes. That is the real­i­ty. We have to get out of this mess and we have to do it as soon as pos­si­ble.”

    Income tax will be cut in a bid to pla­cate a pop­u­la­tion already angry at con­tin­ued aus­ter­i­ty mea­sures.


    Mario, this is a dis­ease. It’s not your fault but you have an ill­ness. Can’t you see what you’re doing to your fam­i­ly? Your lit­tle broth­er has already start­ing copy­ing your behav­ior:

    Por­tu­gal Lurch­es Into Aus­ter­i­ty Trap With Cred­i­tors: Euro Cred­it

    By Hen­rique Almei­da — Jul 11, 2012 2:38 AM CT

    Portugal’s inter­na­tion­al cred­i­tors may soon have to ease terms of the country’s bailout to pre­vent the plan from derail­ing as the gov­ern­ment faces set­backs in attain­ing its deficit goals.

    Prime Min­is­ter Pedro Pas­sos Coelho’s strug­gle to meet deficit pledges were fur­ther ham­pered last week when about 2 bil­lion euros ($2.5 bil­lion) of planned cuts to pen­sions and civ­il ser­vants’ hol­i­day pay were ruled uncon­sti­tu­tion­al. With Portugal’s 10-year bond yield above 10 per­cent, return­ing to the mar­kets next year may be unten­able, requir­ing more inter­na­tion­al aid despite the premier’s insis­tence he won’t seek con­ces­sions.

    “Lisbon’s strat­e­gy is to con­tin­ue to be the good stu­dent among bailed-out coun­tries until it becomes clear that Brus­sels and Berlin must ease the rules of the game for it to suc­ceed,” said Anto­nio Bar­roso, a Lon­don-based ana­lyst at Eura­sia group.

    Por­tu­gal com­plet­ed the fourth review of its 78 bil­lion-euro bailout plan on June 4 and progress helped bring down the bench­mark yield from a euro-era record of 18.3 per­cent on Jan. 31. Now a deep­en­ing reces­sion and the court rul­ing are putting pres­sure on gov­ern­ment finances, and rais­ing doubts about the chances of the nation reduc­ing its deficit to with­in the Euro­pean Union’s lim­it of 3 per­cent of gross domes­tic prod­uct next year.

    Bond Gains

    Por­tuguese bonds gained almost 30 per­cent this year as the gov­ern­ment stuck to terms of the inter­na­tion­al res­cue, the most among euro-area gov­ern­ment debt, accord­ing to index­es com­piled by Bloomberg and the Euro­pean Fed­er­a­tion of Finan­cial Ana­lysts Soci­eties. In the same peri­od, Ger­man secu­ri­ties returned 3.6 per­cent and Span­ish debt declined 5.3 per­cent.

    Finance Min­is­ter Vitor Gas­par sig­naled the government’s inten­tions not to seek con­ces­sions yes­ter­day in Brus­sels even after euro-region finance min­is­ters agreed to give Spain an extra year to meet its deficit goals and eased terms of its 100 bil­lion-euro bank bailout. The Por­tuguese and Span­ish cas­es are dif­fer­ent and the gov­ern­ment won’t be deterred by the court rul­ing, Gas­par said.

    “The Por­tuguese gov­ern­ment is study­ing mea­sures of equal impact on the bud­get” to com­pen­sate for the court’s rul­ing, he said.

    After seek­ing a bailout last year, Por­tu­gal has increased tax­es, reduced spend­ing to shrink the size of gov­ern­ment and sold stakes in com­pa­nies, includ­ing util­i­ty EDP-Ener­gias de Por­tu­gal SA and pow­er-grid oper­a­tor REN-Redes Ener­get­i­cas Nacionais (RENE) SA, to bol­ster pub­lic finances.

    Aus­ter­i­ty Plans

    The aus­ter­i­ty mea­sures have deep­ened the reces­sion with Portugal’s econ­o­my fore­cast to con­tract 3 per­cent this year and unem­ploy­ment set to rise to a euro-era record 15.9 per­cent in 2013, accord­ing to gov­ern­ment esti­mates. Eco­nom­ic growth has aver­aged less than 1 per­cent a year for the past decade, plac­ing Por­tu­gal among Europe’s weak­est per­form­ers.

    Por­tu­gal has pledged to have a bud­get deficit equal to 4.5 per­cent of GDP this year and to trim that to the EU lim­it of 3 per­cent in 2013. The cen­tral government’s short­fall widened to 7.9 per­cent in the first quar­ter from 7.5 per­cent a year ear­li­er, leav­ing those goals look­ing opti­mistic. The bud­get gap prob­a­bly will be on the agen­da, when Portugal’s cred­i­tors car­ry out the fifth review of the bailout plan start­ing on Aug. 28.

    Por­tu­gal may end the year with a deficit of more than 5.5 per­cent of GDP, miss­ing the res­cue plan’s tar­get by more than 1 per­cent­age point and prompt­ing an eas­ing of bailout terms, said Ricar­do San­tos, a Lon­don-based econ­o­mist at BNP Paribas SA. (BNP)
    Deficit Slip­page

    “Because of the size of the slip­page, how­ev­er, the new tar­gets will have to be com­bined with fur­ther fis­cal tight­en­ing, putting at risk the domes­tic polit­i­cal con­sen­sus on the pro­gram,” San­tos said in a June 28 research report.


    The good news for Por­tu­gal is the country’s aus­ter­i­ty trap may prompt the EU and the Inter­na­tion­al Mon­e­tary Fund to heed Seguro’s calls and grant the gov­ern­ment more time to car­ry out its aid plan, even if Pas­sos Coel­ho won’t ask for an exten­sion.

    “It may be that, giv­en the impact simul­ta­ne­ous aus­ter­i­ty is hav­ing on eco­nom­ic activ­i­ty with­in Europe, the EU might be open to reassess the tar­gets set in the bailout pro­gram to Por­tu­gal,” said Gonca­lo Pas­coal, chief econ­o­mist at Ban­co Com­er­cial Por­tugues (BCP) in Lis­bon.

    Mario, your fam­i­ly needs you to pull it togeth­er.

    Posted by Pterrafractyl | July 11, 2012, 8:44 am
  14. @Dwight: You would have enjoyed the Thom Hart­mann show today...the open ques­tion in the 3rd hour was “should we put a 100% tax on wealth over $1 bil­lion?” It’s good to see these kinds of unspeak­able ideas talked about on the air­waves. I’d just love to see a nation­al dia­logue that cen­tered around jus­ti­fy­ing why we NEED to have multi­bil­lion­aires (or else soci­ety would col­lapse, you see).

    Posted by Pterrafractyl | July 11, 2012, 2:31 pm
  15. I missed that but I assume they were talk­ing about hard indi­vid­ual net worth caps and not year­ly income. A bil­lion? I’m think­ing 20 or 50 mil­lion as a start­ing point. There’s some num­ber where an indi­vid­ual has every­thing they could pos­si­bly use or want and mon­ey over that is just greed or per­son­al polit­i­cal pow­er. The idea that wealth direct­ly equals polit­i­cal pow­er and that such pow­er should be wide­ly dis­trib­uted should be a sim­ple giv­en for mod­ern man, but some­how it isn’t. If such a redis­trib­u­tive mech­a­nism were in place, after a few years the aver­age per­son would won­der why it was­n’t there all along.

    It’s a worth­while con­cept, even if sopho­moric and naive, but it’s hard to imag­ine it hap­pen­ing, what­ev­er the amounts. For it to work it would have to hap­pen simul­ta­ne­ous­ly across sev­er­al coun­tries by UN treaty or bilat­er­al agree­ments. Oth­er­wise the cap­i­tal and the peo­ple attached to it would just change res­i­dence to what­ev­er coun­try was most wealth friend­ly, fur­ther col­laps­ing the home economies. Cor­po­ra­tions would behave the same. And there is the famil­iar brick wall where even piece­meal work­able solu­tions that threat­en wealth don’t have a chance as long as wealth con­trols media, acad­e­mia and leg­is­la­tures.

    Tak­ing stuff from the rich and hand­ing it to the poor isn’t real­ly the point either. The wealth of a soci­ety is most­ly what we all do and pro­duce on an ongo­ing basis. It’s more of remov­ing an soci­ety-wide, insti­tu­tion­al­ized encour­age­ment to moral and spir­i­tu­al ill­ness. The lure of per­son­al wealth and pow­er with­out lim­it man­i­fests as per­son­al glo­ry seek­ing and caus­es evil behav­ior and evil results.

    Posted by Dwight | July 11, 2012, 6:44 pm
  16. @Dwight: I agree that propos­ing a $1 bil­lion wealth cap (I think it was wealth and not annu­al income) it’s an unim­ple­mentable sys­tem. But it’s as great men­tal exer­cise in that it forces a num­ber of ques­tions that are rarely, if ever, asked. The $20 to $50 soci­ety would be fas­ci­nat­ing to see. What’s fun about a $1 bil­lion cap is that it’s such an obscene­ly high val­ue that those in the “no cap”-camp have to come up with some pret­ty com­pelling argu­ments to jus­ti­fy that wealth accu­mu­la­tion. I’d love to hear what those argu­ments are because beyond sys­temic argu­ments (like what you brought up regard­ing the risk of flight cap­i­tal and inter­wo­ven economies) I’m hard-pressed to think of strong moral argu­ments against such a cap. It’s just so much mon­ey. What exact­ly does one have to do to tru­ly “earn” $1 bil­lion over the course of their life­time? Inquir­ing minds want to know. And if some­one can come up with a strong moral case against a $1 bil­lion cap, ok, let’s see how that stands up against a $10 bil­lion, $100 bil­lion, or $1 tril­lion cap, and so on. And the high­er that the­o­ret­i­cal cap, the more unten­able the sys­temic argu­ments become. And both the moral or sys­temic argu­ments in the “no cap”-camp have to even­tu­al­ly scale all the way up to “all the mon­ey in the world”.

    Anoth­er assump­tion that gets raised is “what’s the reg­u­la­to­ry con­text of that $1 bil­lion+ for­tune”. We don’t have to have our crazy wealth dis­tri­b­u­tion and klep­to­crat­ic his­to­ry. If you cure cancer...maybe not all of it but a whole bunch of it...have a bil­lion if some­how in the mar­ket reward sys­tem you earn a bil­lion. AND there would need to be strong reg­u­la­tions on how wealth could be trans­lat­ed into polit­i­cal pow­er. Have fun job cre­at­ing or going on cruis­es bil­lion­aires. Just don’t cor­rupt stuff. We’ll just tax the shit out of it if it gets too high. Who knows where that is in the future. It sort of depends on how much prof­it from spec­u­la­tive invest­ing one can make. Mon­ey is just of social cred wid­get (or should be) and you may not want some­thing like a cap act­ing as a con­stant “wall”. I’d be fine with real­ly frig­gin’ high pro­gres­sive tax­es for the peo­ple above some cap like $1 bil­lion or something...who knows, just some­where.

    But after Cit­i­zens Unit­ed, now it’s any­thing goes. Once again, night­mar­ish. Any ol’ bil­lion­aire (and mere mul­ti-mil­lion­aires too) can hire the mod­ern day Mighty Wurl­itzer of mass media to swing a this or that elec­tion. And then they can all buy off the sys­tem with bribes, legal (polit­i­cal con­tri­bu­tions, etc) and ille­gal (every­thing from whoops to OMGWTF?!). It’s a very dif­fer­ent ball­game for the glob­al bil­lion­aire class from where it should be. That’s the fun of fas­cist/­far-right poli­cies and a lot of loot­ing for decades. We have a fucked up wealth dis­tri­b­u­tion and cor­rupt sys­tem. But bur cur­rent “no caps” way might be just fine in under some oth­er set of rules. Maybe caps would be awe­some. Who knows. The crit­i­cal thing is the “being just focused on get­ting mon­ey and not being focused on the plan­et careen­ing off a cliff” part. Sigh.

    Our cur­rent gen­er­al sys­tem could prob­a­bly be fixed well enough to chug along pret­ty eas­i­ly. We just have to pass bet­ter laws and then inves­ti­gate a bunch of stuff. That’s at least the path of least resis­tance. Mak­ing decent laws only seems as hard as it has in the past because of gobs of cor­rup­tion. Any new sys­tem (one not in fas­cist clutch­es like ours) involves mov­ing past all the exist­ing iner­tia of the sys­tems run­ning the world, and if we could ever fig­ure out how to “reboot” that whole thing, we’d could start find­ing and imple­ment­ing solu­tions with­out even hav­ing to change THAT much of the wealth dis­tri­b­u­tion. The $50 mil­lion cap sounds per­son­al­ly fine to me. Or a bil­lion. Or more if it just made the sys­tem work bet­ter. Just don’t have mob­ster-style bil­lion­aires. Bat­men are OK.

    But here we are: mon­ey = polit­i­cal pow­er like nev­er before. This guy might become pres­i­dent. And he’s pay­ing the bills. Sigh.

    Posted by Pterrafractyl | July 12, 2012, 12:08 am
  17. Ah, here we go...The Amer­i­can thing to do:

    “It’s real­ly Amer­i­can to avoid pay­ing tax­es, legal­ly,” said Sen­a­tor Lind­sey Gra­ham, Repub­li­can of South Car­oli­na, on Tues­day. He was defend­ing Mitt Rom­ney, who, as this morning’s edi­to­r­i­al in The Times notes, appears to have the most elab­o­rate his­to­ry of tax avoid­ance – off­shore tax havens, dis­put­ed shel­ter­ing mech­a­nisms, com­plex trusts – of any major pres­i­den­tial can­di­date in his­to­ry.

    Posted by Pterrafractyl | July 12, 2012, 6:26 am
  18. Mar­i­o’s micro­cosm in Merkel’s macro­cosm: full spec­trum awful­ness:

    Spain Threat­ens Deficit-Trou­bled Regions, Offers Help
    By Ange­line Benoit — Jul 13, 2012 5:35 AM CT

    Spain’s gov­ern­ment threat­ened to take con­trol of bud­gets in regions that fail to meet aus­ter­i­ty tar­gets, while offer­ing financ­ing to help them avoid default as the nation bat­tles to restore investor con­fi­dence.

    Regions pro­ject­ed to miss deficit goals this year were giv­en a week to take action or risk inter­ven­tion, Bud­get Min­is­ter Cristo­bal Mon­toro said in Madrid late yes­ter­day after meet­ing region­al finance chiefs. Local offi­cials, includ­ing some from the rul­ing People’s Par­ty, resist­ed his demands.

    “This pro­pos­al has more show than go,” said Michael Derks, chief strate­gist at FxPro Group Ltd. in Lon­don. “Spain isn’t in any posi­tion to take on more oblig­a­tions and this isn’t going to repair the cred­i­bil­i­ty of region­al gov­ern­ments that have been shut out of mar­kets for a con­sid­er­able time.”

    The Cab­i­net will exam­ine today a mech­a­nism to pro­vide excep­tion­al assis­tance with bond redemp­tions to region­al gov­ern­ments that are shut out of mar­kets, Mon­toro said. The aid will be con­di­tion­al on addi­tion­al bud­get cuts.


    Posted by Pterrafractyl | July 13, 2012, 7:14 am
  19. Build­ing a bet­ter future, one fire sale at a time:

    Madrid Region to Sell 100 Office Build­ings Amid Aus­ter­i­ty
    By Sharon Smyth — Jul 16, 2012 7:43 AM CT

    Madrid’s region­al gov­ern­ment plans to sell 100 office build­ings in the cen­ter of the Span­ish cap­i­tal over three years to cut its deficit and pay for ser­vices as the coun­try makes its deep­est bud­get cuts on record.

    “We’re not a real estate com­pa­ny,” said Jose Luis Moreno Casas, the gov­ern­ment offi­cial who is over­see­ing the sales. “Our job is to ensure there is ade­quate health care, edu­ca­tion and mobil­i­ty for our peo­ple.”

    Span­ish region­al gov­ern­ments con­trol more than a third of pub­lic spend­ing and play a key role in cut­ting the nation­al gov­ern­ment deficit, part of Spain’s vow to meet the con­di­tions of a 100 bil­lion-euro ($122 bil­lion) res­cue pack­age for the nation’s banks. Prime Min­is­ter Mar­i­ano Rajoy announced a third round of spend­ing cuts this year on July 11 to shear 65 bil­lion euros from the deficit and avoid a sec­ond bailout as ris­ing bor­row­ing costs threat­en to shut Spain out of cred­it mar­kets.


    “We have hun­dreds of build­ings we can sell, but we want to start our real estate liq­ui­da­tion oper­a­tion with the bet­ter assets,” Moreno said.

    While Madrid is right to mar­ket the prop­er­ties in digestible pack­ages, the assets still may not be attrac­tive to investors because of Spain’s per­ceived risks, accord­ing to Simon Mar­tin, head of research and invest­ment strat­e­gy at Tris­tan Cap­i­tal Part­ners, a real estate invest­ment com­pa­ny in Lon­don with 4 bil­lion euros of assets under man­age­ment.

    “There is no cred­it avail­able right now for Spain, giv­en the risk per­cep­tion of the coun­try,” said Mar­tin, who isn’t look­ing to invest in the assets being sold. “Assets will need to be high qual­i­ty and very cheap rel­a­tive to price lev­els else­where before inter­na­tion­al investors will take part in a sale process.”
    Valu­able Prop­er­ties


    Madrid is con­sid­er­ing sell­ing hos­pi­tal build­ings, schools, uni­ver­si­ties and retire­ment homes in the lat­er phas­es of the three-year plan, accord­ing to Moreno. The city gov­ern­ment owns 36 hos­pi­tals, 1,700 schools and 40 retire­ment homes, he said.


    Posted by Pterrafractyl | July 17, 2012, 6:49 am
  20. Uh oh, inter­est rates on Span­ish bonds just hit record highs again. I won­der why:

    Euro Weak­ens as Ger­many Says Spain Liable for Bailout Fund­ing
    By Joseph Ciol­li and Alli­son Ben­nett — Jul 19, 2012 8:58 AM CT

    The euro fell for a sec­ond day ver­sus the dol­lar as Ger­man Finance Min­is­ter Wolf­gang Schaeu­ble said Spain must take over guar­an­tees for bailout fund­ing, adding to con­cern Euro­pean lead­ers will strug­gle to stem their sov­er­eign-debt cri­sis.


    “The mar­ket start­ed mov­ing off Schaeu­ble because he basi­cal­ly said, ‘We’re going to make the Span­ish pay,’” Boris Schloss­berg, man­ag­ing direc­tor of for­eign exchange at BK Asset Man­age­ment, an invest­ment advi­so­ry firm in New York, said in a phone inter­view. “This is some­thing that the mar­ket real­ly doesn’t like because it essen­tial­ly makes bank debt, sov­er­eign debt on a lia­bil­i­ty basis.”


    Ger­man law­mak­ers were poised to back their government’s par­tic­i­pa­tion in the euro-area bailout of Span­ish banks after Schaeu­ble said Spain would remain liable for as much as 100 bil­lion euros ($123 bil­lion) of aid.

    Posted by Pterrafractyl | July 19, 2012, 6:36 am
  21. Spain’s most promi­nent banker was dodg­ing tax­es for years? Uh oh? Uh, no. It’s all good:

    NY TImes
    Case Against Chair­man of Ban­co San­tander Is Dropped
    Pub­lished: May 22, 2012

    MADRID — Spain’s nation­al court on Tues­day closed a tax fraud inves­ti­ga­tion focus­ing on Emilio Botín, the chair­man of Ban­co San­tander, and 11 of his rel­a­tives.

    The court said the case was aban­doned, with­out any charges being brought, because the Botín fam­i­ly had straight­ened out its tax prob­lems before June 2011, when the inves­ti­ga­tion was announced. At the time, peo­ple close to the fam­i­ly said the Botíns had already paid about 200 mil­lion euros (about $288 mil­lion based on the exchange rate at that time) in back tax­es.

    Lawyers from Uría Menén­dez, a Madrid law firm rep­re­sent­ing the Botín fam­i­ly, said they wel­comed the court deci­sion.

    “The full dis­missal of this case by the nation­al high court judge, at the request of the pub­lic pros­e­cu­tor and the state attor­ney, con­firm what we said when the case was opened in June 2011: that the fam­i­ly had vol­un­tar­i­ly and com­plete­ly reg­u­lar­ized its tax oblig­a­tions, which were and are all up to date,” the lawyers said in a state­ment.

    Still, the announce­ment in June that Mr. Botín was the sub­ject of a tax eva­sion inves­ti­ga­tion was a shock to Spain’s already frag­ile bank­ing sec­tor. The nation­al tax agency’s inquiry was based on a list of unde­clared Swiss bank accounts sent to the Span­ish author­i­ties by their French coun­ter­parts. The list was hand­ed over to France by a for­mer infor­ma­tion tech­nol­o­gy expert at HSBC.

    The Botín family’s deal­ings with HSBC dat­ed to 1937, when Mr. Botín’s father, who was also named Emilio, left Spain after the start of the Span­ish Civ­il War and opened an account in Switzer­land. He died in 1993, but the Botíns’ lawyers said his son and oth­er heirs found out about the secret bank account only two years ago, when the list of HSBC account hold­ers came to light.

    Mr. Botín took the helm of Ban­co San­tander in 1986, mak­ing him one of the country’s longest-serv­ing bank­ing chair­men. His stature in Spain is such that his rare pro­nounce­ments on the econ­o­my often eclipse those of politi­cians.


    Well that’s fas­ci­nat­ing that the Botin fam­i­ly’s tax-shel­ter­ing bank of choice was HSBC, the lat­est bank to admit to mon­ey-laun­der­ing for drug car­tels. Espe­cial­ly since the both HSBC and Ban­co San­tander were BOTH panned by the US Sen­ate for lax con­trols on drug and ter­ror mon­ey-laun­der­ing back in 2004. And then there was the drug plane that crashed on the pri­vate land­ing strip at Emilio Bot­in’s man­sion in 2008. Oh well, I guess we’ll nev­er know now that the inves­ti­ga­tion into the Botins’ finances was closed. We’ll just have to be con­tent with how well all of Spain’s “struc­tur­al reforms” — like tax reform- are work­ing.

    Posted by Pterrafractyl | July 19, 2012, 8:36 pm
  22. And Spain’s gov­ern­ment con­tin­ues its “dead cat bounce” strat­e­gy to eco­nom­ic recov­ery:

    Span­ish Home Prices Fall Most on Record as Econ­o­my Shrinks
    By Sharon Smyth — Sep 14, 2012 6:09 AM CT

    Span­ish home prices fell the most on record in the sec­ond quar­ter as the euro area’s fourth- largest econ­o­my shrank and a reduc­tion in mort­gage lend­ing crimped demand for prop­er­ty.

    The aver­age price of hous­es and apart­ments declined 14.4 per­cent from a year ear­li­er, the most since the mea­sure­ment began in 2008, the Nation­al Sta­tis­tics Insti­tute in Madrid said today in an e‑mailed state­ment. Prices fell 3.3 per­cent from the pre­vi­ous quar­ter.

    “The data reflects a sig­nif­i­cant drop and con­firms that prices haven’t bot­tomed out yet,” said Fer­nan­do Enci­nar, co- founder of Idealista.com, Spain’s largest prop­er­ty web­site. “Only homes that are heav­i­ly dis­count­ed will sell as access to cred­it has com­plete­ly dried up for poten­tial buy­ers.”

    Spain, which fore­casts an eco­nom­ic con­trac­tion of 1.7 per­cent this year, is in its sec­ond reces­sion in three years. The country’s 25 per­cent unem­ploy­ment rate is Europe’s high­est and has dimin­ished lend­ing for res­i­den­tial real estate.

    House prices more than dou­bled in the decade through 2007, before turn­ing neg­a­tive in the first quar­ter of 2008 and have since fall­en by about 23 per­cent, data from the Min­istry of Pub­lic Works show. Home prices have fall­en 32.4 per­cent since a Decem­ber 2007 peak, accord­ing to sep­a­rate data from Tasa­ciones Inmo­bil­iarias, Spain’s largest home apprais­er.


    The prop­er­ty bonan­za that end­ed in 2008 has left around 2 mil­lion unsold homes in Spain, rep­re­sent­ing sup­ply that will take a decade to absorb, accord­ing to Madrid-based prop­er­ty research firm R.R. de Acu­na & Aso­ci­a­dos.

    “Stock isn’t being reduced and some of it will nev­er be sold because of its qual­i­ty and loca­tion,” said Fer­nan­do Rodriguez de Acu­na Mar­tinez, a part­ner at Acu­na & Aso­ci­a­dos. “Some of it may have to be demol­ished in the future to stop the slide in prices.”

    Well, at least the demo­li­tion of all those emp­ty hous­es should cre­ate a few jobs once the mar­ket final­ly bot­toms some time in the next decade...expan­sion­ary aus­ter­i­ty for­ev­er! It just takes patience.

    Posted by Pterrafractyl | September 14, 2012, 2:56 pm
  23. This “pain is gain in Spain” aus­ter­i­ty fetish just keeps get­ting bet­ter and bet­ter. Stagfla­tion for­ev­er!

    Span­ish Con­trac­tion Con­tin­ues, Aus­ter­i­ty Spurs Infla­tion
    By Emma Ross-Thomas — Oct 30, 2012 4:09 AM CT

    Spain’s econ­o­my con­tract­ed for a fifth quar­ter, under­min­ing efforts to plug the bud­get deficit that’s push­ing the nation clos­er to a bailout, while aus­ter­i­ty mea­sures kept infla­tion at a 17-month high.

    Gross domes­tic prod­uct declined 0.3 per­cent in the three months through Sep­tem­ber, com­pared with 0.4 per­cent the pri­or quar­ter, the Nation­al Sta­tis­tics Insti­tute said today. That com­pared with the Bank of Spain’s esti­mate on Oct. 23 of a 0.4 per­cent con­trac­tion. Con­sumer prices, rose 3.5 per­cent from a year ear­li­er, Madrid-based INE said.

    The pro­lon­ga­tion of Spain’s five-year slump, which is prompt­ing record loan defaults at the nation’s banks and job cuts at com­pa­nies includ­ing Game­sa SA (GAM), adds to pres­sure on Prime Min­is­ter Mar­i­ano Rajoy as he resists request­ing inter­na­tion­al aid. While the tax hikes he’s imple­ment­ing as part of his aus­ter­i­ty pro­gram are depress­ing con­sump­tion, they are also spurring infla­tion, which threat­ens to add 3 bil­lion euros ($3.9 bil­lion) to the country’s pen­sion bill.

    “The real dis­cus­sion should be about how pro­tract­ed the reces­sion will be and if you look at the fis­cal tight­en­ing you real­ly have to be con­ser­v­a­tive about next year,” said Mar­tin Van Vli­et, an econ­o­mist at ING Bank in Ams­ter­dam. “I’m very con­cerned about the size of the fis­cal tight­en­ing, the fact they’re going to miss their deficit tar­gets and the fact Rajoy is delay­ing the request for aid.”

    Not Indis­pens­able

    Spain’s 10-year bench­mark bond yield fell to 5.638 per­cent at 10:08 a.m. in Madrid from 5.656 per­cent yes­ter­day. Even after a 176 basis point nar­row­ing since Euro­pean Cen­tral Bank Pres­i­dent Mario Draghi first pro­posed buy­ing cash-strapped nations’ debt on Aug. 2, Spain pays 417 basis points more than Ger­many to bor­row for 10 years.

    Rajoy, whose pop­u­lar­i­ty has slumped as bud­get cuts deep­en the reces­sion while fail­ing to tame bor­row­ing costs, said yes­ter­day he would trig­ger the bailout mech­a­nism when it was in Spaniards’ best inter­ests, and such a move isn’t “indis­pens­able” at the moment.

    The gov­ern­ment is bat­tling a 25 per­cent unem­ploy­ment rate, Europe’s joint-high­est with Greece, and a slump in con­sump­tion that prompt­ed a record 11 per­cent annu­al decline in retail sales in Sep­tem­ber. Val­ue-added tax rose in Sep­tem­ber as part of the government’s 100 bil­lion-euro aus­ter­i­ty pro­gram, push­ing up prices.
    VAT Impact

    The VAT hike on Sept. 1 encour­aged con­sumers to bring for­ward spend­ing, the Bank of Spain said last week, as it fore­cast domes­tic demand would fall faster in the last three months of the year. GDP will decline more deeply in the fourth quar­ter than in the pre­vi­ous three months, Van Vli­et fore­cast.

    Recall that Spain’s 3.6% infla­tion would not be a prob­lem at all if it was­n’t for a cer­tain med­dling infla­tion-mon­ster that per­pet­u­al­ly assaults com­mon sense.

    Posted by Pterrafractyl | October 30, 2012, 10:59 pm
  24. Huh, so it turns out the post-hous­ing bub­ble strat­e­gy of shov­el­ing mon­ey into bust banks while simul­ta­ne­ous­ly impos­ing aus­ter­i­ty and fur­ther implod­ing the econ­o­my is a bad idea:

    Ris­ing bad loans sig­nal more pain for Span­ish banks

    Thu Jan 24, 2013 10:31am EST

    (Reuters) — Ris­ing bad loans at Bank­in­ter (BKT.MC) and Sabadell (SABE.MC) point to more pain for Span­ish banks as they near the end of a deep clean of rot­ten prop­er­ty assets that ham­mered prof­its last year.

    Though Sabadell and Bank­in­ter are among Spain’s health­i­er lenders which did not need res­cue funds from Europe, both have been hit by big write­downs on soured real estate assets in the wake of the coun­try’s prop­er­ty mar­ket crash.

    The dri­ve to mark down tox­ic assets pushed Spain to take around 40 bil­lion euros ($53 bil­lion) in aid from Europe in 2012 for banks in need of cap­i­tal and unable to cope.

    Most banks in Spain will take the last hit from prop­er­ty-relat­ed write­downs in fourth-quar­ter 2012 results. But a deep reces­sion is still hurt­ing their loan books.

    Mid-sized Bank­in­ter warned on Thurs­day its bad loans could hit 5 per­cent of total loans this year, up from 4.28 per­cent at the end of 2012, giv­en Spain’s weak econ­o­my and ris­ing unem­ploy­ment, even though Jan­u­ary had been a good month.

    Spain’s unem­ploy­ment rate hit a record high of 26 per­cent in the fourth quar­ter, fig­ures showed on Thurs­day.

    “If the employ­ment data con­tin­ues to be like what we saw (on Thurs­day), we can­not be opti­mistic,” said Maria Dolores Dan­causa, chief exec­u­tive of Bank­in­ter.


    Span­ish banks’ bad loan rate reached a new high in Novem­ber of 11.4 per­cent of the out­stand­ing port­fo­lio, and the coun­try is pre­dict­ing its econ­o­my will only real­ly improve in 2014. Still, banks are now hop­ing their earn­ings will get bet­ter.

    “The write­downs were very harsh last year and it’s pos­si­ble they were not the last, but they were enough to sit­u­ate us at the begin­ning of the end of the cri­sis that began in 2007,” said Sabadell chair­man Josep Oliu.


    For­tu­nate­ly, pol­i­cy mak­ers have a bold new solu­tion to shore up the still-ail­ing Span­ish bank­ing sec­tor: Pub­lic bailouts of the bad banks’ bond­hold­ers:

    Bankia Cus­tomers May Get Span­ish Cash to Cov­er Bonds Loss­es
    By Este­ban Duarte, Ben Sills & Charles Pen­ty — Jan 22, 2013 9:14 AM CT

    Spain is con­sid­er­ing using pub­lic mon­ey to help Bankia group com­pen­sate pri­vate investors in about 5 bil­lion euros ($6.7 bil­lion) of bonds amid claims the notes were mis-sold, accord­ing to two peo­ple famil­iar with the mat­ter.

    The plan is one option Spain is assess­ing to help buy­ers of secu­ri­ties issued by the sav­ings banks that now form part of nation­al­ized Bankia, said the peo­ple, who asked not to be named because the talks are pri­vate. The Inter­na­tion­al Mon­e­tary Fund, Euro­pean Cen­tral Bank and Euro­pean Union will dis­cuss the pro­pos­al in Madrid next week, one of the peo­ple said.

    The con­di­tions of the Euro­pean bailout for Span­ish banks in July meant sub­or­di­nat­ed debt hold­ers, includ­ing depos­i­tors who bought pre­ferred shares sold as safe invest­ments, lost almost half their mon­ey. Spain is cre­at­ing an arbi­tra­tion mech­a­nism to decide on cas­es where bad prac­tice in the sell­ing of the notes can be shown, Econ­o­my Min­is­ter Luis de Guin­dos said Dec. 18.

    “The gov­ern­ment is try­ing to redress the harm done to thou­sands of fam­i­lies by the alleged mis-sell­ing,” said Luis Aren­zana, an invest­ment advis­er at Shel­ter Island Total Return Fund in Madrid.

    Spain may have to stump up its own mon­ey to com­pen­sate junior note hold­ers because the terms of the bank­ing-indus­try bailout pre­vent it from using EU cash.

    Debt Swap

    Under the EU res­cue, Bankia’s par­ent Ban­co Financiero y de Ahor­ros SA is swap­ping its junior debt for shares at val­u­a­tions of 54 per­cent to 86 per­cent of face val­ue, the lender said Nov. 28. If the shares rise, Spain will have to spend less to make good the pri­vate investors.

    “One of the essen­tial ele­ments of the pro­gram is restruc­tur­ing cer­tain parts of the bank­ing indus­try and also if nec­es­sary wind­ing down of banks, merg­ers of banks and then sub­se­quent recap­i­tal­iza­tion, which is being done in line with the mem­o­ran­dum,” EU Eco­nom­ic and Mon­e­tary Affairs Com­mis­sion­er Olli Rehn said in Brus­sels when asked about the Span­ish plans.

    Offi­cials at Bankia, the Econ­o­my Min­istry and Bank of Spain declined to com­ment.


    Insti­tu­tion­al investors are “unlike­ly to take kind­ly to com­pen­sa­tion” if they’re exclud­ed from a deal, said Olly Bur­rows, a Lon­don-based cred­it ana­lyst at Rabobank Inter­na­tion­al.

    “The Span­ish gov­ern­ment should be care­ful not to sig­nal to the cap­i­tal mar­kets that some bond­hold­ers are more equal than oth­ers,” Bur­rows said.

    Posted by Pterrafractyl | January 24, 2013, 8:50 am
  25. Par­don me, once again, for stat­ing the obvi­ous.

    “...nec­es­sary wind­ing down of banks, merg­ers of banks and then sub­se­quent recap­i­tal­iza­tion...”, mean­ing, of course, that any and all means will be tak­en to pre­serve, as far as pos­si­ble, the income stream aris­ing from cit­i­zen to state to transna­tion­al bank debt. We are watch­ing lim­it­ed and nego­ti­at­ed trade­offs, where some hold­ers of debt foreswear a por­tion of repay­ment to insure the even­tu­al repay­ment of the greater part. Euro-cap­i­tal­is­m’s ongo­ing crises are inevitable and mechan­i­cal and are, despite a seem­ing con­scious guid­ance by var­i­ous avatars, beyond any nation’s con­trol, except as that nation sim­ply aban­dons all par­tic­i­pa­tion in the sys­tem. We can only watch as the Euro­pean econ­o­my repeat­ed­ly approach­es some precipice, is bare­ly saved by patch­work solu­tions, only to flow towards a sub­se­quent, dif­fer­ent and worse dis­as­ter. Far from fore­shad­ow­ing any col­lapse of free-mar­ket cap­i­tal­ism, this event stream has become, instead, its oper­at­ing norm. Extant rov­ing cap­i­tal, oper­at­ing as a nat­ur­al force akin to grav­i­ty, insures the occur­rence of what­ev­er tragedies are need­ed to pro­duce max­i­mum return on invest­ment.

    Greece should leave the euro, if that’s still polit­i­cal­ly pos­si­ble, suf­fer through the sub­se­quent col­lapse and infla­tion, and then, while pre­serv­ing the lives of her cit­i­zens, rebuild an econ­o­my much more inde­pen­dent of for­eign loan cap­i­tal. This is, in essence (but not appear­ance), what Ger­many embarked on in pre-Nazi years. Dras­ti­cal­ly devalu­ing her own cur­ren­cy was seen as a nation­al dis­as­ter at the time but was, in ret­ro­spect, a very suc­cess­ful maneu­ver, which Ger­many does not want Greece to repeat and so escape Ger­many’s EU prison. In Ger­many the Nazis com­man­deered the final stages of the process of cre­at­ing an autonomous cur­ren­cy dis­con­nect­ed from its for­eign debt. The pain of this strat­a­gem was assigned to the Weimar peri­od and, from the begin­ning, was designed to reduce her bur­den of for­eign debt and reestab­lish a sound inter­nal invest­ment cli­mate. It was even­tu­al­ly suc­cess­ful and
    the Nazis arrived in time to take cred­it for the Ger­man eco­nom­ic “mir­a­cle”. His­to­ry mis­tak­en­ly records that they reversed pre­vi­ous poli­cies instead of sim­ply com­plet­ing the last stages of a project begun a decade ear­li­er.

    Posted by Dwight | January 24, 2013, 10:23 pm
  26. @Dwight: I’d agree with most of that but I don’t see the euro­zone’s crises as being beyond any nation’s con­trol, except to the extent that the Bun­des­bank is tru­ly an “inde­pen­dent” enti­ty. It’s the alpha dog in terms of what the pol­i­cy options and the alpha dog is putting the min­i­miza­tion of the size of any ECB inter­ven­tions and “inter­nal deval­u­a­tion” at the top of the pri­or­i­ty list. A cri­sis of some sort was inevitable fol­low­ing the finan­cial bub­ble that start­ed burst­ing in 2008, but it did­n’t have to be this bad. Con­cerns over the scale of “cred­it expan­sion” did­n’t have to be ele­vat­ed to a top con­cern. That was a choice made by ava­tors like Jens Wei­d­mann. And in the face of grow­ing evi­dence that it was a bad choice we’re see­ing no real indi­ca­tions that those avatars have changed their minds. And var­i­ous ava­tors for pow­er­ful inter­ests *cough* *Merkel & Friends* *cough* ensured that we’re going to see a lot more crises like this in the future by demand­ing the EU sign on to the new “fis­cal treaty” that lim­its bud­get deficits and guar­an­tees that the counter-cycli­cal forces of gov­ern­ment deficit spend­ing dur­ing times of reces­sion won’t hap­pen. And if Merkel had­n’t decid­ed to employ the polit­i­cal strat­e­gy of sell­ing the Ger­man pub­lic on the notion that “lazy South­ern Euro­pean nations want to take your mon­ey but I will pro­tect you and your euros” she and the CDU would­n’t be the polit­i­cal bind that elim­i­nates any pos­si­bil­i­ty of real solu­tion to the ongo­ing crises. Lot’s of bad choic­es that are mak­ing bad sit­u­a­tions worse are being con­sis­tent­ly made by very influ­en­tial peo­ple in very influ­en­tial nations. For exam­ple:

    Merkel Rebuffs Rajoy’s Call to Do More to Boost Euro Stim­u­lus
    By Patrick Don­ahue — Jan 26, 2013 12:07 PM CT

    Ger­man Chan­cel­lor Angela Merkel rebuffed calls by Span­ish Prime Min­is­ter Mar­i­ano Rajoy that euro nations in bet­ter finan­cial health should help the bloc out of its eco­nom­ic slump by spurring growth.

    Merkel, in the Chilean cap­i­tal San­ti­a­go today for a meet­ing of Euro­pean and Latin Amer­i­can lead­ers, said euro mem­ber states need to focus on both fis­cal con­sol­i­da­tion and growth. Rajoy said yes­ter­day coun­tries that have the funds should use them.

    “There is no either/or,” Merkel said today after meet­ing with Chilean Pres­i­dent Sebas­t­ian Pin­era. “Con­fi­dence can only increase if you have sol­id finances on the one hand, and on the oth­er hand have the struc­tures of reform in such a way that the econ­o­my can grow. We are try­ing to make a con­tri­bu­tion.”

    Euro­pean lead­ers declar­ing an end to the worst of their three-year-old debt cri­sis are still grap­pling with reces­sion and soar­ing unem­ploy­ment. Job­less­ness in Spain climbed to a record of more than 26 per­cent in the last quar­ter, putting almost 6 mil­lion peo­ple out of work, as Rajoy imposed the deep­est bud­get cuts in the country’s demo­c­ra­t­ic his­to­ry.

    The Ger­man leader was unmoved by calls for wealth­i­er coun­tries such as hers to loosen tight spend­ing, say­ing that the 17-mem­ber cur­ren­cy union must focus on boost­ing com­pet­i­tive­ness with respect to the rest of the world. Ger­many is lead­ing the way in imple­ment­ing that agen­da, Merkel said.

    “We in Ger­many believe we’re con­tribut­ing to a robust euro area,” the chan­cel­lor said in Santiago’s pres­i­den­tial palace after sign­ing an agree­ment on min­ing and eco­nom­ic growth with Chilean leader Pin­era.


    Posted by Pterrafractyl | January 26, 2013, 7:27 pm
  27. Con­grats to Spain: with hints of an eco­nom­ic recov­ery under­way and only 25% unem­ploy­ment it’s become a shin­ing exam­ple of aus­ter­i­ty-onom­ics:

    The New York Times
    The Con­science of a Lib­er­al

    The Struc­tur­al Fetish

    Paul Krug­man
    Sep­tem­ber 9, 2014 11:20 am

    The FT has a pret­ty decent arti­cle on the emerg­ing doc­trine of “Dragh­i­nomics”, which looks a lot like Blan­chard­nomics, which looks a lot like Krug­ma­nomics — hey, we all stud­ied macro at MIT in the mid 1970s. But I was struck by this bit:

    One oth­er senior euro­zone offi­cial attend­ing the Ital­ian forum which gath­ers togeth­er pol­i­cy mak­ers, busi­ness peo­ple and aca­d­e­mics said: “Struc­tur­al reforms are key. Those coun­tries that have made these efforts are per­form­ing bet­ter: Ire­land, Spain and Por­tu­gal. Italy and France should think a lit­tle bit about this.

    Yep, Spain offers a use­ful les­son for France:
    [see image show­ing Spain’s hor­rif­i­cal­ly per­sis­tent +20% unem­ploy­ment]
    For those of us not part of the struc­tur­al reform cult, the sto­ry of Spain is this: the coun­try expe­ri­enced a full-scale depres­sion when its hous­ing bub­ble burst; this depres­sion has led to a grad­ual, painful “inter­nal deval­u­a­tion” as labor costs come down, mak­ing Spain more com­pet­i­tive with­in Europe; and as a result, Spain is final­ly start­ing a slight recov­ery, with its growth rate in recent quar­ters (but only in recent quar­ters) high­er than France. To see this as a tri­umph of struc­tur­al reform requires pre­con­cep­tions so strong it’s hard to see why you would even both­er look­ing at data.

    Yeah, com­par­ing Spain, with near­ly 25% unem­ploy­ment, with France’s ~10% unem­ploy­ment rate may not be the opti­mal com­par­i­son for the aus­te­ri­ans. Then again, when it comes to the aus­te­ri­ans and good news, beg­gars can’t be choosers:

    Span­ish econ­o­my grows at fastest pace since 2007

    By Lau­re Fil­lon August 28, 2014 11:42 AM

    Madrid (AFP) — Spain’s econ­o­my post­ed its strongest quar­ter­ly expan­sion since 2007 between April and June due to stronger domes­tic demand, offi­cial data showed Thurs­day, in a fur­ther sign of recov­ery from reces­sion.

    The Span­ish econ­o­my, the euro­zone’s fourth-biggest, grew by 0.6 per­cent in the sec­ond quar­ter com­pared with the pre­vi­ous three months, the Nation­al Sta­tis­tics Insti­tute (NSI) said, con­firm­ing its pre­lim­i­nary esti­mate.

    The promis­ing data came on the same day the NSI said infla­tion fell by 0.5 per­cent in August — the biggest dip in con­sumer prices since 2009 — prompt­ing fears that Spain may strug­gle to head off defla­tion.

    Year on year the econ­o­my grew by 1.2 per­cent, fol­low­ing four con­sec­u­tive quar­ters of expan­sion, the NSI said.

    The quar­ter­ly growth fig­ures marked an accel­er­a­tion from growth of 0.4 per­cent in the first quar­ter.

    It was Spain’s best quar­ter­ly growth fig­ure since the final three-month peri­od of 2007, when the econ­o­my grew by 0.7 per­cent.

    The insti­tute added that the lev­el of employ­ment grew by 0.8 per­cent com­pared to a year ear­li­er, with 127,000 jobs cre­at­ed.

    The gov­ern­ment said that rep­re­sent­ed the first annu­al net job cre­ation since 2008, the year the finan­cial cri­sis start­ed.

    Spain’s over­all unem­ploy­ment rate is still extreme­ly high, how­ev­er, at near­ly 24.5 per­cent accord­ing to the lat­est offi­cial fig­ure.

    Prime Min­is­ter Mar­i­ano Rajoy said ear­li­er this month that the econ­o­my was recov­er­ing “bet­ter than expect­ed” and was now among Europe’s best per­form­ers.

    “We are reg­is­ter­ing healthy and diver­si­fied growth which is here to stay,” he said.

    “In less than two years we have gone from being an econ­o­my on the brink of a bailout to being one of the economies that is grow­ing the most in Europe.”

    - Job cre­ation -

    The gov­ern­ment has said it will like­ly raise its growth fore­cast for this year to 1.5 per­cent, up from a pre­vi­ous esti­mate of 1.2 per­cent, and pos­si­bly to 2.0 per­cent next year, up from 1.9 per­cent.

    Growth in the sec­ond quar­ter was fuelled by a rise in house­hold spend­ing, which expand­ed by 0.7 per­cent from the pre­vi­ous quar­ter, when it grew 0.5 per­cent, the sta­tis­tics office said.

    Exter­nal demand, which had helped prop up the econ­o­my, fell by 0.7 per­cent how­ev­er, due to a fall in exports as growth cooled in many of Spain’s main Euro­pean trad­ing part­ners.

    Spain emerged in the sec­ond half of 2013 from its sec­ond reces­sion since 2008 when a labour-inten­sive prop­er­ty bub­ble burst, crip­pling the econ­o­my and throw­ing mil­lions of peo­ple out of work.

    The coun­try faced pres­sure to seek a full finan­cial bailout from the euro­zone in 2012. In the end it received 41 bil­lion euros ($55 bil­lion) to res­cue its banks.

    The lat­est unem­ploy­ment data showed the job­less rate edged below 25.0 per­cent in April-June for the first time since the third quar­ter of 2012.

    But at 24.47 per­cent, it remains the sec­ond-high­est job­less rate in the euro­zone after Greece and one of the high­est in the indus­tri­alised world.


    Yes, as Mar­i­ano Rajoy says, “In less than two years we have gone from being an econ­o­my on the brink of a bailout to being one of the economies that is grow­ing the most in Europe.” All that was required for that year of growth was send­ing the econ­o­my into a mul­ti-year tail­spin that cre­at­ed the sec­ond-high­est job­less rate in the euro­zone. Good job aus­te­ri­ans!

    And it’s also great to hear that ris­ing domes­tic spend­ing and the first quar­ter of ris­ing prop­er­ty prices since 2008 are fuel­ing the growth, although since much of the real estate boom is dri­ven by for­eign real estate investors (meet Gold­man, your new land­lord) it’s sort of like Spain is export­ing itself at this point. Still, it’s progress.

    But with exports falling 0.7%, you have to won­der if a recov­ery that’s been fueled by growth in domes­ti­cal­ly con­sumer spend­ing will be able to gain any trac­tion if the rest of the euro­zone is still mired in defla­tion and those exports can’t keep grow­ing (or worse, start falling). After all, it was Spain’s boom­ing exports over the last cou­ple of years that helped to com­pen­sate for the 25% unem­ploy­ment rates and col­lapse in domes­tic demand and those exports are clear­ly going to have to con­tin­ue boom­ing for Spain’s real econ­o­my to recov­er. Even though every nation can’t simul­ta­ne­ous­ly export its way to pros­per­i­ty, export-dri­ven growth is still wide­ly viewed as the only “cred­i­ble” growth in the new EU. And now, just as Spain’s domes­tic spend­ing is ris­ing the exports are falling and the trade deficit is spik­ing (albeit from last year’s record low trade deficit).

    So can Spain’s econ­o­my cre­ate a domes­ti­cal­ly dri­ven recov­ery when most of the rest of Europe is still falling into the dol­drums? Let’s hope so, but either way, it’s all a reminder that there isn’t just a need to end the EU-wide aus­ter­i­ty. There’s an urgent need to end the aus­ter­i­ty. As Spain is demon­strat­ing, the syn­chro­nized aus­ter­i­ty isn’t just con­tin­u­ing to drag economies into the dol­drums. It’s also threat­en­ing to stomp out the eco­nom­ic green shoots that inevitably take place even in depressed economies (stuff needs replace­ment at some point). And that ongo­ing aus­ter­i­ty is one of the big ques­tions going for­ward is what oth­er growth dri­vers will be avail­able to Spain if the exports mar­ket con­tin­ue to lag? Hmm­mm....

    The Guardian
    Spain pre­pares for an autumn of dis­con­tent by buy­ing €1bn of riot gear
    Amid con­cerns about heavy hand­ed polic­ing, pro­test­ers will face a new­ly equipped force and truck-mount­ed water can­non

    Ashifa Kas­sam in Madrid
    Mon­day 8 Sep­tem­ber 2014 12.43 EDT

    The Span­ish gov­ern­ment is ready­ing itself for an autumn of dis­con­tent, spend­ing near­ly €1bn on riot gear for police units as dis­parate protest groups pre­pare a string of demon­stra­tions.

    Since June, the inte­ri­or min­istry has ten­dered four con­tracts to pur­chase riot equip­ment rang­ing from shields to stab vests. The min­istry also finalised its pur­chase of a new truck-mount­ed water can­non, an anti-riot mea­sure used dur­ing Spain’s dic­ta­tor­ship and the tran­si­tion to democ­ra­cy but lit­tle seen in recent years. Despite attempts by oppo­si­tion Social­ist politi­cian Anto­nio Trevín to paint the pur­chase as “a return to times that we would rather for­get”, the min­istry said in its ten­der that the water can­non was nec­es­sary, “giv­en the cur­rent social dynam­ic”.

    The gov­ern­men­t’s spend­ing spree comes as groups across Spain are pre­dict­ing a sea­son of protests. “We’re call­ing it the autumn of con­fronting pow­er and insti­tu­tions,” said the activist group Coor­di­nado­ra 25‑S which has its roots in the indig­na­dos move­ment.

    Ral­lies are being planned to counter draft laws by the gov­ern­ing Peo­ple’s par­ty that would cur­tail access to abor­tion in Spain or see unau­tho­rised protests levied fines of up to €600,000. Months after for­mer King Juan Car­los abdi­cat­ed the throne in favour of his son King Felipe VI, protests are also being planned to demand a ref­er­en­dum on the monar­chy. In Cat­alo­nia, the push con­tin­ues for a vote on inde­pen­dence, while the Canary Islands has said it wants to put the idea of oil explo­ration in the waters around the region to a ref­er­en­dum.

    Amnesty Inter­na­tion­al in Spain said the pur­chase of riot gear was a wor­ry­ing devel­op­ment. “They say they buy this mate­r­i­al to con­trol dis­tur­bances, but how exact­ly will it be used?” said Amnesty’s Ángel Gon­za­lo. “In Greece we have doc­u­ment­ed how these water can­nons, when used a short dis­tance, can pro­voke severe injuries and com­mo­tions.”

    In April, the organ­i­sa­tion warned in a report that the Span­ish gov­ern­ment was using harass­ment and exces­sive police force to lim­it the right to protest. Through first-per­son accounts from sev­er­al protests in Madrid and Barcelona, they not­ed that while the vast major­i­ty of pro­test­ers were peace­ful, police treat­ed them sim­i­lar­ly to those who incit­ed vio­lence.

    The Amnesty Inter­na­tion­al report was made pub­lic just one week before a ban on the use of rub­ber bul­lets by police came into effect in Cat­alo­nia, after a long-fought cam­paign by sev­en peo­ple who had each lost an eye in Barcelona.


    Well there we go: anti-aus­ter­i­ty protests can now be chan­neled into a stim­u­lus pro­gram, although it’s unclear how much of that riot gear was domes­ti­cal­ly pro­duced. Still, it’s a start!

    Might Span­ish vot­ers will reward the con­ser­v­a­tive Rajoy gov­ern­ment in 2015 for this cre­ative­ly bold ‘riot-gear stim­u­lus’ plan? We’ll see!

    Posted by Pterrafractyl | September 10, 2014, 6:12 pm
  28. From the depart­ment of cor­rec­tions: the reports of Spain’s 1 bil­lion euro pur­chase of riot gear in prepa­ra­tion for aus­ter­i­ty protests was off be three orders of mag­ni­tude. It’s just 1 mil­lion euros in riot gear:

    Spain pre­pares for an autumn of dis­con­tent by buy­ing €1m of riot gear
    Amid con­cerns about heavy hand­ed polic­ing, pro­test­ers will face a new­ly equipped force and truck-mount­ed water can­non

    Ashifa Kas­sam in Madrid
    The Guardian, Mon­day 8 Sep­tem­ber 2014 12.43 EDT

    The Span­ish gov­ern­ment is ready­ing itself for an autumn of dis­con­tent, spend­ing near­ly €1m on riot gear for police units as dis­parate protest groups pre­pare a string of demon­stra­tions.

    Since June, the inte­ri­or min­istry has ten­dered four con­tracts to pur­chase riot equip­ment rang­ing from shields to stab vests. The min­istry also finalised its pur­chase of a new truck-mount­ed water can­non, an anti-riot mea­sure used dur­ing Spain’s dic­ta­tor­ship and the tran­si­tion to democ­ra­cy but lit­tle seen in recent years. Despite attempts by oppo­si­tion Social­ist politi­cian Anto­nio Trevín to paint the pur­chase as “a return to times that we would rather for­get”, the min­istry said in its ten­der that the water can­non was nec­es­sary, “giv­en the cur­rent social dynam­ic”.
    This arti­cle was amend­ed on 9 Sep­tem­ber 2014 to cor­rect the amount spent on riot gear from €1bn to €1m.

    Well, there goes the bil­lion euro riot gear stim­u­lus pack­age. Although don’t give up hope yet. Now that Span­ish offi­cials are jump­ing on board the “hey, defla­tion isn’t bad, that’s just a myth! No worries!”-crazy train, the kind of “social dynam­ic” that would jus­ti­fy a much big­ger riot gear pur­chas­es are just a mat­ter of time:

    The Wall Street Jour­nal
    Spain’s Spi­ral­ing Price Decline No Rea­son to Wor­ry, Say Some Econ­o­mists
    Euro­pean Pol­i­cy Mak­ers Con­cerned Span­ish Trend Could Upend Con­ti­nen­t’s Frag­ile Recov­ery

    By David Román
    Updat­ed Sept. 12, 2014 10:28 a.m. ET

    MADRID–Spain’s econ­o­my sank deep­er into a spi­ral of con­sumer price declines in August, but Span­ish offi­cials and some econ­o­mists say that’s no rea­son to wor­ry.

    Defla­tion refers to per­sis­tent falls in prices that lead to a vicious cycle of weak prof­its and reduced lev­els of busi­ness invest­ment. It is often viewed with alarm in heav­i­ly indebt­ed economies such as Spain’s, because debts don’t shrink along with salaries and sales, mak­ing it hard­er for indi­vid­u­als and com­pa­nies to pay back loans. If con­sumers put off buy­ing things in the belief prices will drop fur­ther, the econ­o­my suf­fers more.

    In the lat­est sign that defla­tion is tak­ing hold across south­ern Europe, Spain’s Nation­al Insti­tute of Sta­tis­tics said Fri­day that the con­sumer price index had dropped 0.5% dur­ing the 12-month peri­od to August. That was sec­ond straight month­ly decline and the steep­est in 10 months.

    Euro­pean pol­i­cy­mak­ers wor­ry open­ly that the down­ward spi­ral in Spain, Por­tu­gal, Greece and Italy could spread and upend the con­ti­nen­t’s frag­ile eco­nom­ic recov­ery. Last week, the Euro­pean Cen­tral Bank respond­ed with a cut in inter­est rates and new stim­u­lus plans.

    Yet some econ­o­mists say low­er con­sumer prices aren’t always bad news and in some cas­es may spur con­sump­tion in the way tax cuts do.

    “In coun­tries like Spain and Italy, I would say that defla­tion is nec­es­sary. That’s the way for the econ­o­my to adjust and make itself more com­pet­i­tive,” said Michele Boldrin, an Ital­ian-born eco­nom­ics pro­fes­sor at the Wash­ing­ton Uni­ver­si­ty in St. Louis.

    Mr. Boldrin not­ed that sev­er­al aca­d­e­m­ic stud­ies have failed to find a sus­tained his­tor­i­cal link between defla­tion and eco­nom­ic depres­sion, the only excep­tion being the Great Depres­sion of the 1930s.

    Cit­ing the work of Andrew Atke­son of the Uni­ver­si­ty of Cal­i­for­nia, Los Ange­les, and Patrick J. Kehoe of the Uni­ver­si­ty of Min­neso­ta, Mr. Boldrin said con­tin­ued price defla­tion through­out the 19th cen­tu­ry had helped improve the com­pet­i­tive­ness of indus­tri­al­ized nations.

    “If goods and ser­vices are falling in price, you don’t need high­er wages,” Mr. Boldrin said.

    Spain record­ed its first drop in prices last Octo­ber, just as the econ­o­my was bounc­ing back from its sec­ond reces­sion in five years. Prices fell again in March.

    Yet Spain’s econ­o­my grew 2.4% on an annu­al­ized basis in the sec­ond quar­ter of this year, one of the high­est rates in the euro zone, dri­ven by a spike in inter­nal con­sump­tion that sur­passed ear­li­er esti­mates. Over the last year of pos­i­tive eco­nom­ic growth, Spain’s annu­al CPI has nev­er been high­er than 0.3%.


    Span­ish offi­cials say that the coun­try’s defla­tion is large­ly the result of decreas­es in volatile glob­al ener­gy prices, while prices of oth­er items in Spain’s con­sumer bas­ket have remained steady or declined less.

    Fer­nan­do Jiménez Latorre, a for­mer deputy finance min­is­ter, said Spain can expect neg­a­tive prices for anoth­er three months. But signs of resilient demand indi­cate that prices should return to pos­i­tive lev­els by the end of the year, he added.

    “At a time when inter­nal demand is strong, falling prices aren’t such a wor­ry,” Mr. Jiménez Latorre said month before he left the gov­ern­ment to work for the Inter­na­tion­al Mon­e­tary Fund.

    John H. Cochrane, a pro­fes­sor of finance at the Uni­ver­si­ty of Chica­go, said defla­tion isn’t a risk for Spain’s eco­nom­ic growth as long as inter­nal demand holds strong.

    Anoth­er rea­son not to wor­ry, he said, is that the euro zone as a whole is still see­ing year-on-year price increas­es. The cur­ren­cy union’s con­sumer price index was up 0.3% in August. In a cur­ren­cy union it sim­ply is impos­si­ble for prices in a coun­try to diverge from all the oth­ers for long, Mr. Cochrane said.

    “I don’t see how Europe, with cur­rent very large out­stand­ing sov­er­eign debts, and a cen­tral bank com­mit­ted to ‘do what it takes’ can pos­si­bly have a sus­tained seri­ous defla­tion spi­ral,” he said. “A bit of mild 1 to 2 per­cent defla­tion is with­in the errors of mea­sur­ing infla­tion, which are much big­ger than most peo­ple real­ize. Some prices go up, some prices go down, new goods are intro­duced. It’s a rough guess.”

    This is one of those “where does one begin” arti­cles. For instance, that study by Andrew Atke­son of the Uni­ver­si­ty of Cal­i­for­nia, Los Ange­les, and Patrick J. Kehoe of the Uni­ver­si­ty of Min­neso­ta basi­cal­ly con­clud­ed that the boom-bust Gild­ed Age was great so don’t wor­ry about it:

    What’s so bad about falling prices? Noth­ing

    Pub­lished: Jan 24, 2014 10:14 a.m. ET

    As Ben Bernanke hands over the Fed­er­al Reserve chair­man­ship to Janet Yellen at the end of Jan­u­ary, lead­er­ship of the cen­tral bank will be passed from one stri­dent defla­tion foe to anoth­er.

    All the way back in 2002, Bernanke in his speech “Defla­tion: Mak­ing Sure ‘It’ Doesn’t Hap­pen Here,”, pro­posed what would become his pro­gram to fight defla­tion in response to the 2008 finan­cial cri­sis: a zero fed funds rate and large-scale Trea­sury debt pur­chas­es aimed at bring­ing down inter­est rates to encour­age eco­nom­ic activ­i­ty. We came to know it as quan­ti­ta­tive eas­ing.

    Yet five years in, those poli­cies are still entrenched (despite last month’s “taper”) with Yellen set on main­tain­ing them.

    What’s hap­pened in the Amer­i­can econ­o­my since then? Not defla­tion, defined as a decrease in the broad price lev­el. You can con­clude that Bernanke’s exper­i­ment worked in achiev­ing its pur­pose of mak­ing sure “it” didn’t hap­pen here, but you can also con­clude from the data that his pur­pose was mis­guid­ed from the start and it back­fired.

    Bernanke’s sem­i­nal aca­d­e­m­ic expe­ri­ence is the Great Depres­sion, an era he inter­prets (influ­enced by Mil­ton Fried­man) as caused by defla­tion from the Fed.

    But does defla­tion cause depres­sion? That’s a ques­tion two econ­o­mists, Andrew Atke­son and Patrick Kehoe, exam­ined in a 2004 paper for the Fed­er­al Reserve Bank of Min­neapo­lis.. No, they say. Their data set of 17 coun­tries across 100 years found that near­ly 90% of peri­ods of defla­tion did not have depres­sion. They acknowl­edge an excep­tion in the sur­prise defla­tion of the Great Depres­sion, but say that it is “not an over­whelm­ing­ly tight link.”

    But their point is not to try and refight the cause of the Great Depres­sion, as Bernanke is wont to do, but defend the con­cept of defla­tion from the cat­a­stro­phe ascribed to it. After all, what is so bad about falling prices? As the pub­lish­er and finan­cial his­to­ri­an James Grant likes to point out, this is exact­ly what draws car­loads of peo­ple to Wal­mart every week­end.

    The Wal­mart era of Amer­i­can eco­nom­ic his­to­ry isn’t actu­al­ly the con­tem­po­rary one, but the 1879–1914 peri­od when a surge in inno­va­tion and out­put made com­modi­ties cheap­er and even food prices sta­ble.

    This was nat­ur­al “good” defla­tion dri­ven by the increase in the sup­ply of goods — as opposed to a Fed-dri­ven decrease in the mon­ey sup­ply that Bernanke and Fried­man blame for the Great Depres­sion. Peo­ple got the dual ben­e­fit of a robust econ­o­my and flat-to-falling prices.

    Our mod­ern econ­o­my not only has Wal­mart, but Tar­get, Cost­co, and iPhones whose prices seem to be cut in half every time a next gen­er­a­tion is released. It’s extreme­ly price com­pet­i­tive, yet prices over­all won’t stop ris­ing.

    Yes, from 1879–1914, tech­nol­o­gy and inno­va­tion led to “good” defla­tion, and there­fore defla­tion caused by a col­lapse in Spain’s econ­o­my result­ing in surg­ing debt (which is made worse by defla­tion) is “good” too. And let’s also ignore the episodes of high defla­tion and infla­tion and bank­ing pan­ics that led to the cre­ation of the Fed­er­al Reserve sys­tem). Isn’t defend­ing defla­tion fun?

    And then there are the state­ments by John H. Cochrane, pro­fes­sor of finance at the Uni­ver­si­ty of Chica­go, that there’s no real need to be con­cerned about a peri­od of extend­ed defla­tion because, hey, the ECB said it would do “what­ev­er it takes” to avoid it. That means we can appar­ent­ly ignore all of the indi­ca­tors that the ECB won’t actu­al­ly be allowed to do “what­ev­er it takes” since “what­ev­er it takes” goes beyond mon­e­tary pol­i­cy and requires that euro­zone mem­bers actu­al­ly engage in some stim­u­lus spend­ing which is why Draghi is telling gov­ern­ments to start spend­ing. And then there’s the fact that John Cochrane does­n’t appear to believe mon­e­tary pol­i­cy is use­ful when stuck in a “zero low­er bound” liq­uid­i­ty trap any­ways. Inter­est­ing­ly, that’s the same argu­ment Paul Krug­man has been mak­ing for years for why stim­u­la­tive fis­cal poli­cies are required in addi­tion to sane mon­e­tary poli­cies:

    The New York Times
    The Con­science of a Lib­er­al
    Stu­pid­i­ty in Eco­nom­ic Dis­course 2
    Paul Krug­man
    April 1, 2014 2:39 pm

    I’ve writ­ten before about the myth of the stu­pid pro­gres­sive econ­o­mist.Many con­ser­v­a­tive econ­o­mists have a fixed idea in their heads — it’s more than just a pre­sump­tion, because it seems com­plete­ly imper­vi­ous to evi­dence — that pro­gres­sive econ­o­mists are dumb guys who don’t under­stand basic eco­nom­ics. And because of this fixed idea, con­ser­v­a­tives appear lit­er­al­ly unable to read what my side writes; they crit­i­cize the dumb things they’re sure we must have said, with­out check­ing to see if that’s what we actu­al­ly said.

    In the linked post I wrote about health reform issues, but you also see this in macro: five years and more into this dis­cus­sion, fresh­wa­ter econ­o­mists still can’t wrap their brains around the notion that mod­ern Key­ne­sians (both New and eclec­tic) have actu­al­ly done a lot of hard think­ing over the past few decades. I’ve called this a fail­ure of read­ing com­pre­hen­sion, but it’s actu­al­ly an unwill­ing­ness to read at all, to so much as glance at what the actu­al argu­ment might be.

    And I mean that quite lit­er­al­ly. Brad DeLong quotes from a John Cochrane paper (no link) which declares that those stu­pid Key­ne­sians don’t under­stand why mon­e­tary pol­i­cy is inef­fec­tive. It’s not because of the zero low­er bound, it’s because bonds and mon­e­tary base are per­fect sub­sti­tutes:

    In this analy­sis, mon­e­tary pol­i­cy is impo­tent, but not for the usu­al rea­son that inter­est rates are near­ly zero. The Fed can arbi­trar­i­ly exchange Trea­sury debt for mon­ey, and increase the mon­ey sup­ply as much as we like. But nobody cares if it does so, since the “flight to liq­uid­i­ty” is equal­ly towards all forms of Gov­ern­ment debt. If we want more fruit and less cheese, putting more apples and less oranges in the fruit bas­ket won’t help.

    So, I think I can say with­out boast­ing that the mod­ern revival of liq­uid­i­ty-trap eco­nom­ics began with my 1998 Brook­ings Paper (pdf). Here’s the first sen­tence of that paper:

    THE LIQUIDITY TRAP – that awk­ward con­di­tion in which mon­e­tary pol­i­cy los­es its grip because the nom­i­nal inter­est rate is essen­tial­ly zero, in which the quan­ti­ty of mon­ey becomes irrel­e­vant because mon­ey and bonds are essen­tial­ly per­fect sub­sti­tutes – played a cen­tral role in the ear­ly years of macro­eco­nom­ics as a dis­ci­pline.

    That was 16 years ago. Just say­ing.

    So when Cochrane says “I don’t see how Europe, with cur­rent very large out­stand­ing sov­er­eign debts, and a cen­tral bank com­mit­ted to ‘do what it takes’ can pos­si­bly have a sus­tained seri­ous defla­tion spi­ral,” he’s basi­cal­ly say­ing, “don’t wor­ry, defla­tion won’t be allowed to get all that bad because the ECB promised to step in and do some­thing”, and yet in the above piece Paul Krug­man high­lights Cochrane argu­ing that mon­e­tary pol­i­cy is of lim­it­ed val­ue alone when rates are neary zero, which is exact­ly the kind of sit­u­a­tion Spain finds itself in right now.

    So any­ways, don’t wor­ry, the bil­lion euro riot gear stim­u­lus pack­age is just a mat­ter of time.

    Posted by Pterrafractyl | September 12, 2014, 8:41 am
  29. “Spain con­tin­ues to look quite healthy com­pared to oth­er euro zone coun­tries,” accord­ing to a banker quot­ed in the arti­cle below. The arti­cle also goes on to men­tion that Spain’s prices are falling, its unem­ploy­ment is over 23% and expect­ed to remain over 20% for years, lend­ing remains sub­dued, and the “quite healthy” eco­nom­ic growth of 0.5% last quar­ter appears to be los­ing steam as a result of the rest of the Spain’s euro­zone trad­ing part­ners show­ing even worse growth. Good job Spain?

    UPDATE 1‑Euro zone haunts Span­ish econ­o­my as growth slows, prices fall

    Thu Oct 30, 2014 5:38am EDT

    * Spain’s econ­o­my grows 0.5 per­cent in Q3 ver­sus Q2

    * Growth rate dif­fi­cult to sus­tain, says econ­o­mist

    * Span­ish nation­al prices fall 0.1 pct, fourth fall in a row (Adds con­text, quotes)

    MADRID, Oct 30 (Reuters) — Spain’s econ­o­my expand­ed for the fifth quar­ter run­ning between July and Sep­tem­ber, but a slow­ing rate of growth along with falling con­sumer prices sug­gest­ed the recov­ery may be los­ing momen­tum.

    Gross domes­tic prod­uct (GDP) rose by 0.5 per­cent in the third quar­ter from the sec­ond, pre­lim­i­nary Nation­al Sta­tis­tics Insti­tute (INE) data showed on Thurs­day, in line with expec­ta­tions but down from 0.6 per­cent between April and June.

    Con­sumer prices shrank for the fourth straight month in Octo­ber, sep­a­rate INE fig­ures showed, with nation­al prices drop­ping 0.1 per­cent from a year ear­li­er.

    Lift­ed by strong exports and improv­ing domes­tic demand, Spain’s econ­o­my has bounced back after dip­ping in and out of reces­sion for almost six years fol­low­ing a prop­er­ty crash in 2008.

    But it is com­ing under pres­sure from dete­ri­o­rat­ing eco­nom­ic con­di­tions among its main trade part­ners in the euro zone.r


    “Spain con­tin­ues to look quite healthy com­pared to oth­er euro zone coun­tries,” said Nomu­ra econ­o­mist Sil­vio Peruz­zo.


    Span­ish con­sumer prices also dipped when mea­sured accord­ing to Euro­pean-Union har­monised data, falling 0.2 per­cent year on year in Octo­ber, INE said.

    “Despite the size­able accel­er­a­tion in growth, infla­tion dynam­ics remain extreme­ly sub­dued. We haven’t got sig­nif­i­cant eco­nom­ic strength at the struc­tur­al lev­el to boost prices, which reflects weak­ness in the labour mar­ket,” said Peruz­zo.

    Span­ish unem­ploy­ment is the sec­ond high­est in the Euro­pean Union, reg­is­ter­ing 23.7 per­cent in the third quar­ter, and is not expect­ed to drop below 20 per­cent for years.

    Con­cerns that the pace of Spain’s recov­ery could stut­ter over the next year have also been reflect­ed in earn­ings from its banks, which show they are keep­ing a tight rein on cred­it flows despite stim­u­lus efforts from the Euro­pean Cen­tral Bank.

    While Span­ish banks are try­ing to har­ness the recov­ery and boost income from core loan busi­ness­es, lead­ing banks Caix­a­bank , Bankia and BBVA have all report­ed in third quar­ter results that lev­els of lend­ing in the coun­try are still falling.

    As we can see, the “soft big­otry of low expec­ta­tions” does­n’t just apply to kids. An entire con­ti­nent can appar­ent­ly be the vic­tim of it simul­ta­ne­ous­ly (includ­ing the kids).

    Posted by Pterrafractyl | October 30, 2014, 10:15 am
  30. The Span­ish gov­ern­ment Necromon­ger con­ver­sion is com­plete:

    Bloomberg Busi­ness
    Spain Said to Lead EU Push to Force Terms on Greece

    by Niko­laos Chrysoloras and Karl Stag­no Navar­ra

    3:35 PM CST
    Feb­ru­ary 22, 2015

    (Bloomberg) — As euro-region finance min­is­ters turned the screw on Greece in Friday’s talks, the group’s usu­al enforcer, Wolf­gang Schaeu­ble of Ger­many, was eclipsed by Spain’s Luis de Guin­dos, accord­ing to two peo­ple with direct knowl­edge of the talks.

    De Guin­dos took the tough­est line with Greek Finance Min­is­ter Yanis Varo­ufakis as the bloc forced forced him to adhere to the terms of the country’s exist­ing bailout to retain access to offi­cial financ­ing, the peo­ple said, ask­ing not to be named because the con­ver­sa­tions were pri­vate. When the group reject­ed Schaeuble’s call for a Tues­day meet­ing to scru­ti­nize Greece’s plans to meet those con­di­tions, De Guin­dos insist­ed, win­ning agree­ment for a tele­con­fer­ence, they said.

    The Span­ish gov­ern­ment is par­tic­u­lar­ly sen­si­tive to the for­tunes of the Syriza gov­ern­ment in Greece because the party’s Span­ish ally, Podemos, has surged to the top of some recent polls. A vic­to­ry for Varo­ufakis would have strength­ened Podemos’s argu­ment that De Guindos’s boss, Prime Min­is­ter Mar­i­ano Rajoy, was wrong to impose aus­ter­i­ty on Spain.

    The Span­ish gov­ern­ment “has always been con­struc­tive but it has to defend its inter­ests,” Guin­dos said on Fri­day. “A cli­mate is devel­op­ing in which the new Greek gov­ern­ment is adapt­ing to the rules that affect us all.”

    A spokes­woman for De Guin­dos said Spain is in favor of dia­logue and flex­i­bil­i­ty with­in the exist­ing rules and has shown its sol­i­dar­i­ty with Greece by con­tribut­ing 26 bil­lion euros ($30 bil­lion) to its bailout at a time when its own financ­ing con­di­tions were not good.


    Guin­dos Shout­ing

    De Guin­dos, at times rais­ing his voice, railed against Varo­ufakis in Friday’s meet­ing, telling him he has to win the trust of his euro-region coun­ter­parts and learn how pol­i­tics is con­duct­ed at the Euro­pean lev­el, one of the peo­ple said. De Guin­dos has been in the run­ning to replace Jeroen Dijs­sel­bloem of the Nether­lands as head of the euro-region finance min­is­ters’ group when the Dutchman’s term expires this year.

    Spain’s gen­er­al elec­tion is due around the end of the year and Igle­sias has pledged to restruc­ture the country’s 1 tril­lion euros ($1.1 tril­lion) of pub­lic debt if he wins.

    “De Guin­dos, at times rais­ing his voice, railed against Varo­ufakis in Friday’s meet­ing, telling him he has to win the trust of his euro-region coun­ter­parts and learn how pol­i­tics is con­duct­ed at the Euro­pean lev­el.” Yes, when will Varo­ufakis learn that resis­tance is futile? Prob­a­bly soon­er or lat­er. Folks like Luis de Guin­dos are extreme­ly qual­i­fied to teach riff raff like the Greek Finance Min­is­ter “how pol­i­tics is con­duct­ed at the Euro­pean lev­el”:

    The Wall Street Jour­nal
    Banker Will Lead Span­ish Cri­sis Fight

    By Jonathan House and David Román
    Decem­ber 22, 2011

    MADRID—Mariano Rajoy, Spain’s new­ly elect­ed prime min­is­ter, select­ed a well-known for­mer deputy finance min­is­ter and invest­ment banker to spear­head his gov­ern­men­t’s efforts to pull the euro zone’s fourth-largest econ­o­my out of its worst cri­sis in decades.

    Spain’s new finance min­is­ter will be the 51-year-old Luis de Guin­dos, an econ­o­mist who held var­i­ous posi­tions, includ­ing deputy finance min­is­ter, in the gov­ern­ments of con­ser­v­a­tive Prime Min­is­ter José María Aznar dur­ing the 1996–2004 peri­od. Lat­er, he head­ed invest­ment bank Lehman Broth­ers in Spain, a finan­cial-sec­tor think tank and has been a fre­quent com­men­ta­tor in the local press.

    A good com­mu­ni­ca­tor and Eng­lish speak­er, Mr. de Guin­dos will assume the dual chal­lenge of push­ing through tough over­hauls at home while shoring up inter­na­tion­al con­fi­dence in Spain, a key task at a time of soar­ing bor­row­ing costs. As he isn’t a mem­ber of Mr. Rajoy’s Pop­u­lar Par­ty, he is viewed as inde­pen­dent in Span­ish polit­i­cal cir­cles.

    Mr. Rajoy’s cab­i­net for­ma­tion comes just over a month after his con­ser­v­a­tive Pop­u­lar Par­ty won a land­slide vic­to­ry in gen­er­al elec­tions, mak­ing Spain the third ail­ing euro-zone econ­o­my to see a change of gov­ern­ment in recent months after admin­is­tra­tions in Italy and Greece col­lapsed over their inabil­i­ty to push through eco­nom­ic over­hauls demand­ed by the Euro­pean Union and finan­cial mar­kets.

    Mr. Rajoy has promised to make reduc­ing the coun­try’s unem­ploy­ment rate—now above 21%—and meet­ing its deficit-reduc­tion com­mit­ments with the EU his top pri­or­i­ties.

    In a break with usu­al prac­tice, the vet­er­an politi­cian wait­ed until tak­ing his oath of office ear­li­er Wednes­day before announc­ing the min­istries that will make up his gov­ern­ment and the peo­ple that will head them.

    Over­all, Mr. Rajoy has cut the num­ber of min­istries to 13 from 15, though he cre­at­ed a new bud­get min­istry that will assume respon­si­bil­i­ty for bud­get and tax issues. It will be head­ed up by Cristóbal Mon­toro, 61, pre­vi­ous­ly the Pop­u­lar Par­ty’s chief eco­nom­ic spokesman. Mr. de Guin­dos’s finance min­istry will have respon­si­bil­i­ty for over­all eco­nom­ic pol­i­cy.

    Mr. Mon­toro also held var­i­ous posi­tions in the Aznar gov­ern­ments of 1996–2004, includ­ing that of bud­get min­is­ter. The eco­nom­ic over­hauls made dur­ing those years are large­ly cred­it­ed with help­ing to ensure that Spain entered the euro in 1999 and to trans­form the coun­try into one of the cur­ren­cy area’s chief growth engines until the glob­al finan­cial cri­sis struck in 2007. Some crit­ics, how­ev­er, have charged that those same poli­cies encour­aged the for­ma­tion of Spain’s mas­sive hous­ing bub­ble, the fall­out of which con­tin­ues to weigh heav­i­ly.

    “The com­bi­na­tion of de Guin­dos and Mon­toro is great news,” said Angel de la Fuente, head of Kepler Cap­i­tal Mar­kets in North Amer­i­ca. “They both have expe­ri­ence from the Aznar gov­ern­ment and de Guin­dos knows finan­cial mar­kets well.”


    Yes, Spain’s cur­rent­ly finance min­is­ter, Luis de Guin­dos, is an ex-Lehman banker who held var­i­ous posi­tions in the gov­ern­ments of con­ser­v­a­tive Prime Min­is­ter José María Aznar dur­ing the 1996–2004 peri­od when the foun­da­tions of the Span­ish Hous­ing bub­ble was estab­lished, includ­ing the posi­tion of deputy finance min­is­ter. And he’s now demand­ing that the EU turn the aus­ter­i­ty screws on Greece.

    So, with that in mind, here’s a quick look back at some of the news that was com­ing out of Spain back in 2004 when the new Social­ist gov­ern­ment was com­ing into pow­er fol­low­ing the depar­ture of the Aznar gov­ern­ment that de Guin­dos worked for:

    Finan­cial Times
    Prop­er­ty bub­ble baf­fles Span­ish

    August 20, 2004 5:00 am

    By Paul Betts

    Recent inter­est rate ris­es in Britain have shown how a sin­gle coun­try’s cen­tral bank can retain a mar­gin of manoeu­vre to con­trol a prop­er­ty boom. In euro­zone coun­tries it is infi­nite­ly more dif­fi­cult — and no more so than in Spain.


    Favourable bor­row­ing costs cou­pled with despon­den­cy over stock and bond mar­kets have had sim­i­lar effects in Italy and France — but noth­ing like in Spain, where bor­row­ing costs have fall­en to 3.25 per cent, below Spain’s above-aver­age euro­zone infla­tion rate of 3.5 per cent.

    The new Social­ist gov­ern­ment is so wor­ried it has appoint­ed a hous­ing min­is­ter — the first since 1977 — to tack­le what is rapid­ly turn­ing into an unsus­tain­able prop­er­ty and con­struc­tion fren­zy. Last year alone, more than 600,000 new homes were built. There are more than 3m emp­ty homes.

    Jaime Caru­a­na, the Span­ish cen­tral bank gov­er­nor, is urg­ing the gov­ern­ment to take steps to orches­trate a soft land­ing, since his own hands are tied by the Euro­pean Cen­tral Bank.

    With­out a mea­sured response, Spain risks pay­ing a heavy price for the for­mer Aznar gov­ern­men­t’s over-reliance on the prop­er­ty boom to under­pin growth.

    Just take a moment to soak that in:

    The new Social­ist gov­ern­ment is so wor­ried it has appoint­ed a hous­ing min­is­ter — the first since 1977 — to tack­le what is rapid­ly turn­ing into an unsus­tain­able prop­er­ty and con­struc­tion fren­zy. Last year alone, more than 600,000 new homes were built. There are more than 3m emp­ty homes.

    Jaime Caru­a­na, the Span­ish cen­tral bank gov­er­nor, is urg­ing the gov­ern­ment to take steps to orches­trate a soft land­ing, since his own hands are tied by the Euro­pean Cen­tral Bank.

    With­out a mea­sured response, Spain risks pay­ing a heavy price for the for­mer Aznar gov­ern­men­t’s over-reliance on the prop­er­ty boom to under­pin growth.

    That’s right, by the time Spain’s social­ist gov­ern­ment came into pow­er in 2004, a hous­ing bub­ble was already in place that was lead­ing to 600,000 new homes being built in 2003 when there were already more than 3 mil­lion emp­ty homes (close to the num­ber of emp­ty homes in 2013). At the same, it was also clear, even back in 2004, that the loss of con­trol of its own cen­tral bank­ing poli­cies was lead­ing to a Span­ish hous­ing bub­ble that Spain real­ly could­n’t con­trol and the Euro­pean Cen­tral Bank had no inter­est in con­trol­ling. It’s a reminder of how the whole “prof­li­gate gov­ern­ment spend­ing caused the finan­cial cri­sis” meme is large­ly non­sense. It’s also a reminder of why one of the most impor­tant paths to see­ing an end to the euro­zone cri­sis is see­ing an end to how “pol­i­tics is con­duct­ed at the Euro­pean lev­el”.

    Posted by Pterrafractyl | February 23, 2015, 12:40 am

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