Will Spain Be the Next Greece?
European governments are hoping that a massive new €750 billion ($1 trillion) bailout fund will contain the sovereign debt crisis that started with Greece and now threatens to destabilize the euro currency. But the rescue package, which is on top of a separate €110 billion package to rescue Greece from bankruptcy, essentially transfers the burden of debt from one European country to another and does little to prevent profligate countries from reaccumulating unsustainable debt.
Not surprisingly, speculation is rife (here, here, and here) that the new bailout plan is a short-term palliative, one that simply puts off a final day of reckoning. Indeed, many economists believe it’s only a matter of time before Europe’s debt contagion spreads across southern Europe and infects Portugal and Spain.
A debt crisis in Spain would make the problems in Greece look tame by comparison. At €1.3 trillion, the Spanish economy is more than four times the size of Greece’s. Spain is also the fourth-largest economy in the 16-nation euro zone, the eighth-largest in the OECD, and the tenth-largest in the world. Many analysts believe Spain is simply too big to be bailed out, and that a Spanish default would almost certainly lead to the breakup of the euro zone.
Economists are divided over the question of whether Spain is dancing on the edge of the abyss, and Spanish politicians insist that Spain is not Greece. Spanish Prime Minister José Luis Rodríguez Zapatero, for example, recently dismissed speculation that the country would need a bailout as “complete madness.”
But the one thing that everyone does agree upon is that the Spanish economy, which is grappling with the fallout from the meltdown of its housing sector, a sharp drop in domestic consumption, a spike in unemployment, and a steep drop in tax revenues, is in deep trouble, and will remain so for many years to come.
Spain is mired in its worst recession in 60 years, and the Bank of Spain projects that GDP will shrink 0.3 percent this year, after falling nearly 4 percent in 2009. Spain’s jobless rate is stuck at 20 percent, almost twice the EU average. Meanwhile, Spain’s benchmark IBEX stock index is the euro zone’s worst performer this year after Greece.
Meanwhile, Spain’s debt to GDP ratio is expected to climb from 53.2 percent last year to 64.9 percent this year and 72.5 percent next year. But investors are particularly concerned about Spain’s gaping budget deficit, which at 11.3 percent of GDP is the third-largest in the euro zone, and which may exceed that of Greece this year, according to the European Commission.
I’ll always think of Zapatero as the terrorists’ favorite candidate.
From Wikipedia:
“An important point of controversy is if the purpose of the Madrid attacks were to force a Socialist victory; at issue as well was that, if that was the case, whether they succeeded in altering the final result. This has been called the “4 March theory” (that is, if the election had been scheduled for 7 March, the attacks would have taken place on 4 March) by Aznar, among others. No definitive data exists in favour of that possibility but some facts have been used to support it. Thus, the first question Jamal Zougam (one of the first arrested suspects) made when he arrived at the Courthouse on 15 March 2004 was: ‘Who won the election?’.[51]“
All the Europeans did with this bailout package was delay default for a little while by Greece, Portugal, and Spain. The bankers in Europe and around the world are not stupid. They know the socialists in Europe are about as likely to give up their many benefits as Muslims are about as likely to give up Islam. It ain’t happening and the financial tsunami that is about to hit Europe is going to be stunning. America should NOT be pumping billions and billions of dollars that we do NOT have into the IMF in order to subsidize this madness, just like we Americans here in the United States should no longer subsidize Washington’s uncontrollable spending. If you are in deep debt, the answer is to SAVE money and CUT spending, not spend even more money you don’t have. Sounds simple, right? So how come Europe, as well as our own President, doesn’t seem to get that?
Greece did pass a spending reduction package in exchange for the bailout.
The question I have is how long until the goodies taken away are given back by subsequent legislation. The unions own that govt, and they aren’t happy.
Compounding Spain’s problems is the fact that while 80% of Spain’s public spending is done by the “autonomias” (the States in US terms) tax collection is made by the “federal” administration. That means for one side that the Central Government can do little to contain public spending and for the other that the citizen sees the autonomias a money dispensers since he doesn’t see what part of his taxes funds their spending. The fact that this spending has no political cost has led to a proliferation of pharaonic projects, to frivolous spendings (Catalonia’s opening of “embassies” or hundreds of thousand dollars spent on studying the behavior of the japanese quail) and of course blatant corruption (cf a company in Andalusia headed by autonomia’s president daughter whose revenue was about 10 thousand dollars in sales and 3 million in subsidies) since teh autonomias have their own public servants recruited in a less than transparent way (by Southern Europe standards the “federal” service is remarkably clean odf corruption, perhaps because Spain’s corrupts have gone to the autonomias.
Compounding to Spain’s problems is the fact tht in order to increase their power and make investigation of their corruption harder to do, autonomias leaders have courted or, alright created nationalisms (in sevaerl regions they are resurrecting local languages who fell in disuse well before Spain’s unification in 1492, in others students are denied the right to be teached in Spanish and have to learn maths in the local language) so they can present any slight at them as an aggression against the region.
Compounding to that, Zapatero, who owes his position to the nationalists has laid the red carpet on their encroachment over the legality (cf how he supported Catalonia’s “estatuto” who, between other things, unilaterally sets financial obligations for the federal government in benefit of the autonomous government).
Compounding to that is the fact that Zapatero is an economic illiterate who boasts to have learned economy in two afternoons. That he denied the crisis for two years, countinued his profligate spending and now that he can’t deny it has resorted to demagogic assertions about “eeeeeeeeeevil speculators”
Compounding to that Zapatero seems set on reviving old hates remounting to well before Spain’s civil war and who had been buried during Spain’s transition to democracy.
Componding to that is teh incedible polarization of Spain’s political life where the left, whose repreentatives mostly com from franquist families or served frnquism) squash any dissent under a heavy barrage of “franquist, fascist, genocider” epithets. As an aside, not noticing that a microphone had been left open Zapatero has confessed that “it is good for us that there is tension” (nos conviene que haya tension). This tension makes bi-partisanship a pipe dream.
Compounding to that is the fact that there is no alternative in the opposition as Spain’s electoral system makes that the citizens have no say in the line of the political party learrs or politica lines and its leader, Mariano Rajoy, who reached and kept leadership in a far less than democratic way has been derisively nicnamed “Minister of the Opposition” due to the way he keeps silent about Zapatero’s misbehavior and how he keeps smiling after everyone of Zapatero’s backstabs to him.
Compounding to that is the fact that many of Zaptero’s actions and words point that he positively hates his countyry and wishes the worse for it.
About Spain’s polarization in politics and Zaptero’s strategy of tension it casts a big shadow on the prospective of a non-socialist government since you can count on the syndicates (Zapatero handed them a huge increase in subsidies just a few days ago) and subsidized leftist organizations to torpedo its action. There could even be cases of disloyalty from civil servants.
Interesting analyse
though this kind of spanish behaviour didn’t start with Zapatero, it is there since ol times, and Franco was making clientelism too !
Still Spain has some margin, the taxes there are lower (more or less 30%) than in many other EU countries, where our margin can’t suffer new taxes raising, at a lower level Germany too, though Germany has the same provincial autonom goverments like Spain, and some german cities are said to be “bankrupted” ; spanish autonom governments still have the ability to rise new taxes, not counting with the ol habits, still less harming than the Greeek’s. For having the habit to go to Spain in Vacation, I can attest that Spanish people aren’t lazy, they don’t deserve what will happen to them, it their elite that is rotten, right as much as left ones ! Now, if we could remake a Revolution, I’m sure that we’ll fing many head to cut off in EU !
You are right; Spain’s problems didn’t begin with Zapatero, but he certainly accelerated them.
Some German “states” are officially bankrupt. Berlin for example, is deeply underwater. As a result, it is one of the cheaper European capitals; it is much cheaper than Hamburg where I live and the cost of living is less expensive there than Paris, London, Amsterdam, and Copenhagen by at least a factor of 6 to 10. (You can by a nice flat in trendy Hackescher Markt for less than 100,000 Euros. A comparable flat in London could easily cost 1.5 million.) Berlin also has 20% unemployment and a large number of these state dependents are completely unemployable. Many of these people will never work a real job because they just do not have any skills that are worth as much to the labour market as they could receive on benefits. Many of them have no skills at all.
You are right. Many Spanish people aren’t lazy, but they have been slow to add a deep variety of jobs to their labour market. (This is also very much the case in Germany which depends solely on exports of machinery to power their economy.) Some of my Spanish acquaintances through the years were some of the hardest working Europeans I have met. Unfortunately, they also have a lot of bad habits dragging them down; I would point out that Zombie companies not only soak up tax money to stay alive, they also help maintain unproductive parts of the economy by taking away from better performing businesses. I don’t really see much of a way out for Spain. It looks like years before Spain will be able to return to steady, sustainable growth.
Will Spain be the next Greece?
Unless Portugal beats them to it.
I can see why the stock markets applied a beating to the British Pound when it looked like there was to be a Labour/Liberal Democrat coalition government. Zapatero, like Brown, has been measured, and each has been found wanting.
One needed reform is the ability to fire underperforming workers and let bankrupt businesses cease to exist. Spain’s economy is burdened with so called “zombie” businesses that are in effect defunct but kept alive on government life support. It is indeed a catch-22; the government must spend money on entities that cannot earn money, driving up the debt, while allowing them to collapse would mark a sharp uptick in unemployment. Equally, businesses are often burdened by ghost workers. These workers have a job and cannot be fired, yet many of them have no tasks to perform and indeed many no longer come to work. It is simply cheaper for the business to keep them on the payroll than fire them. Essentially, having a job and performing a job are not necessarily connected in Spain.
In my first year of business school I learned that the only legitimate reason to go into debt is to buy income producing assets. In personal terms, this would be a house or a car. For a company, it could be a commercial property, vehicles, aircraft, etc. These are things that have value and/or make you more productive.
For a country, smart uses of debt would be to build infrastructure or help finance higher education – and only real technical degrees that will contribute to the economy.
These countries that are racking up debt, ours included, are burning through tens or hundreds of billions a year with nothing to show for it. There are no assets and no additional income here. Just transfer payments, except there’s no source, just debt and a destination.
It’s ironic that so many young people support the welfare state, as they will be the ones asked to pay it all back with interest.
The question is not whether Spain will be the next Greece,but whether the EU will be the next Argentina.The Euros are pathetic,they stumble,like drunks,from one psychopathic ideological hallucination to another,until they finally sucumb from insanity.Nationalism, Communism, Nazism, Welfarism, Multiculturalism,death,this is the “progression of European “so called” civilization.We will soon follow.
Don’t you just love Zapatero’s reality denying comment:”Pessimism does not create jobs”.The guy’s a scream;he should be writing for the NYSLIMES economic section.
Soeren Kern is on the money as far as he goes. The Euro nations which are top heavy with unsustainable debt obligations and shrinking revenue sources are inevitably going to default. It looks to me, without systemic change and a radical trimming of government largess, that at least 4 of these nations are likely to do so in the next year or so. That may do in the Euro. It will exacerbate world wide recession/depression. The US just commited $50 billion to this accelerating disaster.
The great socialist experiment, so in vogue over the past 75 years or so, is about to unravel. You can not construct a sustainable model for it’s continued viability. The debt obligations can no longer be carried or serviced.
Ironic it is that the Laffer capitalism of Reagan creates the growing wealth that can be siphoned off to fuel the welfare state. Obama and his ilk never have seemed to grasp this fact.It’s a zero sum non dynamic equation to them.It says volumns about their limited understanding of economic thought.
The US is going to pay one hell of a price for the endless bailouts and it’s current unfriendliness to capital. It is going to happpen sooner rather than later. Europe will simply act as the accelerant. The darkest days are ahead, courtesy of our leaders systematic compulsion to ignore reality and basic economics, and to promise the unsustainable. A pity so many American voters bought the lie. Hope you have prepared to survive in an altered economic universe.
“…going so far as to order Spain’s national intelligence agency to investigate an alleged “Anglo-Saxon” conspiracy.”
Well, at least this time they didn’t blame the Jews. I guess that’s progress of a sorts, but still shows a refusal to face responsibility for their own policies.
Actually, um, about Spain and the Jews. From an ADL report on anti-semitism in Europe, they found, naturally, that many countries still harbour anti-Jewish feelings. Here is one quote about the connection between Jews and international finance.
“Similarly, European respondents still adhere to the notion that “Jews have too much power in international financial markets.” Overall, 41% of those surveyed cling to the traditional stereotype; in Spain it is 74%.”
So, I guess only 3/4ths make this connection. Of course this is a country where black soccer players are met with an army of football fans making monkey noises every time they get the ball, so I guess it isn’t just the Jews they don’t like, but still.
Celts are also involved in the conspiracy, but that’s a sensitive area.
A basketball team helped to bring down a whole country?
Now this I’ve got to see.
(I think I saw something like this on the old Harlem Globe Trotters cartoon.)
Not to worry, Obama advised Zapatero on how to rein in massive debt. All will now be well.
uh looks rather like that Obama will soon ask for a spanish bail out
http://market-ticker.denninger.net/archives/2309-Record-Deficit-For-An-April.html
They do know about entitlements in Spain. Seniors (senor’s and senora’s) get an annual state-paid holiday. The unfunded obligations of European countries cannot be sustained by any of them. When something is unsustainable it will end. So the great wonderland of the welfare state is ending.
But wait! There is a forlorn and skinny hope.
Hope lies in imagining these countries as a bunch of cars (Prius I expect) racing towards a cliff. Why is this hopeful? It is hopeful because those in the vanguard will plunge into the abyss in full view of the cars that follow. This will cause some of the followers to brake hard. For some countries it simply means they will flop meekly into the void instead of rocketing out into space. But others in the rear might be able to stop before the cliff edge and survive in some impoverished fashion.
Since different European countries have different periods of grace, the demise of some might frighten others into taking the drastic actions needed for their survival. A dismal way to define hope, but that’s all there is.
Neither the US or Canada should kid ourselves that we won’t be in that cavalcade of merry lemmings.
On this issue, I’m cautiously pessimistic. Apparently, a large minority of Greeks are unaware that they have gone over the cliff. It reminds me of the black knight in Monty Python’s Search for the Holy Grail who is still ready to fight even after being reduced to a torso. Germans are angry about the bailout but in no mood to correct their course to not end up like Greece. Meanwhile, the US MSM outside of the WSJ, has largely ignored this issue. At this very moment, CNN has nothing about the Europeans staring into a statist abyss, but they do have quite a few human interest pieces about obese kids getting bullied at home, raising marijuana in California, and surfers in Gaza.
The business about paid holidays is worse than that. The right to be a tourist was recently made a priority in Brussels. In the future, money will be allotted so that the young, the old, and even people in difficult financial situations (read unemployed) will be able to get money to experience Europe. Boy, do I feel like a sucker. Here I am working my fingers to the bone, putting in double time and only taking one holiday a year to fly home to see my family, while my tax money will go to pay for someone else’s. Instead of letting the state tax me to poverty while not getting my yearly European vacation, why don’t I just quit working and then have someone else pay for me. I could down my tools and finally get to visit Italy or Spain again. It makes me feel like a sucker for working long hours to pay for someone else to enjoy what I can’t because I am working long hours.
the Brussels plebe lives on the moon !
I have heard of this sillyness too. Hope it’s not gonna pass, ouf the euro in trouble will stop them !
I’m not sure if the Euro’s difficulties will stop anyone until the wheels completely fall off. It was just announced that Estonia’s entrance into the Eurozone has just been approved. Maybe no one in Brussels reads the papers, but it seems to be a case of bad timing.
I had a colleague last year who was a wonderful guy, but politically, you could tell that he had spent too much time hanging around the Eurocrats. I remember when he jumped with joy at the announcement that Europe would have yet another President, even a Belgian, Herman van Rompuy. HVR is not the kind of person to get excited about; in fact, I’m pretty sure Herman van Rompoy is not very excited about being Herman van Rompoy. (This may seem like a low ad hominem attack, but I have quantifiable proof. 1. He was the 49th Prime Minister of Belgium and was in office just short of one year, and 2. He published a book of Haiku. This is a decidedly unexciting man who has all of the appeal of a 3 hour long documentary on dust mites in Esperanto.)
Funnily enough, if you type Herman van Rompoy into google you get quite a few suggestions ending in “666″, “antichrist”, and “New World Order.” It is amazing how many enemies of Haiku there are in the world. And, on that note, a Haiku on current events…
*ahem*
“Birthplace of the vote,
Ouzo, toga, huge bailout
Sovereign Debtor”
http://www.telegraph.co.uk/finance/financetopics/financialcrisis/7716530/EU-imposes-wage-cuts-on-Spanish-Protectorate-calls-for-budget-primacy-over-sovereign-parliaments.html
Let’s see who else has anything to say about the ending of the mutation of Spain into Zapatero land.
In the article’s photo, doesn’t Zapatero look like the Rowan Atkinson character, “Mr. Bean”? Probably just as smart, too….
I’ve heard that he is not very bright as well. A friend of mine had the opportunity to meet Zapatero a few years ago, and there were two pictures taken from the meeting. The first one looks quite normal since they are both smiling and shaking hands. In the second one, my friend pulled a hilarious face as he was reacting to something stupid that Zapatero had just said. It’s absolutely priceless.
During the 1970s and 80s, Latin American nations tried to emulate the Europeans, embarking in ambitious infrastructure/social programs financed through cheap foreign credit. But as the financial wells dried up during the 1982 recession, Latin nations suddenly found themselves overwhelmed by crushing debt. Many of them -Mexico, Argentina, Brazil, Chile- ended at or near default. Latin Americans had to suffer through years of stagnant or negative growth in what they termed the “lost decade,” to come to grips with their collective debt.
Today, it is the Europeans who seem to be emulating the Latins, lavishly funding their social programs on the wings of cheap credit. But as with the Latins 30 years ago, many are now facing financial meltdown, as the recession has tightened credit, and they face the reality of their mounting debt. The parallels are striking: Back in the 1980s, Chile’s foreign debt was 130% of its GDP -today, Greece’s stands at 120%. Brazil’s debt stood at 50%, while Argentina’s was 75%. Spain’s current public debt stands at 43%. And US public debt is currently 56% of US GDP…
Granted, this is an imperfect comparison, as the issues are far more complex than can be explained here. Yet there are enough similarities to draw the parallels, and to realize that the Eurozone faces a difficult road ahead. Will we here in America learn the lessons from the past -and present- before it’s too late?
The other issue at hand is that, though the Latin American debt crisis was significant, its overall effect was manageable, given the comparatively small size of these nations’ collective GDPs. But the aftershocks of a European-sized debt crisis will be much harder to manage. I can only wonder how much greater an American-sized crisis would feel….
ZAPATERO IS REALLY MR. BEAN IN DISGUISE, IF YOU DOUBT IT, LOOK AT THE STATE SPAIN IS IN!