Monday 11 June 2012

A House Divided will fall

Back from Spain, where the tourist-y parts that I was in seemed quite normal and there was little sign of angst on the streets. However, these parts are no doubt not he bits that are suffering from 25 percent unemployment. What you can see is the half-finished flats and buildings wasting away on the edges of most urban areas - much like Ireland is too. Not that surprising since both of their economies followed the same policies.

However, the new Europe plan to save Spain is yet another bandage that raises as many questions as it answers. Firstly, as only loans rather than payments, this in many ways increases substantially the debt profile of Spain. Hardly something that is going to enamour it to international investors.

Furthermore, with the recent Bankia disaster in Spain - where a 5 billion bailout became 23 billion in a week - is 100 billion euros really enough. Or is it, again a staple of euro-fudge - enough for a plaster but not for a cure.

Then we get to the state of the other PIIGS. Spain has a better deal with no EU Troika oversight than any of Ireland, Portugal or Greece. The unfairness of this situation will not be allowed to rest by desperate populist politicians who want to see easy answers and blame all problems on foreigners. This action to help Spain may well end up helping Syriza in Greece, as it can claim better terms can be had from the EU. Sinn Fein will take up the baton in Ireland too with wearisome predictability.

Again, we see the European House divided, not just the PIIGS but Finland, as usual is decrying any use of bailout monies. This position overall is clearly untenable, either Countries want a single currency or they do not.

A momentous week awaits again, lets see what it brings.


Barnacle Bill said...

At least Sinn Fein are putting up a fight. Here our docile poodles would just roll over for another EU belly tickle.
I have this re-occurring nightmare Cast Iron is going to drag us into the Euro to save the EU.
I hope it's only a nightmare!

andrew said...

Of course, if you keep on applying bandages you end up with a mummy.
At that point it does not matter if it is dead or alive.

The other point is that every time you add another bandage, you are tying the whole together just a bit more. The Irish / Finns may want to leave at some point but all the bandages mean that the Irish could not repay their loans and the Finns may not be able to meet their share of the obligations collectively entered in support of the PIIGS.

Timbo614 said...

These different deals and sideshows are definitely not a case of "All for one, one for all" instead it's going to be muskets at dawn where those that have suffered the bad deals and fiscal straitjackets will want the deal that Spain now has. Oh, and of course it sets a precedent for the next "pseudo bailout". Basically bad news and bad karma all round!

Anonymous said...

But at least it keeps the speculators gambling with the Euro and not the Pound. If they do fix the Euro one way or the other I guess the Pound is next in line.

Budgie said...

barnacle Bill - I fear you are right about CMD.

Anon 7:24pm - you obviously don't understand the problems of the euro if you think "If they do fix the Euro ... the Pound is next in line".

The point is that, as it is presently constituted, the euro cannot be fixed. In contrast, the UK controls its own currency, so the pound can be fixed (that doesn't mean it will be, for Cameron and Osborne are nitwits).

But the euro cannot be "bailed out" in perpetuity. It is broken. And there are two euro crises: a debt (differential) crisis; and an ignored productivity (differential) crisis. Both are caused by locking disparate and diverging economies together at one point in their currency history.

Anonymous said...

It shouldn't be phrased in terms of a single currency, a lot of people appear to want that as it makes travel easier.

The real question is do we want a single lender of last resort to prop up the public sectors of many countries that have significantly different social settlements in terms of tax rates, pensions, savings, and everything.
Clearly anyone can see that its not fair for countries like Britain where retirement is being moved to 67+ to be handing over money to countries who retire at 60 or less, more than a 10% difference.
As with any benefit system, the person who receives should not have a better position than the one who is paying for it.