The Strain in Spain

Having visited Spain this last summer, I have very fond feelings for the place and its people. That makes for an emotional investment in the following story. From Via Meadia:

The euro mess is getting worse again. With Greece seething over the strict austerity measures required as terms of its bail-out, Spain's Prime Minister Mariano Rajoy is hoping that biting the bullet now can keep his government and even his country together. With Spain's interest rates now retesting the six percent level, the alternative to a dramatic and convincing austerity budget in Spain is a new ECB bailout. That would mean a humiliating, Greek-style loss of sovereignty, and cripple Prime Minister Rajoy and his center-right government.

As Walter Russell Mead notes, it isn't merely Rajoy's government that is at stake; it is Spain. Consider this image:

Catalonia is Spain's most productive region and also its most indebted. The Catalonians have had a very long history of nationalist sentiment and it may seem to them now that they are contributing more to Spain than Spain is contributing to them. Unfortunately for Catalonia, they are deep in the red. Getting out of Spain, if that were possible, would solve neither their problems nor Spain's problem.

The problem is simple. Like most of Europe, Spain and its provinces have been running up debt faster than their economies have grown. There is no easy way out of that. The dream of Catalonian independence like the dream of stimulus spending is only a way of avoiding reality. You can borrow against the future only if the future has something to lend.

The United States is on the same road. While some of our states are fiscally sound (South Dakota) many are not. California and Illinois, to mention two, are fiscal basket cases. The same is true of many of our major cities. The federal government is running deficits of more than a trillion a year. This might be what we should be talking about as we approach a major election. It isn't. We will be forced to face it soon enough.

Comments

[Jordi]

Catalonia has more reason for independence than United States had
we have 1000 years of history with different culture, customs,heritage, language,history than Spain, Spain identity is Castilia

1641 attacked Catalonia and killed our President Pau Claris
1714 attacked Catalonia (with french troops)
1938 attacked Catalonia (with hitler and mussolini)and killed our President Lluís Companys

Catalonia always been oppressed nation, now is time to be free

[larry kurtz]

South Dakota imprisons people for economic development and expects the Feds to send it money to pay your wages, Ken. Your premise is flawed in that the state has within its borders some the poorest counties on the globe because your party supports apartheid.

[Gerald]

I just got back from Spain on Tuesday as I have family there, I know that the austerity plan does not work and will never work there or anyplace else when the country's are in this state of recession. So far, the "bailouts" have only gone to the banks that caused the mess in the first place, kind of like here, even the same players. Where we are different is that America took action and put people back to work. Spain is not without money, there is plenty of that flowing as I write this note, it is called in Spain, dirty money. The government there has raised consumer tax to 21% and while that is handling business that usually report, the rest use the dirty money to make it. If the government raised the tax to 50%, it would not bring in as much as if it were where it was in the first place.

Catalonia has been warned that Madrid will not and cannot allow them to separate as it would be against the Spanish Constitution, so they can stomp their feet and hold their breathe, it ain't happening. Catalonia is just like South Dakota in one way in particular, South Dakota balanced its books with stimulus money much like Catalonia did for a while. Where Catalonia and South Dakota differ is that we here in South Dakota receive 1.40, more or less, for every 1.00 we pay in. Good work if you can get it. In Spain, some say that Calalonia has taken much more than they have given. I have ridden the high speed and have driven over the highways and have seen all that the entire Spanish people have shared with Catalonia and I know that this is just a straw man to save a politicos skin.

Spain will make it, but they may have to do like Portugal and take a stand against that wacky Angela from Germany. She shows each day that she is in over her head, even in Germany, they know that they must have a market for their products and with austerity, that is drying up.

I see that flats just in the suburbs have an asking price of 248,000.00 Euro's ($332,320.00 American dollars) for a two bedroom with a bath and a half. How can you buy a home if your looking down the tunnel at this? The banks are going to have to release their holds on these or they will sit vacant for many many years. Austerity is a nation killer.

[Donald Pay]

The problem with having this government debt leading to the apocalypse meme is that it is not true, at least in Spain. Spain's government debt didn't increase appreciably until the 2008 downturn. The problem in Spain and several other Eurozone countries was a huge run up of private debt encouraged by low interest rates and German corporate and government policies the encouraged Spain to run up the debt.

BBC has a great summary of what's going on:

http://www.bbc.co.uk/news/business-16290598

[Ken Blanchard]

Gerald: thanks for the very interesting post. I have to disagree on a couple of points. Catalonia is not like South Dakota. It is like California. Catalonia pays more into the Spanish budget than it gets out; it also is a fiscal basket case on its own.

I also am skeptical about your view that the "bankers" have a lot of wealth that they could just release if they wanted to. Bankers need to see some return. Those who reject "austerity" seem to reason like children. Daddy could buy me that toy if only he would write a check! Wealth has to come from somewhere. We have to balance the books if we want things to be affordable.