Europe
Spain: 100 bln just a beginning
The situation in Spain is far from stable despite negotiations about a bail-out of around 100 Billion EURO. With more than 150 bln in debts, the regions add to the overall debt crisis. Millions of households aren’t able to pay back private debts. The credit crunch and rapidly growing social challenges add to the situation.
The proposed European fiscal union might become unprecedentedly challenged by the volume and the socio-economic dynamics in Spain. There are doubts that the Spanish economic and social challenges can be handled by European fiscal institutions and there is no political commitment of the Spanish government to quit fiscal sourveignity.
The basic systemic problems expressed by impressive export growth figures on the one hand and unemployment rates of more than 25% (in some regions up to 60%) on the other hand, show that the paradigms of the country’s crisis are very different to those of Greece.
There is no doubt that rapid reforms might help Spain to keep its standards as an industrialized society. But it is not sure how significant gaps in regional development, existing separatist movements, youth unemployment of 50% and the empty pockets of the public sector could be overcome to initiate recovery.
Like many other measures in the recent past the temporary ease provided by the European bail-out for Spain won’t give an answer to these questions. There are hardly doubts that more austerity might become explosive in Spain as frustration is already at the brink to explode.
On the other hand, a much different handling of the Spanish crisis than the one in Greece might bring new tensions in a Europe that is obviously out of balance.
The bottom has not been reached
With the official warning by the Spanish government this Tuesday previous to a telephone conference of G 7 leaders on the Spanish re-financing problems the situation in Europe is obviously entering a more dramatic phase. The next launch of Spanish bonds is scheduled for Thursday this week. Bond yields range already around 6,7%, too high for a long-term re-financing. There is no guarantee that this launch is successful.
With the Greek elections 10 days later the political challenges might be back in the focus but there is also a chance of an at least temporary ease if the conservative ND wins most votes. But even a success of the Neo Democracia would come with the risk of a politically delicate backlash: with most Greeks angry about the traditional establishment, any success of the ND would be only related to the fears of losing the Euro currency. But the tremendous risk of a Greece exit remains even if a new government confessed to follow the austerity regime of EU and the IMF.
If Greece would be forced to give up the Euro despite a win of the conservatives, the political quagmire in Greece might enter another stage with consequences for all Europe.
This is why a strong conservative victory in Greece would put enormous pressure on the EU fiscal policies right now. Along with the threats in Spain and Italy and a potential recession also in Germany there is hardly any other chance than increasing dramatically the money supply of the ECB to preserve the currency. In that case Germany might become the next hotspot of political turmoil.
Facing these perspectives the current political leadership circles in Europe tend to slow down the flow of information and to cover decision making and precautions. Potentially tensions within these circles might reach a critical point with a first Eurozone member declaring readiness to leave the system.
As only two of the consequences the political ties within Europe and the world market growth might become so inconsistent and fragile that any planning except caring for the worst case might become obsolete.
If Greece leaves the Eurozone it might happen overnight
Changes of monetary systems coming with strong devaluation need to happen in very short, unannounced periods of time in order to hamper bank runs, capital exits, general panic or public disorder.
This is why any exit of Greece form the Eurozone can hardly happen by endless weeks of struggle and negotiations, by public discussion or voting, except if a dry out of the banks was part of the strategy. An exit of Greece needed secret preparation, logistic management, security measures and planned procedures to be carried out within two or maximum 5 days. Even the involvement of military might be necessary during the critical phase – sending shock waves to the rest of Europe if for example too obvious or too heavy equipment was put in place.
In advance, there is a risk that rumors might have a major impact as the credicbility of politicians involved might be necessarily replaced by pure strategic communication.
Therefore experts expect any announcement of an exit would happen during weekend time followed by immediate regulatory action.
Given these necessary requirements, the technical challenge of a rapid, overnight currency change contains tremendous risks if unexperienced administrative bodies took responsibility for the process.
It can’t be ruled out that the challenges of the whole process and the volatility that it might cause is already now the main topic to be discussed behind closed doors as unpreparedness of investors and small savers is necessary for any successful cut.
What happened to the Spanish boots of Spanish leather?
It seems that there is a kind of human reflex demanding extension, expansion and the crossing of limits as a generally desirable goal.
The dream of empires, reaching out for new territories and overall control, the ideals of unity or even uniformity have prevailed through all eras and ideologies.
But ironically, the final crisis of systemic extension and overstretching empires usually bring up opposite effects: instead of external expansion the rise of inner conflicts might occure, instead of successfully spreading rules and regulations, the reliability of rule and law at home might become corrupted. Instead of creating stability elsewhere, instability tends to come back to the heartland.
Looking at Europe from a distance it seems that exactly this is happening now after the ambitious Euro project went into its crisis. Only a minority of international observers still believe in recovery and repair or in the further extension of EU competencies.
Currently we are observing world markets, world leaders and banking managers around the globe starring at a country of ten million people, ranking no. 36 in nominal GDP worldwide with less than 10% of the German nominal GDP but still with a ten times bigger GDP than Ethiopia for example (where eight times more people live than in Greece):
If nations were comparable to societies, Greece looked like the new precarious middle class among nations involved in global change: a fully integrated member of NATO, EU, Eurozone, OECD, WTO and all other privileged multinational framework organisations it seems to be now at the brink to fall back on the level of the world’s working class of nations, the ‘developing world’ competing with each other by low salaries and simple living conditions.
But instead of questioning systemic structures and international procedures which have lead to this economic and social regress, EU member states point their political finger at Greece shouting ‘this is a home made disaster’, an ‘exception’, a ‘scandal’, ‘the result of cheating’, evoked by ‘corrupt elites’ a.s.o.
But in fact, those who swear in that way behind closed doors are the same ones that introduced fully inappropriate low interest rates for Greek banks over a decade, that accepted the rise of production costs in Greece by more than 30% by implementing the Euro curreny, that created a disfunctional EU system of subsidies which contributed to the industrial decline of Greece and other European countries. Gradually, the same politics have moved Spain and Portugal out of balance.
Instead of caring for incentives to sustainably develop the so called peripheric Europe, globalizing policies encouraged capital flows to Asia. German politicians and industrial managers never defined the Eurozone as a domestic market but as a ‘less attractive’ export destination. Now their tax payers are urged to pay the bill for these failing policies that created a European industrial core zone around Germany while larger parts of Europe are turning into exploitable supply areas or depending subsidy receivers.
European politics failed to create an economic environment that allowed competitive production on the continent beyond High Tech and consulting. Shoes, clothes, furniture, computers and solar cells from Europe are unaffordable in Europe itself while youth unemployment in Spain and Greece has reached 50%. What happened to the Greek textile industry?
Decision makers in Europe tend to define a potential Greek default as a failure of the local elites and not as a result of European politics. They did’t intervene when half of Southern Europe became de-industrialized. Now the EU commission calls for subsidized growth programs under their control. Again, it seems that the ambitions of the European elites are more important than the creation of a functional, rational, de-ideologized market system.
Functional markets are as necessary as locally adjustable currency systems and the chance for political steering. The more centralized, planned and inflexible the overall system is, the bigger is the risk of its failure. It is not very likely that the Eurozone is an exception of this rule.