New Spanish Finance Horrors Shock The World
Published on: May 26, 2012
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  • Charles R. Williams

    One of the silliest approaches to the European crisis is the concept of contagion. If Greece can be contained, Spain and Italy will be spared. They all have the same fundamental problem. In toto, they cannot be saved without the German taxpayer assuming their debts. The Germans would be insane to assume these debts but their economy will also suffer if Spain, Italy, and/or their banks default. German prosperity is largely founded on mis-priced credit risk. This of course was the fundamental flaw in the Bush economy that crashed in 2007-8.

    The train wreck has been brought to a crawl by the Germans assuming more and more responsibility for the debts of Europe. This reality was artfully disguised by the politicians and the underlying premise was that if the crash could be delayed long enough it could be avoided.

    When the Germans decide that collapse is inevitable, they will pull the plug on the whole show.

  • Soul

    I can’t believe anyone in the family will be thrilled to send another generation to Europe. We’ve already had two fight there, one generation in particular that didn’t farewell during and afterwards as a result.

    Imagine it is only a matter of time till conflicts eventually breakout in Europe. Hope not, but seems we are heading down a similar path.

  • Kenny

    1. The Germans are not rich enough to bailout this sorry mess. Fact.

    2. Britain is planning controls to stop an influx of immigrants from Greece, Spain, etc.
    So much for open Euro-borders, heh?

    3.Socialism fails … yet again.

  • Eurydice

    If this doesn’t confirm that Houdini won’t make it out of the tank, just wait for Italy and France.

  • jetty

    And the effect on the American market, short term and long term, will be … ?

  • Eurydice

    @Charles R. Williams – “mispriced credit risk” is fuzzy way of saying the Germans are bailing out their own banks. They can pull the plug if they want, but they’ll still have to deal with their banks.

  • Eric from Texas

    Jetty @5

    Not good, and not good. Probably dooms the re-election chances of President Obama.

  • thibaud

    Can someone please get Mead a copy editor and stop Via Meadia’s abuse of “horrors” and “death”?

  • Andrew Allison

    There’s a fundamental fallacy in, “As in the Greek case, Europe is demanding actions from Spain that Spain cannot take. This is not policy; it is death.” The simple truth is that Club Med is living off borrowed money, and the lenders have decided to stop throwing good money after bad. The governments concerned will be forced to act when the money runs out. The standard of living enjoyed by Club Med must fall, and there’s nothing the governments or their victims can do about it. The US would do well to recognize it too is spending at an unsustainable rate.

  • Steve0

    It’s unlikely to end in a WWI or WWII type conflict: who would be the aggressor? I could believe widespread rioting, and perhaps civil wars, but there’s no reason the US would get involved in an of that.

  • Corlyss

    “New Spanish Finance Horrors Shock The World”

    Why would that be, since even the stones in the streets saw this one coming since May 2010?

    Fretting about default is a lot worse than the default itself. Lots of nations have defaulted. The earth didn’t open up and swallow them like Sodom. They are still here, reoganized and healthier than before. The bankers and the pols should just get out of the way and let it happen.

  • Jacksonian Libertarian

    The Dominoes are starting to fall.

  • I was going to chide WRM and his starving interns for giving into the gods of yellow journalism by using the terms ‘shock’ and ‘horror’ in the same headline. But the article does not disappoint and serves up satisfying portions of of both.

  • don

    So, the Greeks are telling the Germans, pay up or we all die, sucker. The Germans are telling the Americans we’re not doing this alone, sucker. So, what are the odds the Europeans get their fiscal cart behind the monetary horse in the land of windmills and spent chivalry? What’s the odds of the Americans, Canadians, and the Mexicans forming a more perfect fiscal union?

  • fenceboards

    Somehow the general population of these countries wanted the Utopia the elites promised as it was supposed to be free as in someone else will pay.The no better as it is going the same direction. The stuborn Germans are the pinata as the other members want to take them down with them.Misery loves company.

  • hacimo

    The silliness of the current bailout plans for countries like Greece and Spain is the idea that somehow Germany is so loaded that it can assume all the bad debts. I don’t think this is really possible since, below the surface, it is also quite weak. Germany simply cannot rescue Europe and would go under itself. Thus the only real way to unwind the situation in an orderly fashion is for the ECB print the needed money and to accept a massive inflation. Unfortunately at the moment the ECB has no legal power to do QE of this sort. Thus the law must be changed very fast or disorderly defaults become a certainty. I think the disorderly default is the likely scenario. The current price action suggests that the Bond market, the gold market and the Euro market all agree with me. Massive deflation and debt default is the verdict.

  • irrabit

    Anyone 15-20 yrs ago looking at demographic trends could see European implosion occurring this decade. EuroWastrels couldn’t be bothered to have kids, or to save, or to maintain basic industries. They ignored all lessons of history and now they pay the price.

  • Correspondents write about countries not being saved and the Greek political class itself claims that a failure to vote for what they want would mean “[Greece] will remain isolated for many years internationally. It will not have food, medicine, or fuel. It will live in a constant blackout.”

    What silliness.

    There have been so many cases of countries failing to repay their debts, devaluing heavily and going on to recover and prosper. Readers will be familiar with Argentina’s example (which they are throwing away), and France and Greece have repeatedly busted over the past century or so.

    Usually these claims are the basis for avoiding any consideration of alternatives which do not suit the speaker – such as leaving the Euro, leaving the EU and regaining democracy and accountable government.

  • I’m about to go to Spain in less than a week. Pray that nothing outrageous happens.

  • JGallen

    This is outrageous libel. You should seriously be sued.

  • Paulishus

    The socio economic challenges of the now generations will mean some form of chaos and anarchy. This is a generation that ha no prior reference point in time. They will refuse to starve. What will come first after the collapse of europe? Certainly the new immigrants to Europe will become scapegoats and targets of xenophobia and the rich will capitalise amd the poor will become “enslaved” prior to the revolution. Maybe tje mayans werent wrong. The world as we know it will end where rice not flour are the new staple!

  • They all have the same fundamental problem.Imagine it is only a matter of time till conflicts eventually breakout in Europe.The Dominoes effect would be crowling.

  • the same fundamental problem has rolling down not just in europe. Massive deflation and debt default is the verdict.

  • Those claiming that history proves default to be comparatively benign are ignoring the sheer scale of near-simultaneous regional, national and private financial sector default which would be involved in this case. There simply is no historical parallel, but the closest would be the Great Depression. The correct policy solution is to realize losses, print money to support depositors but not shareholders or bondholders, liquidate only what needs to be liquidated but all of that, take the hit and allow organic growth to resume (cf Iceland). This policy will not be followed.

  • NEF

    Why don’t the banks just print more money, they’ve been doing it since the beginning of time. No one’s fingering the banks, who ultimately are responsible for all this global mess. Their rabid obsession with control is going to bite them on the [behind] eventually.

  • Fernando

    whispers in the gallery, be calmed, everything is fine in Spain.

    People is getting the same salaries or similar as some years ago. Spaniards are fine and the country is OK. If you come here you will see the Crisis is so rude and cruel on TV, but not in real life. I guess if you see the TV talking about Spanish crisis you will imagine people sleeping in the streets or something like that hehehe, but is not like that. Is like Policemen are earning 2000€ instead earning 2200€, in example and people is unhappy, but just that.

    I must admit we have problems, since we have about 10.000.000 inmigrants, with no qualifications, with no future, not able to find a job cause even some of them doesnt speak spanish… And many companies are in bankrupt, that one that were not strong 5 years ago…

    People is fine here, is only the TV talking about Crisis all the day, … Ignore it. Press are enjoying this a lot.

    Just a spaniard with bad english.

  • Sefuela

    From Spain. Spanish average cost of debt is 4.07%. Not so bad. We can afford paying it, even with refinancing cost about one or even two points higher. Administration structure is really a mess. We voted for a racionalization of it. Should be done.

    Public banks have been madly managed, ok. Should we get our banks bankrupt because of valuation criteria thought in order to prevent banks going bankrupt? I hope someone thinks a little bit about this.

    Basilea III is a good measure, but not for this time.

  • Tom

    It’s time for Spain to return to the peseta and trade with their Latin American compatriots.

  • pep

    This article is missing most points. The Spanish state deserves to be where it is. For the last decades it has invested most of the resources in useless infrastructures such as the high speed train rail, that costed an average of 100k€/km. It has 7 times more high speed rails than Germany, which has around three times more demand of it(and something like 1.7 more population). Right now, the spanish state is the second country in the world in high speed train km, right after China. Many of this outrageously expensive rail lines are connecting towns with populations around 50k inhabitants. The result is in many of this lines with an average of 20 passengers a day. They had to close, and all the money(million €) wasted. On the other hand several newly built airports also had to close for the same reason. As an example, Germany has over 20 airports with international connections(these are the really expensive airports to maintain, not the intra-state ones), and most of them have positive balance. Well, in Spain there’s around 50 of them, and as in the railway case, they are located in ridicolously small towns with, no offense, no really big projection abroad. Some examples can show that some of these airports in the month of July ( supposed to be a high traffic summer month) proved to have more staff working at the airport that actual passengers. This is yet again millions of euros wasted.
    Some interesting projects to ‘refresh’ the economy in the Iberian peninsula have been proposed. But they have been put down repeatedly by the spanish government. In particular we can see examples of Barcelona airport not being able to fly to cities in US, and having to make a connection with cities like Zurich, Paris, and of course Madrid. There actually used to be a law resolution that did not allow Barcelona to fly to Us and countries alike. How can the economy grow like this?
    The author groups the basques and catalans together. Well there is a huge difference. Basques have always had a positive balance belonging to Spain, in practical terms they receive more money than they invest in the State. They just pay for Royalty and army. On the other hand catalans have been paying increasingly more and more, and receiving less and less. In the last years the infrastructure investment in catalonia(which is seen as one of the engines of the spanish state) dropped somewhere less than 50%, that’s a lot, if we take into account that other regions did not loose in investment. As a global catalans have a deficit around 10% cause of belonging to Spain. And their are still blamed for most of the things, and as can be interpreted from this article, are considered not solidaire with the state.
    Well, Catalonia together with other regions like Balearic Islands, and Valencian Country are the regions in all Europe that contribute more to the state they belong to. Also, many experts agree that around 60% of the debt of the State is not cause of the regions, but cause of the central state. Nevertheless, the resources have to be reduced in the regions(which translates to reducing healthcare and education), instead of being reduced in the state ( which would reduce not so socially impacting stuff such as army, and infrastructure).
    Some people say that the government in Spain is stupid, and they do not know how to do things properly. I think differently, I think they know what they are doing very well, the problem is that their agenda is not the one that everyone would think(getting the state out of this economic dwell), but building a nation (the spanish one) which does NOT exist by force if necessary. And of course doing political favours ( see all the amount of bank directors with political past).
    Also, Fernando, will all due respect, the situation is really screwed, of course the world keeps moving and something like 60% of the people is earning just a little bit less. But whole families have been moved out of their houses cause of mortgages, and MANY more people do sleep in the streets. So please let’s stay real.
    This article is unfair, and not documented, nice try.

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