Saturday, May 26, 2012

Nobody Expects The Spanish Inquisition

Tim Worstall, writing in Forbes, sees Spain Circling the Drain. The problem isn't really contagion, he claims. It's really small regional banks, and the Spanish Regions, that got zapped by the property bubble.

All of which leads to an uncomfortable political truth. What’s happening in Spain is not contagion, therefore it is not a sufficient solution to provide a financial firewall through the ECB or some such. The place is going bust because of its own actions, not as a result of some infection from Greece. So a solution to the Greek problems, whichever way that works out, will not become a solution to Spain’s problems. And it’s very difficult from here in Europe to see anyone acknowledging that fact.

This is about 50% nonsense, the rest truth. It ignores the fact that all Spain's economic problems are greatly exacerbated by Euro austerity. It also ignores the fact that much of the money to inflate that property bubble came from Germany. Nonetheless, it seems increasingly possible that the Euro is already dead - it just doesn't know it yet.

It seems that nobody, in Spain or Germany, was inquisitive enough about the soundness of all those property loans. Where was that Spanish Inquisition when they really needed it?