Wednesday, July 11, 2012

Another Helping, Bitte

Spain signs up for another plateful of Mrs. Merkel's famous crap sandwich. Hey, if austerity is killing us, we probably need more austerity. Matt Iglesias doesn't think this is likely to end well.

For all the fancy chart wars around European austerity, I don't see how anyone can seriously deny that this kind of action is going to further crimp Spain's economy. In all modern advanced economies—including major exporters like Germany—the majority of employment is in local service provision. A big reduction in Spanish citizens' purchasing power will devastate those sectors without doing much of anything to directly bolster net exports.

Interestingly Rajoy "did not touch pensions," seemingly a similar dynamic to what you see in the United States where GOP zeal for budget cuts is combined with promising to never reduce spending on the currently elderly.

Once nobody works and the only people getting money are pensioners, then what?

Somewhere I read that due to debt hierarchy arrangements, the terms of the money come with possibly dangerous consequences for investors and perhaps other depositors.