CapitalistImperialistPig

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 increasi...

Spain has a problem. It imports more stuff than it exports and is having trouble paying its bills. Its wages and prices are too high for its productivity. Brussels prescribes austerity, which is supposed to force down wages and prices of Spanish production. Perhaps it eventually might,but in the meantime employment has collapsed - half of workers under twenty-five are unemployed - and the economy is collapsing. As Paul Krugman frequently tells us, wages and prices are sticky. If Spain had its own currency, it would devalue the peseta, and everyone would be poorer, but the economy would be far better off. The hazards of the Euro trap were correctly understood by many economist from the beginning, but they were ignored. Probably this is an example of the kind of self-delusion in human affairs that I have argued about in the past. The central tragedy is that the collapse of the economy leaves the country less and less able to pay. Can Europe afford to bail out Spain? Will it try? ...