By Ambrose Evans-Pritchard
Last Updated: 6:29AM GMT 20 Jan 2009
Real interest rates of minus 2pc set by Frankfurt for German needs led to a Spanish property bubble of fearsome scale. Construction rose to 16pc of GDP, trumping the British and US bubble by large margins. Spanish companies tapped the euro capital markets as if there was tomorrow. Reliance on foreign borrowing reached 10pc of GDP, among the world's highest. Wages went up and up. The result is a current account deficit that is also 10pc of GDP.
Now what? A country with full control over all levers of economic policy can claw its way out of such a hole. Spain can do almost nothing.
A key reason why Standard & Poor's has stripped Spain of its AAA credit rating is that the country no longer sets its own interest rates and cannot devalue its currency to restore balance.
S&P did not say explicitly that EMU has become an instrument of debt-deflation torture for Spain. That would be breaking the great euro taboo. It insisted that EMU provides an anchor of stability. But that is pro-forma dressing. The sub-text is that Spain cannot recover until it breaks its chains.
Spain has to claw back 20pc to 30pc against a stern German that will not inflate. Therefore, Spain must deflate. It must embark on a 1930s policy of draconian wage cuts.
It remains to be seen whether this will be tolerated by a democracy. Brussels expects Spanish unemployment to reach 19pc – or 4.5m people – by late next year. This is a depression.
Workers are already rising up against the ruling socialists. An angry march by trade unions in Zaragoza on Sunday is the first shot across the bows.
As yet, no Spanish heavyweight has questioned the orthodoxy of EMU membership. That may change, as it is changing in Ireland. The euro system is starting to inflict very grave hardship on ordinary people. This is exactly what critics always feared. In the end, it will breed conflict.
Diferentes formas de estar en contacto con amigos y familiares. Descúbrelas. Descúbrelas.
No hay comentarios:
Publicar un comentario