Monday, April 18, 2011

Spain's turn to be the pinata

Hard to disagree with anything in this article by Tony Barber in the FT. The Eurozone bailouts allow Germany to pretend that it's all about the irresponsibility of those volatile Mediterranean types, who didn't make hay while the sun shone. The vulnerability of the Germans' own banks in all this is hidden from view, although it won't be for much longer if the markets ramp up the pressure on Spain, of which there are early signs already.

Spain is already heading towards bailout - nobody ever succeeds in staving off the vigilantes once they start to move. But moralistic Northern Europeans should remember the key thing about trade imbalances - that my deficit is your surplus. Sure, you can say that the Eurozone periphery was irresponsible in the mid-2000s - after all, wasn't it obvious that you needed to run a double-digit budget surplus just in case you couldn't sell all those new homes (irony warning)? But if Athens and Madrid were irresponsible, just how dumb were the staid bankers of Frankfurt to lend them the money?

Anyway, we'll see. It's just frustrating that anyone with access to a newspaper can see what's going to happen, if they care to look. Why do Spaniards, as well as the others, have to tighten their belts when it's all going to fall apart anyway? What long-term benefit is that going to bring? Or are we going to carry on pretending that a few hundred thousand extra unemployed will so impress the markets that they'll call off the chase? I guess the prospect of a €300 billion bailout is so unpalatable that policymakers simply hope that something magical will happen to make the Euro's problems disappear.

Fat chance.