European Tribune - Community, Politics & Progress.

Spain Crisis Report

by Migeru
Thu May 27th, 2010 at 10:11:17 AM EST

Originally published on May 22

I read the news today, oh boy!

El Banco de España interviene Cajasur · ELPAÍS.com		The Bank of Spain puts Cajasur into receivership - ElPais.com
El consejo de administración de Cajasur ha optado por el suicidio. El consejo de administración de la caja fundada y controlada por la Iglesia católica ha rechazado la fusión con Unicaja (la primera caja andaluza) y ha preferido ser intervenida por el Banco de España. El organismo dirigido por Miguel Ángel Fernández Ordóñez decidió, a la 1,30 horas de esta madrugada, la sustitución de todo el consejo de administración por representantes del fondo de rescate (FROB). "Como consecuencia de los problemas de viabilidad y ante la imposibilidad de culminar la fusión con Unicaja", el Banco de España "garantiza que pueda seguir operando con normalidad". "Por tanto, los depositantes y acreedores pueden estar totalmente tranquilos", aseguró ayer de madrugada el supervisor bancario. "El sistema financiero español no va a ver afectada su solidez en absoluto por esta situación", afirmó el organismo que dirige Fernández Ordóñez.		The board of Cajasur has opted for suicide. The board of the Caja founded and controlled by the Catholic Church rejected its merger with Unicaja (the largest Andalusian Caja) and has preferred to be put into receivership by the Bank of Spain. The institution led by Miguel Ángel Fernández Ordóñez decided, at 1h30 this morning, the replacement of the entire board by representatives of the rescue fund (FROB). "As a consequence of its viability problems and faced with the impossibility of carrying through the merger with Unicaja", the Bank of Spain "guarantees that it can continue to operate normally". "Therefore, depositors and creditors can be completely calm", the banking supervisor asserted last night. "The Spanish financial system is not going to see its solidity at all affected by this situation", claimed the institution directd by Fernández Ordóñez.

Reportedly, Cajasur had losses of 114 million Euros last quarter and 596 million euros last year, so the Bank of Spain's claim that "creditors can be completely reassured" points to a bailout of at least 700 million Euros.

Promoted by DoDo

Meanwhile, on the fiscal austerity front...

Zapatero demora el impuesto de los ricos · ELPAÍS.com		Zapatero delays the tax on rich people - ElPais.com
Fue uno de los Consejos de Ministros más largos e intensos de la legislatura y de los que mayor expectación había generado a causa de la aprobación del decreto de recortes sociales a funcionarios y pensionistas para reducir el déficit en 15.750 millones en dos años. Sin embargo, a lo largo de la mañana se creó una nueva expectación cuando saltó la noticia de que el presidente del Gobierno, José Luis Rodríguez Zapatero iba a anunciar en el Consejo la aprobación de un nuevo impuesto para gravar a las rentas más altas.		It was one of the longest and most intense Councils of Ministers since the last elections and one of the ones that had raised most expectation because of the approval of the decree on social cuts to public servants and pensioners to reduce the deficit in €15.75bn over two years. However, through the morning a new expectation was created when the news arose that the Prime Minister, José Luis Rodríguez Zapatero, was going to announce in the Council the approval of a new tax on the highest earners.
...		...
El presidente del Gobierno aclaró que era "el más interesado" en tomar esa medida, pero que se "aplicaría en el momento oportuno", que "ahora no tocaba". Estableció como prioridad la reducción del gasto, seguida de la reforma laboral; la reforma de las cajas y, por último, la reforma fiscal, donde se encuadrará el nuevo "impuesto para los ricos". "No hay que diversificar esfuerzos sino concentrarse en cada tema en cada momento", dijo el presidente.		The Prime Minister clarified that he was "most interested" in taking this measure, but that it "would be applied at the right moment", which "wasn't now". He established as priority the spending cuts, followed by labour reform and, finally, fiscal reform, where the new "tax on the rich" will be framed. "We shouldn't diversify efforts but concentrate on each topic in its turn", said the Prime Minister.
Expuso, también, su filosofía de que no quería que le acusaran de "demagogo" por tratar de neutralizar una medida impopular como la congelación de las pensiones en 2011 y la reducción del sueldo de los funcionarios, con una simultánea subida de impuestos para "los más ricos".		He also espoused his philosophy that he didn't want to be accused of being a "demagogue" for trying to neutralise impopular measures such as freezing pensions until 2011 and cutting public servants' wages with a simultaneous tax raise for "the rich".

Words truly fail me. Please help in the comments.

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Spain Crisis Report | 19 comments (19 topical, 0 editorial, 0 hidden)

Re: Spain Crisis Report (4.00 / 9)

En la hora crucial · ELPAÍS.com

In the crucial hour - ElPais.com

In yesterday's editorial, El Pais first enthusiastically supports the shock doctrine:

Pero la especial gravedad de este momento político radica en la incapacidad de la oposición política y de los agentes económicos para entender la situación real de la economía española. Las finanzas públicas se enfrentan a un riesgo de impago si no se aplican con rapidez recortes drásticos en el gasto. Esta urgencia excluye la posibilidad de embarcarse en inacabables negociaciones sobre cuáles son los gastos que hay que recortar, las inversiones de las que hay que prescindir y los impuestos que hay que subir.

But the special gravity of the political moment lies in the inability of the political opposition and the economic agents to understand the real situation of the Spanish economy. The public finances risk a default if drastic spending cuts are not applied quickly. This urgency excludes the possibility of embarking in unending negotiations over which spending to cut, which investments to give up, and which taxes to raise.

Yep, we know the answer. Freeze pensions, cut public employees' wages and talk about removing benefits for the long-term unemployed. Give up infrastructure investment (and delay current projects by one year, which probably means spending on now half-finished work will become wasted) and do not tax the rich (or real estate).

And, if neoliberal shock doctrine were not enough, here's a helping of calling others economically clueless while espousing Hooverite fiscal tightening in a recession.

Resulta inquietante que políticos con experiencia rechacen consideraciones tan elementales como la prioridad agobiante de recortar gastos y se aferren a un puñado de votos o a las ventajas presupuestarias arrancadas en tiempos mejores. Los sindicatos repiten el argumento de que el ajuste castiga a "los más débiles" (cuando es evidente que "los más débiles" son los dos millones de parados causados por la crisis); y las comunidades autónomas, en un ejercicio de solidaridad inversa con las cuentas públicas, reclaman el cumplimiento estricto de las grandes obras, como si completar los trazados del AVE fuese una obligación superior a mantener la solvencia del Estado. Es evidente que los recortes en la inversión retrasarán la recuperación de la economía (los cálculos apuntan a un impacto en el crecimiento de cinco décimas el año que viene), pero la prioridad absoluta es evitar el colapso de la deuda pública.

It is worrying that experienced politicians reject such elementary considerations as the overwhelming priority of spending cuts and hold on to a handful of votes or budgetary advantages gained in better times. The Unions repeat the argument that this adjustment punishes "the weakest" (when it is evident that "the weakest" are the two million of [additional] unemployed caused by the crisis); and the Autonomous Communities [regional governments], in an exercise of inverse solidarity with the State finances, demand the strict fulfillment of big public works commitments, as if finishing the AVE tracks were a higher obligation than maintaining the solvency of the State. It is evident that investment cuts will delay the recovery of the economy (calculations point to 0.5% less growth next year), but the absolute priority is the collapse of public debt.

And this coming from what its critics used to call "the Social Democratic newspaper". Words, again, fail me.

By laying out pros and cons we risk inducing people to join the debate, and losing control of a process that only we fully understand. - Alan Greenspan

by Migeru (migeru at eurotrib dot com) on Sat May 22nd, 2010 at 04:07:01 AM EST

Re: Spain Crisis Report (4.00 / 5)

The only "explanation" I can come up with is that Zapatero is afraid of a flight of private capital if taxes for the rich are introduced now and that any (small) gain in tax revenue will be more than offset by the deflationary impact of a flight of private capital and an increase in state borrowing costs.

The only consolation I can offer you is that the absolute sums seem small in comparison to the size of the Spanish economy and a .5% reduction in GDP is tiny compared to the 9% of GDP equivalent which has been taken out of the Irish economy by the Irish Government here (and with the EU Commission threatening that more will be needed). Even the Caja bail-out is tiny by Irish standards with a small business bank like Anglo-Irish bank likely to cost taxpayers a cool 30 Billion for no particular public policy reason.

Given my impression that Zapatero is generally relatively progressive, my (most hopeful) conclusion would be that he thinks that a small symbolic retrenchment now will head of the need for a more dramatic retrenchment later even if at the cost of conceding some ground to neo-liberal shock doctrine ideology. The problem is that one bite rarely satisfies the blood suckers, and once you give them the taste of blood they keep coming back for more.

So it becomes a question of where does Zapatero think he is going to be able to draw the line. If this is it, and there is no further retrenchment/bail-out, then Spain could be getting off very lightly indeed. If the Eurozone as a whole can reverse this momentum through some variant of the Merkel Market Mayhem Mitigation Measures we could even see the EU leading the process of Global financial reform, although I don't see how this can be done without a Tobin Tax, and that isn't even included in Obama's signature Wall Street Reform and Consumer Protection Act of 2009

Being very optimistic for a moment, perhaps Zapatero can use this relatively minimal fiscal retrenchment to pivot onto some serious market reform measures...

Frank's Home Page and Diary Index

by Frank Schnittger (mail Frankschnittger at hot dotty communists) on Sat May 22nd, 2010 at 05:48:19 AM EST
[ Parent ]

Re: Spain Crisis Report (4.00 / 3)

I find the 0,5% GDP loss estimate laughable. It will be much more.

By laying out pros and cons we risk inducing people to join the debate, and losing control of a process that only we fully understand. - Alan Greenspan

by Migeru (migeru at eurotrib dot com) on Sat May 22nd, 2010 at 06:01:56 AM EST
[ Parent ]

Re: Spain Crisis Report (4.00 / 4)

The only "explanation" I can come up with is that Zapatero is afraid...

That he's afraid is clear from the claim that he said he didn't want to be seen as demagogical.

But there's another "explanation" that better fits the facts: Zapatero is clueless.

Germany has the upper hand now and they are strengthening the Growth and Stability (Suicide) Pact mechanisms to enforce fiscal austerity at the wrong time (the economy is not out of recession yet!). I don't care about Merkel's PR (naked short bans, schmans) while they continue to espouse faulty macroeconomic and monetary policy.

By laying out pros and cons we risk inducing people to join the debate, and losing control of a process that only we fully understand. - Alan Greenspan

by Migeru (migeru at eurotrib dot com) on Sat May 22nd, 2010 at 06:25:31 AM EST
[ Parent ]

Re: Spain Crisis Report (4.00 / 2)

Merkel bans naked shorts of banks on her own. Let Zapatero impose "emergency" capital controls on his own. But perhaps he is concerned that such action would be sabotaged by elements in his government. Now is a time when governments most desperately need leaders who understand what is happening with the economy and can explain it clearly to the people. I believe I stressed the importance of discrediting the current economic paradigm so as to enable intelligent response to economic crisis back in the summer of 2008.

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer at eurotrib.com) on Sat May 22nd, 2010 at 11:30:33 AM EST
[ Parent ]

Re: Spain Crisis Report (4.00 / 2)

Now is a time when governments most desperately need leaders who understand what is happening with the economy and can explain it clearly to the people.

Zapatero is not your man.

By laying out pros and cons we risk inducing people to join the debate, and losing control of a process that only we fully understand. - Alan Greenspan

by Migeru (migeru at eurotrib dot com) on Sat May 22nd, 2010 at 03:01:35 PM EST
[ Parent ]

Re: Spain Crisis Report (none / 1)

Guess "socialists" no longer do economics.

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer at eurotrib.com) on Sat May 22nd, 2010 at 03:48:43 PM EST
[ Parent ]

Re: Spain Crisis Report (none / 1)

Those that do, do neoclassical economics. But Zapatero is a lawyer.

By laying out pros and cons we risk inducing people to join the debate, and losing control of a process that only we fully understand. - Alan Greenspan

by Migeru (migeru at eurotrib dot com) on Sat May 22nd, 2010 at 06:45:13 PM EST
[ Parent ]

Re: Spain Crisis Report (none / 1)

Along with NuLab, etc. etc. But a Socialist with Neo-Classical Economics is an oxymoron.

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer at eurotrib.com) on Sat May 22nd, 2010 at 10:08:08 PM EST
[ Parent ]

Re: Spain Crisis Report (4.00 / 4)

A socialist with neo-classical economics is "serious", and a moron.

By laying out pros and cons we risk inducing people to join the debate, and losing control of a process that only we fully understand. - Alan Greenspan

by Migeru (migeru at eurotrib dot com) on Sun May 23rd, 2010 at 03:11:04 AM EST
[ Parent ]

Re: Spain Crisis Report (4.00 / 7)

'A socialist with neo-classical economics is a "serious", ~~and a~~ moron.' Fixed.

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer at eurotrib.com) on Sun May 23rd, 2010 at 09:16:26 AM EST
[ Parent ]

Re: Spain Crisis Report (4.00 / 3)

Damn, beat me to it.

Be nice to America. Or we'll bring democracy to your country.

by Drew J Jones (myfriends@thisispancakes.com) on Sun May 23rd, 2010 at 10:04:09 AM EST
[ Parent ]

Dont they read the FT? (4.00 / 8)

On the brink of a new age of rage
At the very least, the survival of a crisis demands ensuring that the fiscal pain is equitably distributed. In the France of 1789, the erstwhile nobility became regular citizens, ended their exemption from the land tax, made a show of abolishing their own privileges, turned in jewellery for the public treasury; while the clergy's immense estates were auctioned for La Nation. It is too much to expect a bonfire of the bling but in 2010 a pragmatic steward of the nation's economy needs to beware relying unduly on regressive indirect taxes, especially if levied to impress a bond market with which regular folk feel little connection. At the very least, any emergency budget needs to take stock of this raw sense of popular victimisation and deliver a convincing story about the sharing of burdens. To do otherwise is to guarantee that a bad situation gets very ugly, very fast.

(Other bits of that article are discussed on the FP now)

Wind power

by Jerome a Paris (etg@eurotrib.com) on Sat May 22nd, 2010 at 06:52:01 AM EST

Re: Dont they read the FT? (4.00 / 2)

By the way, do Zapatero's austerity measures also include something against students, like tuition fees? Back in 1995, when Hungary's Moustache of Reform executed the n-th shock therapy, the idea was that hurting students too will "deliver a convincing story about the sharing of burdens". Boy did that backfire on them...

*Traitor*, n.
A benighted individual who perceives an illusory distinction between serving his nation and abetting the criminals who govern it.

by DoDo on Sat May 22nd, 2010 at 07:51:15 AM EST
[ Parent ]

Re: Dont they read the FT? (none / 1)

I haven't heard anything in that direction.

But the university is as cash-strapped as the rest of the economy.

By laying out pros and cons we risk inducing people to join the debate, and losing control of a process that only we fully understand. - Alan Greenspan

by Migeru (migeru at eurotrib dot com) on Sun May 23rd, 2010 at 06:11:54 AM EST
[ Parent ]

Re: Spain Crisis Report (none / 1)

The rest of the Spanish banking sector, Santander et al, is still looking pretty solid, right?

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid (arvid.hallen at gmail.com) on Sat May 22nd, 2010 at 07:36:05 AM EST

Re: Spain Crisis Report (4.00 / 2)

We'll see what Euribor looks like tomorrow...

By laying out pros and cons we risk inducing people to join the debate, and losing control of a process that only we fully understand. - Alan Greenspan

by Migeru (migeru at eurotrib dot com) on Sun May 23rd, 2010 at 06:12:21 AM EST
[ Parent ]

Re: Spain Crisis Report (4.00 / 2)

Former ZP economic advisor Jordi Sevilla tweets:

buenos dias llevo dos años diciendole al Gobierno que lo está haciendo mal pero ahora creo que toca decirselo tambien a la oposicion: asi no
10:15 PM May 16th via web

morning I've been telling the government for two years it's doing it wrong but now it's time to tell the opposition: not like this

By laying out pros and cons we risk inducing people to join the debate, and losing control of a process that only we fully understand. - Alan Greenspan

by Migeru (migeru at eurotrib dot com) on Sun May 23rd, 2010 at 03:17:45 AM EST

Re: Spain Crisis Report (none / 0)

.. and the worst.. as I say in my post

http://avionesdecercanias.blogspot.com/2010/05/los-tertulianos-de-la-manana-dan-miedo.html

there is not even debate among economists in Spain...

It is incredible. An alternative universe.

A pleasure

I therefore claim to show, not how men think in myths, but how myths operate in men's minds without their being aware of the fact. Levi-Strauss, Claude

by kcurie on Mon May 24th, 2010 at 02:11:53 PM EST

Spain Crisis Report | 19 comments (19 topical, 0 editorial, 0 hidden)

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