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Selective sovereign default

by Migeru Sun Aug 21st, 2011 at 06:42:31 AM EST

ElPais.com in English: Regions' unpaid bills reach the 50-billion-euro mark (14/08/2011)

The total sum of bills unpaid by regional and local governments has hit the 50-billion-euro mark, five percent of GDP and four times more than two years ago, according to EL PAÍS' calculations.

...

The non-payments most affect construction companies working on public projects - which are owed a collective 15.05 billion euros, according to industry employers' organization Seopan - and freelancers - 14.983 billion - as well as the pharmaceutical, waste collection and cleaning industries, 5.450 billion and four billion and one billion, respectively.

...

Municipal administrations are those that delay the longest in handing out the checks, according to all the business leaders consulted by this newspaper. They take an average of 238 days to pay construction companies, for instance, more than three times what it takes a company to repay its loans to a bank (75 days), according to the Platform against Late Payments. Central government takes an average of 140 days to pay and the regions 155 days, says Seopan.


The Spanish version of this item started with the following shocker:

La escena se vivió el 19 de julio en la Consejería de Sanidad de una autonomía con gobierno del PP. "La caja está vacía, no hay dinero. Si queréis cobrar, acudid a los tribunales". La recomendación del número dos de un consejero a un grupo de proveedores no es un caso aislado.
The scene took place on 19 july at the Health Department of a PP-led regional government. "The till is empty, there's no cash. If you want to get paid, go to the courts". Le recommendation by the second-in-command of the Health Secretary to a group of providers is not an isolated case
Leaving aside ElPais' politically tendentious highlighting of the fact that it happened now under a newly elected PP government, the situation is dire enough to have resulted in a lockdown of pharmacies in Castilla La Mancha, because the Health Department doesn't pay the bills when patients fill their public health system prescriptions.

For scale, 50 billion euros is Moody's estimates of the amount needed to recapitalize the Spanish banking system, and what the Spanish government intends to save in 3 years with its austerity plan.

At the top, ElPais stated that 50 billion is 5% of the yearly GDP. Spain has about 60% public debt-to-GDP, so 5% is about twice Spain's interest payments (I don't know whether the 60% includes the debt of local and regional governments, but that should not be more than maybe 10-15% of GDP so the calculation doesn't change much).

A government telling its providers to "go to the courts if you want to get paid" is basically a default. Since Spain (or its regional or local governments) are not defaulting on their bonds, this is a selective sovereign default.

A sovereign nation enters "selective default" when it elects to delay repayment of some of its financial obligations while fully honoring others.

The idea is that eventually everyone gets paid somehow. It's just in a manner different than how it's set up now.

Austerity rules.

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Except that, in affairs monetary, Spain is not really sovereign. Had they their own sovereign currency they could just create the money to pay the pharmacies, as could the ECB, were it doing its job.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sun Aug 21st, 2011 at 08:54:28 AM EST
Quite: sovereign debt as in an entity with its own sovereign currency and the power to tax and sovereign debt as in an entity the power to tax alone are two distinct categories.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
by BruceMcF (agila61 at netscape dot net) on Sun Aug 21st, 2011 at 01:10:16 PM EST
[ Parent ]
In fact, the national government is forcing on the regional and local governments the same austerity and cuts that is being forced on it by the European authorities.

Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Sun Aug 21st, 2011 at 03:46:58 PM EST
[ Parent ]
I remember in 1993 my husband was one of executives in a "state" (but not government...they used to be government department for decades prior to going "state" preparing them for privatisation) company. They were in photogrammetric field / simply saying they made all kinds of maps (geographic information) for Defence ministry as well as commercial. Obviously government was a main client and in 1993 they wouldn't pay them for months and months. So at some point my husband had to go to see minister and ask for money at least to pay employees. People need to live. My husband (crazy man) was already paying our own private money to pay electricity bill for the company so that at least they can continue working .He came furious from that meeting with minister and told me: "Do you know what he just told me? He said: we do not have money! When government have money for the "culture" then we'll have money for you". And a culture was last on the list at the time. That was a breaking point for my husband and he told me: Send those applications for New Zealand visas...They were sitting somewhere at the desk for months...

Science without religion is lame, religion without science is blind...Albert Einstein
by vbo on Sun Aug 21st, 2011 at 10:42:49 AM EST
What's the over/under on the first IMF ECBuBa riot?

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sun Aug 21st, 2011 at 03:52:17 PM EST
After today's proposal of a constitutional debt brake by ZP, I say 12 months.

Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Tue Aug 23rd, 2011 at 11:14:33 AM EST
[ Parent ]
Then I'm betting "under."

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue Aug 23rd, 2011 at 11:42:15 AM EST
[ Parent ]
I started to watch Michael Badnarik's libertarian course on the US constitution. My impressions are worth a diary, but my schedule is terrible (and plus, something happened to my laptop or its screen).

Sovereignty comes up soon. The bottom line seems to be: we are back to medieval understanding. Back then only a royal figure was a sovereign, owning all the land and distributing privileges. The US independence brought the idea of sovereign citizen, or so libertarians interpret. Apparently, a citizen can be indeed so free as, for example, to drive a car without a driving license - but you have had paid in cash for the car and requested a special manufacturer paper, have to know a bunch of other fine points and have patience with ignorant patrols. And it's all fair game if most of population have no idea of what they can request - apparently too many sovereigns is still a too big hassle. Ultimately, between the lines: if you do not own property, do not have a rentier title or creditor claims, you are no sovereign. You are not really one of people referred to in the US constitution. Corporate persons might be, but not you. And the state is just as sovereign as the people privilege it to be.

These are apparently the sovereignty rules that our overlords are following.

Compare this to Michael Hudson's two articles on Russia's economic interests. Classical economists were seeking to free economy from rentier interest - and feudal rentiers could be largely identified with the state indeed.  The Keynesian economy allowed the state to be a somewhat monopolistic but benevolent rentier of key "toll booths" - with indeed good effects on common interest and economic development. (The socialist approach was similar, but with proletariat dictatorship and totalitarian management weights.)

Now the way to be wealthy (and thereby sovereign?) is to be a sort of rentier again.

by das monde on Mon Aug 22nd, 2011 at 12:39:53 AM EST
Actually, most European monarchies had a long, slow slog in becoming truly sovereign by the referenced libertarian description. Most of that sovereignty was acquired in association with war and/or conquest. One of the major fruits of Wm. of Normandy's conquest of England was that, compared to his peers in France and Germany, he had an unprecedented degree of control over his kingdom. This later gave England advantages in her struggle with France that partly offset the greater size and wealth of France in the Hundred Years War.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Tue Aug 23rd, 2011 at 12:07:07 PM EST
[ Parent ]
Not to use Korean historical melodrama as any precise historical source, but despite the tremendous license that the writers take, they do seem to put some effort into giving a period feel to their work ...

... and they give the impression that the same was true elsewhere ~ Kim Soo Ro (North American streaming license only) gives an over the top dramatization of the founding of the Gaya confederacy of kingdoms, and while much of the storyline is soap opera silly, the concessions made in the founding of the Gaya and Silla monarchies on the eastern side of the Korean peninsula to the existing clan chiefs seem quite credible.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Tue Aug 23rd, 2011 at 02:54:32 PM EST
[ Parent ]
Such concessions often formalize limits of power beyond which the central authority could not really hope to reach. The concession then serves as glue in that it gives the clan chiefs something in the existing order to defend.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Tue Aug 23rd, 2011 at 09:24:25 PM EST
[ Parent ]
But its not necessarily a stable system, since successful wars swing power to the monarch, and if unsuccessful wars swing power to powerful subjects, then you've got centralization of power in the hands of precisely those monarchs who are gaining territory.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
by BruceMcF (agila61 at netscape dot net) on Wed Aug 24th, 2011 at 03:46:35 AM EST
[ Parent ]
One of the protagonists of the Great Queen Soendeok remarks on that ~ blocked from becoming Queen by the Silla caste system, she gathers power via the nobility, and so with her as the power behind the throne, the wars of conquest cease ~ since pursuit of conquest would strengthen the King's hand and risk allowing him to cut his strings.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
by BruceMcF (agila61 at netscape dot net) on Wed Aug 24th, 2011 at 03:54:47 AM EST
[ Parent ]
Should be mention that Spain is going to establish crazy right-wing nut balanced budgets in its constitution?

This is craziness on top of nuttery with a cherry top of  right-wing wack/frack/whackery...

Is there any way to stop this madness?

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 Tue Aug 23rd, 2011 at 06:16:12 PM EST
Presumably there will be a referendum on this constitutional change. If so, vote it down.

If there is no referendum, then take to the streets and demand one.

If you lose the referendum, or the parliament of the street fail to procure one, then your countrymen have clearly decided to drink deeply from the koolaid, and you should seriously consider emigration. I hear that Bolivia has a sane and reasonably democratic government these days, and I think they speak Spanish.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue Aug 23rd, 2011 at 06:21:33 PM EST
[ Parent ]
Not if we can prevent it.

But, having been at the start of the shambolic gathering of concerned citizens at Puerta del Sol I think I'll go the "write your representative" route instead.

Economics is politics by other means

by Migeru (migeru at eurotrib dot com) on Tue Aug 23rd, 2011 at 06:24:39 PM EST
[ Parent ]
See this subthread by way of live blog...

Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Tue Aug 23rd, 2011 at 06:32:26 PM EST
[ Parent ]
ElPais.com: "No se puede asumir un muerto por desabastecimiento"
P. ¿Se llegará al desabastecimiento?

R. Las partes están tensando la cuerda hasta el límite, pero no creo que se llegue al desabastecimiento. Al final habrá una solución, como un crédito blando o algo similar. Porque ni las farmacias ni las autonomías están dispuestos a asumir que haya un muerto porque falte un medicamento.

P. ¿Cuál podría ser esa solución para el impago?

R. La queja no es tanto porque las Administraciones no paguen, sino porque no dicen cuándo van a pagar. Al final habrá un acuerdo en el que la comunidad dirá que paga tal día con una quita del 10% o algo así.

"One cannot accept a death for lack of supply"
P. Will it come to lack of supply?

R. The sides are taking their tug-of-war to the limit, but I don't think it will come to lack of supply. In the end there will be a solution, such as a soft loan or such. Because neither pharmacies nor regional governments are prepared to accept a death for lack of a medicine.

P. What could be that solution for the non-payment?

R. The complaint is not so much that the Administrations don't pay, but that they don't say when they're going to pay. In the end there will be an agreement that the regional government will say that they will pay on such-and-such day with a 10% haircut or something like that.



Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Thu Aug 25th, 2011 at 09:08:32 AM EST


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