New Spanish Finance Horrors Shock The World

[Valin]

Via Meadia:

 

Walter Russell Mead

5/26/12

 

It may be a holiday weekend in the United States and much of Europe (where the Monday after the feast of Pentecost is often celebrated as a holiday), but the world’s politicians, central bankers and financiers are too busy quaking in their boots to bask in the sun.

 

The problem is Spain, which dropped two stink bombs on the world. First, the cost of bailing out just one of Spain’s many doomstriken banks shot up from €4.5 billion ($5.6 billion) to €23.5 billion ($29.5 billion). This is money that Spain’s cash strapped government doesn’t really have; it is under orders from Brussels to reduce its budget deficits and has already slashed spending even as youth unemployment hits a Detroit-level 50 percent. This news isn’t just bad in itself; it means that the other zombie banks in Spain (and there are plenty of them) are going to be much, much more expensive to rescue than previously believed.

 

The other piece of bad news is potentially even worse. This came in the form of a statement of the president of Catalonia that his regional government is running out of money and needs a bail out of its own. Catalonia, a region in northeastern Spain which speaks its own language and hosts an independence movement, is as the FT notes bigger than Portugal in terms of GDP and accounts for one fifth of Spain’s economic activity.

 

Why has this piece of bad news terrified global elites? In the first place because it demonstrates that in addition to huge costs in bailing out its banking sector the insolvent Spanish central government is going to get hit with massive bills from not only Catalonia but its other regional governments. It is going to have to go to the financial markets hat in hand to borrow more money than expected — this is going to drive interest rates up in Spain (and probably in Italy and Belgium) just at the time when Europe’s financial markets were trembling on the brink of yet another panic. And it means that Spain is likely to come to the EU much sooner than expected with a much bigger bailout request than anybody thought.

 

(Snip)

 

 

European Chickens...Coming Home To Roost!

[Rokke]

But most of the idiots in Europe are not willing to accept that they are already toast. The world has raised an entire generation of people who have no concept of personal responsiblity. They truly believe there will always be someone to bail them out. On top of that, they believe they should be bailed out. Margaret Thatcher already explained that "The trouble with socialism is that eventually you run out of other people's money." Yet, arrogant Europeans, and clueless Americans have been trumpeting their wonderful socialist programs for the last three decades. I feel zero pity for any of them. I just hope that somehow America can avoid the same fate. Unfortunately, Obama is certainly trying to bury us in their same mass grave.

[Valin]

But most of the idiots in Europe are not willing to accept that they are already toast. The world has raised an entire generation of people who have no concept of personal responsiblity. They truly believe there will always be someone to bail them out. On top of that, they believe they should be bailed out. Margaret Thatcher already explained that "The trouble with socialism is that eventually you run out of other people's money." Yet, arrogant Europeans, and clueless Americans have been trumpeting their wonderful socialist programs for the last three decades. I feel zero pity for any of them. I just hope that somehow America can avoid the same fate. Unfortunately, Obama is certainly trying to bury us in their same mass grave.

 

 

Reality is rearing its ugly head.

[Valin]

Greek Contagion Spreads to Ireland

Walter Russel Mead

5/29/12

 

For the past month, contagion from Greece’s slow motion meltdown has been spreading west. Spain is now on the verge of collapse, and Italy and Portugal may not be far behind. Now the crisis may be spreading north as well. Despite recent signs of recovery in Ireland, concerns about a Greek euro exit and a possible Spanish bailout have hit the country hard over the past few weeks. According to Reuters, Dublin recently saw bond yields rise by nearly 60 basis points over two days. Short-term borrowing costs are beginning to rise again and appear likely to surpass costs on long-term deals. This has generally been taken as a sign that investors are skeptical about Ireland’s chances of weathering the current crisis, which will make it considerably more difficult for the government to reach its debt targets.

 

Ireland’s troubles should also be extremely worrying for the rest of Europe. Although much of the blame for Europe’s current troubles has been placed upon the “PIIGS”— countries with stagnant economies and high sovereign debt—Ireland has always been the odd man out in this group. In the 1990s, it was the success story of Europe: a small, formerly impoverished country that achieved enviable growth and prosperity through hard work and competitive, pro-business policies. Indeed, in many respects, Ireland’s pre-crisis policies were the polar opposite of those of the Club Med states.

 

This difference extends to their reactions to the 2008 crisis. Over the past few years, Ireland has become the “good kid” of the European crisis, adopting austerity measures and actually struggling back to some modest growth. While Greece continues to resist the changes demanded by its European creditors, Ireland has taken the opposite tack, immediately implementing nearly all of the changes analysts have suggested for troubled countries.

 

(Snip)

[Rokke]

Interesting. The guy I'm currently flying with has a girlfriend in Ireland. He spends a lot of time there. He says the country is obviously in dire financial straits. Crime is rampant and normal government services are minimal. Infrastructure maintenance and similar issues are lacking and the government has imposed ridiculous taxes to try to raise revenue. Anything over a 1.5 liter car requires a huge extra tax for example. Fun times.

[Valin]

European Divide Explained by Europeans

Walter Russell Mead

5/31/12

 

With Spain and Greece now nearing total economic collapse, Europe is in for another summer of high-profile meetings, diplomatic half-steps, and continuing tension between Germany and its Southern neighbors. Amid all the confusion, one question remains: How do Europeans feel about all this? A recent report from the Pew Global Attitudes Project attempts to answer that question. Among the findings:

 

 

 

(Snip)

 

Europeans think Germans are hardworking and Greeks are lazy; they like the EU, but are losing faith in the Eurozone. This explains why European policymakers are having so much trouble addressing the crisis.

[Valin]

Interesting. The guy I'm currently flying with has a girlfriend in Ireland. He spends a lot of time there. He says the country is obviously in dire financial straits. Crime is rampant and normal government services are minimal. Infrastructure maintenance and similar issues are lacking and the government has imposed ridiculous taxes to try to raise revenue. Anything over a 1.5 liter car requires a huge extra tax for example. Fun times.

 

What we are seeing IMO is the end of the top down bureaucratic state....it just doesn't work any more.

Well it never really did, but in the past it worked well enough, those days are soon to be a thing of the past. What will replace it? I have no idea...and neither does anyone else.