EU Governance Train Wreck: Spanish Edition
Spanish unemployment just passed 27% and it just keeps on climbing. Its unemployment rate is now equal to Greece’s, and they are both still climbing.
Even if the ECB adopted appropriate measures tomorrow, it would take years for unemployment in these countries to normalise. Its just completely gratuitous and endless pain. A lot of commentators are phrasing this along the lines of “how much are Spanish electorates prepared to take”, but my own opinion is that it is more a case of “who are the spanish electorate going to blame?”. If they blame the ECB, then it is near certain that they will leave the Euro, but I do not have a high opinion of the public’s grasp of matters monetary. If they choose to blame the centre right governing parties who, though admittedly clueless, are largely rabbits caught in a trap, then we might be about to see the rise of extremism. Spain has a long and troubled (recent) history with both communism and fascism, and that must make Spain much more resilient to these pressures than most, but where is the electorate to go?
The Cyprus bailout makes it clearer, whatever the commission says, that Spain cannot expect large scale help. If the Germans were not prepared to bail out a state smaller than Catalan, they are unlikely to bail out the Eurozone’s fourth largest economy. If you want a quick snap shot on what the bailout means for the future prospects of the economy, its often a good guid to look at the stock markets in the periphery. Here is the IBEX:
It really is an impressive comment on EU governance, that last summer, after five years of crisis resolution, investors thought Spain’s future was bleaker than it did after a global financial crisis tipped the entire world into economic meltdown.
Spain’s future will continue to get bleaker until the ECB engages in appropriately accommodative policy. On the plus side, the ECB seems determined to turn the once in a lifetime buying opportunity post Lehman, into at least a twice in a lifetime opportunity. If you missed out last time, tuck some cash away and wait for the Eurozone to explode.