Friday, November 18, 2011

End of the euro, Friday edition: too little, too late

Outgoing Spanish President José Luis Rodríguez Zapatero, whose ruling PSOE (Socialist Party) is on track to be crushed by the conservative, Christian-Democratic PP (People's Party) in elections this Sunday, will very likely be remembered as part of the group of leaders who destroyed the euro and wrecked the European Union.

I have respect for some of his actions, particularly his entirely sensible withdrawal from the Iraq War in 2004 just after he was elected on an antiwar program. Typical of social-democrats committed to neoliberal/Washington Consensus economics, he was liberal on social issues, legalizing same-sex marriage in Spain and putting restrictions on the official role of the Catholic Church, which is notoriously conservative/reactionary in Spain. He also seems to have been successful in convincing the Basque separatist group ETA into abandoning terrorism and "armed struggle" as political tools, and doing so without anything resembling the post-9/11 hysteria and contempt for citizens' rights that we have experienced in the US. He appointed Spain's first female defense minister and had numerous other female ministers in his cabinet, more than any previous Spanish government.

But once Spain started getting hammered by bond speculators, he embraced the austerity economics demanded by the EU and the International Monetary Fund (IMF), which hasn't been any more successful in easing Spain's debt burden and pressure from the markets than it has been in Ireland, Greece or Portugal. This was another hairy week for Spain in the bond markets, with their rates at around 7%, a destructively high level. (La intervención del Banco Central Europeo vuelve a salvar a España de la zona de alto riesgo El País 17.11.2011)

Now Zapatero is publicly arguing that what pretty much everyone knows has to happen if the euro is going to be saved as a currency, which is that the European Central Bank (ECB) has to start acting as the lender of last resort for eurozone sovereign debt, a normal central bank function. This is something that German Chancellor Angela "Odoacer" Merket adamantly opposes. (Zapatero exige al Consejo Europeo y al BCE una respuesta a los problemas del euro El País 17.11.2011; Spaniens Premier fleht Euro-Banker um Hilfe an Spiegel Online 17.11.2011)

For Zapatero, it's way too little, way too late. If he had acted like an real social-democrat and refused to knuckle under to EU demands for ruinous austerity economic policies and faced down Odoacer Angie and her partner in the destruction of the EU, France's Nicolas Sarkozy, that would have been a real contribution to Spain's economic health. And probably the best thing he could have done for the survival of a democratic European Union. As it is, he'll be lucky if his political party will be able to seriously contest a national election again before 2031 or so. In any case, he's a lame-duck Prime Minister and will probably go off to some cushy lobbyist or corporate figurehead job somewhere. His influence on EU politics is near zero at this point. So I'm not quite sure what the point was of making this last-minute plea for good sense in the eurozone.

What are the prospects for Spain after Sunday's election when the PP's Mariano Rajoy takes over as Prime Minister? Victor Mallet gives us a hint in Rajoy poised for 'Hail Mary' manoeuvre - Spanish election Financial Times 11/18/2011. short version: classic shock doctrine disaster capitalism:

José Ignacio Torreblanca, senior fellow of the European Council on Foreign Relations, the think-tank, says Mr Rajoy will execute a manoeuvre known in American football as a "Hail Mary"; essentially a last-minute long shot whose success in this case might convince Germany and the bond markets that Spain could avoid financial castastrophe. It would involve drastic cuts in public spending - perhaps as much as €30bn - so that Spain can fulfil its promise to cut its budget deficit to 4.4 per cent of gross domestic product next year, from a targeted 6 per cent of GDP this year that could reach 7 per cent or more by the time the numbers are in.

Mr Torreblanca likens this idea to the dramatic reform plan adopted by the previous conservative government of José María Aznar in 1996, when Spain declined to join Italy in an alliance of backsliders and showed such fiscal discipline that it quickly fulfilled the criteria to join the euro and duly impressed German sceptics.

But there is no guarantee that this kind of fiscal "shock and awe" can work in the current climate, when Spain and the eurozone are at risk of falling back into recession, the outgoing government of José Luis Rodríguez Zapatero, the Socialist prime minister, has already been trying to enforce one of the most ambitious deficit reduction plans in Europe, and investors already know that the PP is planning big reforms.

"In the past it worked well, because Europe was growing and there was a lot of confidence," says Mr Torreblanca. "The context now is completely different." [my emphasis]

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