Yves here. Somehow the title of Wolf’s post reminded me of The Persecution and Assassination of Jean-Paul Marat as Performed by the Inmates of the Asylum of Charenton Under the Direction of the Marquis de Sade, but I suspect the Spanish aren’t there quite yet.
By Wolf Richter, San Francisco based executive, entrepreneur, start up specialist, and author, with extensive international work experience. Cross posted from Testosterone Pit.
Spanish Prime Minister Mariano Rajoy has a singular problem for a governing politician: 84% of all voters have “little” or “no” confidence in him. Even 62% of the supporters of his own conservative People’s Party (PP) distrust him. The fate of Alfredo Perez Rubalcaba, leader of the opposition Spanish Socialist Workers’ Party (PSOE), is even worse: 90% of all voters distrust him, as do 77% of the supporters of his own party! Those are the two top figures of the two major political parties, and the utterly frustrated and disillusioned Spaniards are defenestrating them both.
It has been a short honeymoon for Rajoy, who came to power on December 21, 2011. During the campaign, he lambasted the governing socialists for their mismanagement of the economy and tarred them with the catastrophic unemployment situation. He, the moderate, would be able to do better, improve the image of Spain with its international creditors, slash expenditures, and wrestle the ballooning deficit down to 4.4% of GDP by the end of 2012, a smidgen below the number Spain had committed to in 2010, and way below the 6% that had been forecast for 2011. The cuts would continue into 2013 to force the deficit down to 3%—the upper limit imposed on the European Union, theoretically, by treaty. The world was in awe.
He remained vague about the details, however. Not a word about the favorite social programs that would have to be gutted, or about the onerous tax increases that would have to be inflicted on the citizenry in order to get to these numbers. Instead, he talked about efficiencies and other platitudes. But tax collections kept diving, the economy kept getting worse, and unemployment kept rising, and even during the campaign, rumors surfaced that the deficit for 2011 wouldn’t be 6%, but 7%, and some evil tongues even said 8%. People gasped. Such levels would require that future cuts would be much deeper than those that had sunk socialist Prime Minister José Luis Rodríguez Zapatero. Nevertheless, to win the election, Rajoy remained vague about the spending cuts—instead of going for a mandate.
It worked. The PP won 186 of the 350 seats in the lower house of Parliament, a resounding majority (by Spanish measures). And the new Council of Ministers took only nine days to come up with its first austerity plan of cuts and new revenues.
Alas, none of the numbers thrown around during the campaign were based on reality. The actual deficit for 2011 wasn’t 6% as forecast, or 7% as feared, or even 8% as the evil tongues had predicted, but 9%! Well, 8.96%. And Rajoy’s promise of 4.4% for 2012 was revised to 6.3%. But the actual deficit, said Bank of Spain Governor Luis Maria Linde last week, will likely blow past that as well—hence more cuts.
And so the Spaniards vented their frustrations. If an election were held today, Rajoy’s People Party, which had so handily won the election, would obtain 29.9% of the vote, a 16.5-point plunge from its January peak of 46.4%. And the PSOE would only garner 23.9% of the vote, 4.8 points below the historic low of 28.7% of last November. Never before had the combined vote of the two major parties been so low (53.8%). It’s the punishment, ineffectual as it may be, of the political class by the people.
Disillusioned and disappointed, they have taken to the streets with near daily waves of protests, demonstrations, and occasional street battles. Ignore them, Rajoy told a business audience in New York, and instead count on the “silent majority.” Turns out, that silent majority must be rather smallish as 77% of the people support the protesters.
The challenges are huge—even if there is political consensus on how to tackle them. Banks and some of the Autonomous Regions, which are teetering on the brink of financial collapse, need to be bailed out by a central government that also needs to be bailed out. With unemployment of nearly 25% and youth unemployment of over 50%, desperate Spaniards and foreigners alike are leaving the country, taking their skills, knowledge, experience, and purchasing power with them. The political system is in turmoil. And the autonomous region of Catalonia is threatening to secede.
“Poverty is returning to Europe,” said Jan Zijderveld, head of Unilever’s European operations. The third largest consumer products company in the world was adjusting its commercial strategy to this new reality, he said, by redeploying to Europe what worked in poor countries of the developing world. Other stars of the industry affirmed it. “The logic of pauperization,” L’Oréal CEO Jean-Paul Agon called it. Read…. The “Pauperization of Europe.”
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It is really too late to apply bandages to the Spanish economic corpse. Earlier, the Spanish treasury could have issued fiat- or greenback euros and started retiring some of the country’s massive debts. It could have initiated a lending moratorium and a forensic audit of the debt (to determine what is odious and can be repudiated). It could have announced plans to cut energy consumption/waste in half and equalize the cost of human labor to machine labor (the machines have a massive subsidy in the form of cheap machine-food).
None of this was done, it would be too painful … to the automobile industry which has become the axle around which the entire European enterprise revolves … just like America.
To keep the cars the entire country must be thrown down the rat hole; the pensioners abandoned, the young peoples’ futures sacrificed along with what little capital remains … so a few greedy fools in Berlin, Frankfort and Paris can stay rich a little while longer … So that stupid, fat, lazy, maddened Europeans can drive a little while longer.
What is underway in Europe is conservation by other means, it is the outcome of the total extinguishment if capital over the past 100 years … with nothing gained by it. The medievals left behind some nice buildings, the Europeans have nothing for all the waste but smog and some used cars.
Europe is in the process of becoming car-free the hard way … the ugly process is just getting started. Guess what? It cannot be stopped, it is simply too late. Because the process has an undesireable consequence the managers refuse to take any needed steps … save the people and jettison the cars.
Instead, the people are hurled into the abyss to save the cars … and the cars go anyway.
Politicians cite polls to prove they are doing the right thing when the polls favor them, and say they are there to lead and not win popularity tests when they do not.
It won’t be much of a punishment until the Spanish people throw out their current corrupt political classes and start electing people who will fight for them, their needs, and their hopes. Otherwise they will just end up with a choice like ours between Robama and Obomney, the choice between being screwed over by someone with a D or an R after their name.
Incredibly, now that the ESM has been inaugurated, Spain owes the ESM a €3.8 billion euro installment of paid-in capital, due on October 23rd. See pages 2, 7 and 9 of this official document:
http://www.esm.europa.eu/pdf/ESM%20Investor%20Presentation2.pdf
What’s another €3.8 billion outflow gonna do to Spain’s deficit? Roughly, it’s 0.2 percent of Spain’s GDP. Just another mosquito bite, if not for the leetle problem of a cash flow crunch during October.
Evidently, we might have to destroy Spain in order to save it. Lo siento, muchach@s.
The real question is whether Spanish democracy will survive through the 2015 elections. If it *does*, there will be an *entirely* new government in Spain at that time, from a party which did not exist in 2011 — a solidly left-wing party akin to Atlee’s Labour in the post-war UK.
If Spanish democracy does *not* survive into 2015, there will be a bloody revolution.
Either way, the current elites’ days are numbered.
Although it is undeniable that there is a majority that we clearly oppose the mindless austerity measures and increasing inequality I am not seeing apocalysis here in Spain. No revolution, sorry. The IMF said today that 200 points of the spread between Spain/ Italy and German bonds is due to the euro crisis and not reflecting fundamentals. That is infuriating and that can actually cause a revolution of sorts. If we cannot finance ourselves there is no credit and this will be a long and stupid death in the pursuit of idiotic nominal deficit targets. Before that we will all raise and kick the idiotic currency union out of the way. Spain is like the canary in the cage so pary that we keep calm.
At this point of utter rejection of the goverment’s austerity policies by the populace, Spain has become the ideal candidate for simply abandoning them – by fully taking advantage of the possibilities provided by TARGET2, the eurozone payments system.
Spain’s government could simply instruct a government-owned financial institution to provide it with loans – placing government bonds as assets on the balance of that government-owned commercial bank. Then transfer the corresponding deposit to pay up a maturing bond held in, say, Germany by a German commercial bank. Then, at the end of the day, the creditor would be satisfied with full payment at maturity; and the debt would show up as a debit of the Banco de Espana and a credit on the balance of the Bundesbank. All this as a result of the automatic mechanisms of TARGET2.
If the Spanish government decided to repeat this operation every time a bond matures abroad that would mean for all purposes that the country had recaptured its monetary sovereignty without leaving the euro. This process would effectively terminate Spain’s dependence on financial markets to rollover its debt held abroad. And free up resources to keep deficit-spend and stimulate – instead of depressing it via austerity – a battered economy.
There is nothing that Germany or the ECB would be able to do about this except perhaps for trying to expel Spain from the eurozone. But that would not be legally allowed because the treaties do not provide an expulsion clause: the euro is supposed to last forever.
It’s up to the Spanish government to start using the eurozone’s own rules for their benefit. Spain can eschew austerity while sticking to the euro and all its commitments. TARGET2 allows the country that much leeway. Only ignorance of the mechanisms of the eurozone payments systems and/or hesitation about facing up to the EU’s bullying tactics are preventing Spain from escaping her current and quite needless predicament.
Jose, don’t the Eurozone programs have a payout limit? I had thought that Spain was blocked from issuing any shared bonds by the size of their need and that, as with Greece, the Euro methods would be a heavy drop in the bucket.
It would not be shared bonds but Spanish government bonds, sold to a government-owned commercial bank.
And in TARGET2 there are no limits on the amounts – nor repayment obligation – for debts on the balance sheets of the National Central Banks (NCBs) of the eurozone.
What I’m arguing is that this mechanism provides Spain with an opportunity to escape austerity policies that she has undertaken to try to please both the financial markets and the EU institutions – and that are destroying the economy.
An escape to be implemented without straying from the rules of the eurozone/TARGET2.
Neat and doable – now.
No it wouldn’t, as the ECB (through the ESCB) has complete discretion on who has access to refinancing, what collateral is accepted and what the haircut will be. Therefore the “government-owned commercial bank” operations can be brought down by Frankfurt diktat.
If things get too hot, the ECB can give a little more leeway by authorizing the local central bank to give Emergency Liquidity Assistance, with the difference that the potential loss is not shared by all ESCB members but by the local central bank itself. However, it is for a limited amount and the ECB has also to agree from it. This is a situation in Greece.
Real monetary freedom would indeed require to stray from the rules, and for the BOS to just do ELA for the amount that it likes, daring the ECB to cut off Spain from Target2. It is a risky strategy though, this is exactly like that that the rouble zone disintegrated in the 90’s !
The ECB can’t cut off Spain from TARGET2. That would be an illegal move, in defiance of the EU treaties (see my comment below in the thread).
So the strategy wouldn’t be risky for Spain, after all.
The ECB can strengthen collateral requirements such that Spain is cut off.
Otherwise, Jose is correct.
Of course, if the ECB allowed Spain to continue expanding Target2, against German banks, it would constitute a blatant transgression of the legal contract between the ECB and the German voter.
In other words, the ECB would be violating German sovereignty.
But since the endgame is a United States of Europe, without democratic representation, with a “small group of farsighted statesmen” dictating policy from their perch in Brussels, I’m not sure that Draghi cares about democracy.
In fact, no one supporting the EZ can honestly say that they care about democracy.
To Jim. Jose is not right. He claims that Spain, Greece, etc, may just _will_ themselves out of their finantial troubles via TARGET2, in an automatic way and no one can stop them, if they just had the balls to do it. That’s silly. As a matter of fact, they cann’t, because the ECB stands in the way.
You have been proved wrong earlier. Don’t be stubborn.
http://www.nakedcapitalism.com/2012/09/mirabile-dictu-bloomberg-finally-notices-deposit-flight-a-major-threat-to-the-eurozone.html#comment-821592
to
http://www.nakedcapitalism.com/2012/09/mirabile-dictu-bloomberg-finally-notices-deposit-flight-a-major-threat-to-the-eurozone.html#comment-822570
Well, sorry to tell you but in our discussions no one ever “proves” anything. “Proving” is for seminars in Theology not Social Science or Politics.
Anyway, just for the sake of argument let me point you to the following quote from a paper on TARGET2 by John Whittaker.
“(The ECB) could make it hard for the BoG (Bank of Greece) to refinance its banks, by ruling that Greek government debt is no longer eligible as collateral. But then the BoG could extend its use of Emergency Liquidity Assistance (ELA) which is not subject to ECB collateral rules”.
And in fact both Greece and Ireland have been massively using ELA – for a long time now. What shouldn’t Spain use it as well?
But even if the ECB decided to finish off the ELA for Greece or any other member then – again according to Whittaker:
“If the ECB did prohibit ELA, depriving the BoG of any approved means of lending to its banks, the BoG would have no option other than to defy the ECB and continue to lend anyway, given the consequence of not doing do: the closure of its banks for the want of liquidity”.
So it seems financing of deficits via Target2 is indeed possible, even in the unlikely case that ECB tried to block it.
It follows that Eurozone governments are condemned to keep financing Spain or any other member in the system. If they tried to restrict the access of the Banco de Espana to the eurosystem that would impede the clearance of payments out of Spain thus effectively forcing Spain out of the euro.
But this would be a totally illegal move since the European treaties don’t have an expulsion clause. The euro was set up with the purpose of lasting forever.
So it all hinges on a political decision. If Spain decided to finance its deficits via a government-controlled commercial bank the ECB could not stop it.
You know if you swap out the word Spain for U.S. in this quote:
“He, the moderate, would be able to do better, improve the image of [The U.S.] with its international creditors, slash expenditures, and wrestle the ballooning deficit down to 4.4% of GDP by the end of 2012, a smidgen below the number [The U.S.] had committed to in 2010, and way below the 6% that had been forecast for 2011. The cuts would continue into 2013 to force the deficit down to 3%—the upper limit imposed on the [Simpson Bowles Commission], theoretically, by treaty. The world was in awe.
He remained vague about the details, however. Not a word about the favorite social programs that would have to be gutted, or about the onerous tax increases that would have to be inflicted on the citizenry in order to get to these numbers. Instead, he talked about efficiencies and other platitudes.”
It feels oddly familiar.
Familiar, indeed.
Spanish politicians are at best mediocre and at worst corrupt, and often they are both. But hey, the Spaniards voted them right? And have been voting them for many years now.
The current leader in particular, is intellectually challenged, inarticulate and insecure, his ascent to power managed by (1) inheriting the position in the party from the cunning and corrupt previous PP leader (whom once joked saying sorry but I got nothing better than this fella to leave you with) and (2) doing nothing while his socialist predecessor -an almost equally intellectually challenged pompous careerist- at the top of the State hierarchy decomposed himself and finally burst in silence like a rotten tomato.
We are talking here about the kind of people the State system selects for gentlemen and ladies, the State machinery attracts these ‘non-performing assets’ like shit attracts flies.
The current leader in particular, is intellectually challenged, inarticulate and insecure, his ascent to power managed by (1) inheriting the position in the party from the cunning and corrupt previous PP leader (whom once joked saying sorry but I got nothing better than this fella to leave you with) and (2) doing nothing while his socialist predecessor -an almost equally intellectually challenged pompous careerist- at the top of the State hierarchy decomposed himself and finally burst in silence like a rotten tomato.
This is the best comment I have read here in a long, long time. Possibly ever.
Randolph Bourne once quipped that ‘war is the health of the state,’ implying that only through military aggression could economically fractured societies discover a kind of grotesque unity. Never mind the casualties.
Well, it looks like austerity is the ‘health’ of the political class and its corporate paymasters: The social contract consigned to the bonfire, organised labour destroyed, wages slashed, banks bailed out, the military on the streets and the rich getting a lot richer. What’s not to like for politicians? If the crisis didn’t exist it would be necessary to invent it.
And so we move towards the inevitable denouement. Bourne’s prophetic words will soon be fulfilled, because when social conflict reaches a critical level there’s always another glorious war for civilization on the horizon.
Ignore them, Rajoy told a business audience in New York, and instead count on the “silent majority.” Turns out, that silent majority must be rather smallish as 77% of the people support the protesters.
But we know what he means. The 23% who support Rajoy probably own most of Spain. They might not be a majority in terms of the number of heads of human meat on the hoof, but they are a majority of capital.
Well, good thing Spain is a democracy, like the USA!
The US if a FAR superior model to that of the EZ.
At least the US has democracy. The US has its monetary and fiscal sovereignty.
What does Spain have? Spain has the same debt/deficit profile as the UK. Compare how much the UK pays for 10-year paper vs Spain.
Frankly, thanks to the EZ, the 17-member states are sinking into irrelevance.
Jim, could the word “if” in your first sentence be a Freudian slip? (Just kidding, I know it was only a typo.)
“At least the US has democracy.” ????
“The US has its monetary and fiscal sovereignty.” Well, the private banking system enjoys monetary and fiscal sovereignty, anyway. Let’s see if they’re willing to share it with, oh, let’s just say, the other 99% of US. Probably not without a pretty big fight, I’m thinking.
after reading this and contemplating a Romney election I am reminded of the immortal words of the Yogi
“Seems like deja vu all over again”
Too bad the ECB doesn’t abide by this other legendary Yogism:
“They’ll even give you cash, which is as good as money.”
There’s more hope for Spain because they have an example of revolution that’s not quite gone from living memory.
Nobody expects the Spanish Defenestration!
NO PASARAN
Delivered on 19 July 1936.
Workers! Farmers! Anti-fascists! Spanish Patriots! Confronted with the fascist military uprising, all must rise to their feet, to defend the Republic, to defend the people’s freedoms as well as their achievements towards democracy! Through the statements by the government and the Popular Front (parties), the people understand the graveness of the moment. In Morroco, as well as in the Canary Islands, the workers are battling, united with the forces still loyal to the Republic, against the uprising militants and fascists. Under the battlecry ‘Fascism shall not pass; the hangmen of October shall not pass!’ workers and farmers from all Spanish provinces are joining in the struggle against the enemies of the Republic that have arisen in arms. Communists, Socialists, Anarchists, and Republican Democrats, soldiers and (other) forces remaining loyal to the Republic combined have inflicted the first defeats upon the fascist foe, who drag through the mud the very same honourable military tradition that they have boasted to possess so many times. The whole country cringes in indignation at these heartless barbarians that would hurl our democratic Spain back down into an abyss of terror and death. However, THEY SHALL NOT PASS! For all of Spain presents itself for battle. In Madrid, the people are out in the streets in support of the Government and encouraging its decision and fighting spirit so that it shall reach its conclusion in the smashing of the militant and fascist insurrection.
Young men, prepare for combat! Women, heroic women of the people! Recall the heroism of the women of Asturias of 1934 and struggle alongside the men in order to defend the lives and freedom of your sons, overshadowed by the fascist menace! Soldiers, sons of the nation! Stay true to the Republican State and fight side by side with the workers, with the forces of the Popular Front, with your parents, your siblings and comrades! Fight for the Spain of February the 16th, fight for the Republic and help them to victory! Workers of all stripes! The government supplies us with arms that we may save Spain and its people from the horror and shame that a victory for the bloody hangmen of October would mean. Let no one hesitate! All stand ready for action. All workers, all antifascists must now look upon each other as brothers in arms. Peoples of Catalonia, Basque Country, and Galicia! All Spaniards! Defend our democratic Republic and consolidate the victory achieved by our people on the 16th of February.
The Communist Party calls you to arms. We especially call upon you, workers, farmers, intellectuals to assume your positions in the fight to finally smash the enemies of the Republic and of the popular liberties. Long live the Popular Front! Long live the union of all anti-fascists! Long live the Republic of the people! The Fascists shall not pass! THEY SHALL NOT PASS!
Then everything is going to plan. Once Soviet totalitarianism was felled by the inevitability of liberal democracies embracing free markets, Western elites determined to destroy their own democracies as well. Why, you ask incredulously? The wealthy may be many things, but practitioners in and believers of democracy and equality, hell no. And, there is quite a lot of money on the table. Ending social democratic programs and converting tax revenues to interest payments works quite well. And the rabble? Let them eat tapas.
In the US, this little equation is counterbalanced by another one:
72 million people live paycheck to paycheck and there are 305 million guns.
The math is simple to understand, even for obtuse minds within the 0.001%
Sorry Francois T… But when the adrenal gland – pops – the accuracy goes out the window, if there was any to begin with in the beginning, for the common shooter, gun owner.
skippy… Bravado is what gun ownership is, a pacifier of instilled fear, cortex injected, manufactured desire… Its kinda like golf… only 1% of the top 6% are really any good… constant in the pro tour. See the rebels in Syria. Their more apt to kill each other than the enemy and not for want.
PS. what a sight it would be… folks killing each other blind… the view from orbit would tantalize… just as the hills of old… gave the betters… of the day… a panorama. Hillary can testify!!!