To the extent that it was not already all too visible, it’s clear that one of the problems in Spain has been overspending by the country’s powerful regions (Spain is highly de-centralized). Open Europe’s Mats Persson looks at this issue in the Daily Telegraph, and what he sees is not pretty, but, as he points out, this particular aspect of the Spanish mess has a wider implication:
If Madrid cannot control spending in its regions, how in the world will Berlin, Frankfurt and Brussels be able to do so in Greece, Portugal, Italy and indeed Spain itself? If Spain’s governance model – based on a series of delicate compromises to reconcile different cultures and historical experiences – is so sensitive to any move in the direction of more centralisation, how easy will it be for the Eurozone to achieve fiscal federalism amongst 17 countries, with vastly different parliamentary and economic models, government structures, and cultural preferences?
These questions are no longer academic. Talk of collective borrowing in the single currency – via Eurobonds – are intensifying. If you sit in Berlin or Helsinki, such an arrangement can only work if subject to a brutally simple bargain: we give you our credit rating, if you give us control over your spending. As a very big microcosm of the Eurozone, the case of Spain shows just how difficult it’ll be to pull this bargain off.
Indeed it does.
Worth remembering too: This is a bargain that many German (and quite a few Finnish) voters do not want their governments to offer in the first place.
The finances of the euro zone may be being stretched to breaking point, but so is what’s left of its democracy.