Spain’s new(ish) Conservative prime minister appears to be hesitating over the next turn of the screw.
Writing in the Daily Telegraph, Ambrose Evans Pritchard reports:
There is near unanimity across the political spectrum that drastic pro-cyclical tightening at this stage is unwarranted and dangerous. Josep Borrell, ex-president of the European Parliament and the voice of Spain’s pro-European establishment, said such debt-deflation risks pushing the banking system over the edge. “To cut the deficit almost four points in one year would be a true depressionary shock for an anaemic economy, made worse by the requirement for banks to mark their real estate losses to market prices.”
“We have reached the point where `taxes kill taxation’. The therapy is turning fatal and is starting to take on a highly political tone. Sixty years after the end of the war, Germany is again coming to be seen as an overbearing enemy, and an atmosphere of hostility is building up in a Continent divided between a rich and flourishing North and a South in danger of being reduced to a protectorate. If we carry on like this we are going to destroy the European project,” he said.
‘Near-unanimity’ proves nothing in itself, of course, but (obviously) it shows where public opinion is going.
Never one to miss out on signs of discontent, Evans-Pritchard continues
The popular pressure gauge has been rising for months but the mass protests of the last two weeks have had a new and sharper edge — even if you disregard the outbreak of violent street clashes with police in Valencia, already dubbed the “Valencia Spring”.
And for those who see this drama as in terms of a simple morality play (an over-spending Spanish government) Evans-Pritchard throws in this twist:
The Spanish have good reason to feel maligned by North Europe’s self-serving narrative of the EMU crisis. They never violated the Maastricht debt rules. They ran a budget surplus of 2pc of GDP during the boom.
Private credit spiralled out of control in part because the European Central Bank missed its inflation target every month for almost nine years and gunned the eurozone M3 money supply at double the bank’s own target rate to help Germany, then in trouble.
Such a loose policy was toxic for an Iberian tiger economy, flooded with North European capital that it could not keep out under EU rules. Rates were minus 2pc in real terms for year after year, washing over the heroic efforts by the Bank of Spain to contain the damage.
I suspect over-spending by regional authorities considerably complicates the virtuous picture of Spanish government, but even so…