NR Digital

Falling Bricks

by Kevin D. Williamson

The proverb that murdered the Spanish economy

Madrid — Just off the Plaza Mayor in the Spanish capital, there stands an abandoned Santander bank branch, shuttered, vandalized, and covered in graffiti. “Murderers!” is spray-painted on the edifice in foot-high, blood-red script. The Spanish are not shy about sharing their low opinion of bankers. Down the street is a smaller square upon which weathered Romanian whores hawk their services with the sort of dogged fervor usually associated with door-to-door evangelists. A flyer sternly warns against soliciting sex on the square, and it is supplemented by more graffiti commentary: “Here, only the banks are allowed to screw us.”

Greece was an appetizer, but Spain is Europe’s heaping helping of poison paella: Standard & Poor’s recently handed down another round of credit downgrades to the country’s biggest banks and to the government itself. Many of the banks are now well into junk territory, and the credit-rating firm Egan Jones, which is known to be a bit more skeptical of sovereign finances than the Big Three (it was the first to downgrade U.S. Treasury debt), already has consigned the Spanish government’s debt to junk-bond status. Borrowing costs are skyrocketing. Many forecasters believe that Spain is on the downward slope into the second half of a double-dip recession, and the quality of bank assets is deteriorating rapidly. The Spanish government does not have anything like sufficient resources to recapitalize the banks. Capital equivalent to a tenth of GDP fled the country in the last quarter alone.

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