Spain’s bail-out


Why the rescue plan for Spain is not enough

See article

Readers' comments



For once, I actually agree with the Economist.

I think, above all, that both the Spanish government and the EU institutions (as well as other eurozone leaders) should have explained the conditions of the bail-out better. They excuse themselves with the fact that this was decided by video-conference and therefore the details of the rescue package could not have been thouroughly debated, and were postponed(?).

I am not one to criticise Spain in public, as I strongly believe in the 'good neighbour' policy, and Spain is the country of 'nuestros hermanos' but here goes nothing.

I think the Spanish government acted late in explaining both to its citizens and to the World what was indeed happening. There was a press conference held by the Finance Minister which pretty much resembled the one given by ex-Portugal PM Socrates, which was widely criticised abroad, then. Rajoy was late in his explanation, and even secretive.

And where were France, Germany, Italy? The French president went to Italy and didn't even mention the subject. Merkel gave a speech in the Bundestag only today (but we're used to her taking her time). Monti should have said something too.

Where were Barroso, Von Rompuy, Rehn??? They gave long press conferences when the bailouts of G, P, and I took place.

Perhaps they've got some kind of strategy going on, and I certainly hope they do. (I think they do)

There is a noteworthy fact, which is that the ECB hasn't shored up any government debt for months now. The programme could be reactivated soon to bring yields down. Never forget that the ECB has actually got a bazooka, but it chooses to use it in a different way, at least in comparison with what they're doing in Britain and the US.

Again, I disagree with the notion of solvency used here and elsewhere. If a nation is insolvent because it's shut from the markets, due to high yields in the secondary debt market, then I would be forced to say that all nations in Europe and North America are insolvent.

The Spanish are at their wit's end as I don't think they expected this whole thing to explode just now. But the whole thing has been quite secretive. I suppose most people 'in the know' knew (we all did, now, didn't we?) that Bankia et al were heavily undercapitalised and would need an injection of money.

I also think this was timed. Why they chose to do it before the upcoming Greek elections is something that I can't understand. It was obvious yields would go up.

Perhaps Europe is just buying time.

But even if I agree with the Economist, I also agree with Merkel. Germany's resources aren't infinite, and some kind of compromise must be found or we may be losing one of the only REAL safe havens Europe's got at the moment (forget Britain, the Netherlands, et al, they're all broke) - there are others - but you have to figure out for yourself which ones.

What is more worrying isn't the Spanish rescue, but the reactions we read here and there.

We can feel the petty nationalism rising. This is what would, in fact, be able to rip Europe apart.

The rest is just useless fiat money.

MilovanDjilas in reply to Super-pedrolx2

You are right about this - but I think EU leaders were hoping we would NOT have headed back into a recession this year - and that therefore cleaning up the Spanish bank mess would have got easier and not harder. Plus there are a number of large healthy banks in Spain - so why couldn't their financial sector sort out the problems among themselves?
And then there's the fact that everybody is too busy worrying about their own problems to attend to those of others'. That's a leadership problem common to all EU countries these days (and not only) but it's still more Germany's fault than that of others, since as the largest economy they are setting the tone for the response to the crisis.
That is another reason why I have advocated a bit of gifted money to Greece, Portugal and Ireland: it's time we start paying attention to others' problem and make a contribution - to help ourselves. (Sorry, I am a card-carrying Socialist).


A week ago The Economist wrote an article where this magazine (and its readers) said that Greece shouldn't do the same that Argentina did in the past. I wrote this:

I'll try to explain my point showing what I think answering a questionnaire.

Was Argentina an rich country? Yes, it happened a century ago.

Is Argentina a rich country today? No, it isn't

Is it fault of this Government? No, it happened a lot of decades ago, but the worst situation was between 1998 and 2003.

What did in that time happen? Argentina had its currency pegged to the dollar, deficit, recession economic year by year, so IMF imposed an austerity plan.

What happend then? In Argentina had a social and economic explosion, unemployment rate rose to 25% and debt to GDP ratio rose to 175%.

What did IMF do? They Let Argentina alone.

What did the Media say about this in those years? Firstly supported austerity plan, next said it was Argentinean people fault.

What happend next? A new Government won in 2003, and it change the way to see economic crisis. Austerity plan died.

How is Argentina situation today? At the end of 2011, unemployment rate was 8% and debt to GDP ratio was 39%.

Do you think today the situation is better than 2002? Yes, much better, because in these 8-9 years to Governments solved two main problems, unemployment and debt.

Again. Is Argentina a rich country? No, is a middle income country. But its income is the highest in Latin America.

Was it the highest 4 years ago? No

Are Argentina a good quality of life? Yes, UN said in its IDH that Argentina is a country with very high quality of life and it is the only country en LA (and Chile) with that level (the same level of West Europe, Japan, Australia and the USA.

A few years ago had Argentina very high level? No.

So, can we say that IMF's plan failed and next plan was succesful? Yes, there is no doubt.

But Argentina has got high inflation. Yes.

And is it a very bad thing? Yes, it is bad, but the worst social situation in Argentina was when inflation was zero, because the main consecuences of the inflation is transfer wealth from creditors to debtors.

What do you thing about Merkel? She es only a gear in the European economic statu quo. For this, she wants a very low inflation, because the main creditors in the EU are Big European Banks (mainly German Banks).

Is Argentina an example for Greece and Europe? Yes, because the signs and causes are the same, high deficit, high unemployment, high debt and a currency pegged to a strong German Mark.

What do you thing about European Austerity plan? People who do the same thing again and again, and they're waiting for a different results are ....

Link supporting what I say.,_1999-2...

HyunSmith in reply to Unasur

Europe is a third world country addicted to debt.

Thats the difference between third world countries and Developed countries, Developed countries pay their bills, third world countries don't

sikko6 in reply to HyunSmith

They are actually crooks! They borrow with false information or deception, then don't repay. That's criminal fraud. Criminals don't like to earn money. They rather want to borrow(?) from others and then no reply!

Sicko Basher in reply to sikko6

You really need to be quiet.
Ireland has already made 4 repayments each total 3 billion apiece including interest.

Dont you read?
I pointed this out to you twice already.
Ignorance is no longer bliss Sicko666

JungLove in reply to Unasur

Does this mean bank ATMs in the Euro Zone will start giving out fake currency notes?

But seriously, your correlation between Argentina and the present Eurozone is fair. I would argue though, that the causes of each crisis are quite different. Thus as much as I feel your comment is fair warning, it does not cover the full story.

There is also a significant difference between Argentina pegging it's currency to the dollar, and what we are seeing presently in relation to Germany. They may seem like similar situations, but how the general public and banks react to each of these actions will remain quite different.

Der Perfesser

For what it is worth, I disagree. I think, given time and reasonably good economic managements, Spain and its banks will recover inside the Euro. For the following reasons:

1. While the 100 billion euro bailout was excessive for liquidity purposes, if the banks do not behave stupidly or greedily, the banks will survive. No, the 100 billion will not repay their losses in real estate. Those losses will take a decade to work off.

2. While Spain's construction business is kaput, and likely to remain so for nearly ten years, Spain's manufacturing, especially in the North, is strong, and the Euro is not over-valued for their exports. If the central government concentrates on that, with whatever agricultural subsidies they can screw out of the EU, they should do well.

3. Unlike France, Spain has some very good talent in Economists available. It would be invidious to point out individual universities, but all their Economics graduates are generally good. If the Spanish government makes the effort enrolling their advice, it should avoid mistakes and make the very necessary correct decisions.

Compared to Italy, Spain does not have the same inherent problems in government administration. While admittedly my visits to Spain were more involved in the economics profession, I can see no major inherent problems in Spain. Yes, the over enthusiastic investment in property development was regrettable, but it is all there as bricks and mortar, and can be gradually disposed of. The casa banking system needs reforming (leave that to the economists). But I am generally optimistic about the country.


No way out. Bailing out banks increases public debt which is already too high. The northern countries don't have enough money without going down themselves. Printing money to bail out banks will end with a bond and currency crash. Hard times are coming. The can has been kicked to the end of the road. Let it happen. Let banks fail and sovereigns default. The debt will be cleared. People and countries can start over with fiscal responsibility since no one will be willing to lend to them anymore.


" . . . the failure of Germany"!!! - Oh Economist, what a bunch of hogwash this is again! Don't you get tired rattling continuously the same worn out prayer-mill over and over again?
Try, for a change, to talk your own government into a little more ‘European commitment’ instead of continuously (and cheaply) pointing the finger at the Germans.
The Economist's hogwash: "The failure of Germany and its European partners to commit themselves to the level of integration needed to hold the single currency together. This newspaper has long argued that country-by-country rescues will not be enough."
The Germans also had long argued for more integration! Two core countries, France and Holland, voted down the first small step to a relatively 'light version' of European integration, a common European Constitution.
Fact is Great Britain is the BIGGEST obstacle in any attempt for more EU integration. VETO, VETO! . . . is Britain's only contribution.
The Economist: "Systemic reforms will be needed, including some mutualisation of debts and a move towards a banking union, with euro-wide oversight and responsibility for banks."
Banking Union with Britain? LOL! You must be joking, Economist! So far, the U.K., one of the largest investors in the Eurozone, did little to nothing to rescue EU countries! All what we hear from London is Thatcher's echo: "I want my money back!"
Here, dear Economist, is German taxpayers' contribution to the rescue so far:
Germany’s Percentage of the ECB Debt of $4 trillion = $757.6 billion
German annual cost for the EU budget = $46.36 billion
German Guarantees for the Stabilization Funds = $280.6 billion
German Guarantees for the Macro Financial Assistance Fund = $211.14 billion
German Target-2 Liabilities = $656 billion
German Guarantee for the EIB Debt = $157.29 billion
These are liabilities of approx EUR 4.634 trillion Germany already took on for its partners.
Where is Britain's contribution?

HyunSmith in reply to la.výritý

The Economist loses more and more credibility every day.

I've really noticed a change in the quality and tone in the last year.

Very dissapointing, actually I've noticed better quality articles at the WSJ, which is somewhat depressing considering they are a daily newspaper while the Economist is a weekly magazine which should have higher quality articles.

sikko6 in reply to la.výritý

"Where is Britain's contribution?"

This should be
'Where is French contribution?'

It was the France that conspired to screw Germany with EU and Euro zone!

As you know UK is not a member of euro zone, and will never be! More importantly UK didn't conspire to screw Germany! It was France. You should know this.

irishprof in reply to la.výritý

As part of the Irish bailout the UK gave Ireland a bilateral loan with lower interest rates than the EU one (6.7% !!!!). Sweden and Denmark also did bilateral loans, even though they were under no obligation to do so.

Last week they further reduced that interest rate. Spain gets a no strings attached bank bailout while we with 4.5 million people are stuck with €85 billion sovereign debt to bail out our banks, one of which was purely a vehicle for transferring money from the core banks to a handful of rich property developers. The EU threatened to pull short term liquidity to our banks if our govt didn't agree to the deal. In return our budgets have to be approved in Berlin.

The UK intelligently did not join this farce that is called the Euro - so why should they bail it out?

eroteme in reply to la.výritý

As others have said, the UK is not part of the Eurozone so has no obligation to shore up the Euro. That being said I agree that Germany is doing a lot to try and save the Euro but it is all futile.

la.výritý in reply to irishprof

It was the heavy exposure of Britain’s banking sector to Ireland that made it no surprise that the U.K. government was so eager and willing at the time to provide Dublin with a direct loan, estimated at around GBP 7 billion. Several British banks would have gone under if Ireland would have "gone under", that's for sure.

However, the British loan was more or less a drop in the bucket, even British economists admitted at the time. Decisive for Ireland's fiscal survival is the Eurozone-led rescue package. It's true that the charged interest rate was too high initially. But we also must understand that this was due to a high-risk surcharge, not knowing if Ireland's governments will be able to meet the necessary budget-cuts required to make the Eurozone-led loan sustainable.

When European leaders realized that Ireland was not 'Greece', they agreed July 22, 2011 to lower the rate from around 6% to around 3.5% were it still stands now. It is most likely, after the last Irish referendum on the bailout package, that Ireland's interest rates will be lowered further to approx 3% - and this should happen, IMO, given that the referendum result is a sign that the Irish people understand the issue and are willing to take on the responsibility for their government's previous deeds (completely different from the Greek public).

la.výritý in reply to sikko6

sikko: "Where is French contribution?"

Theoretically France provides the same contribution, relative to her smaller overall share, as Germany. So do, in theory, all other Eurozone countries. In reality, France is not capable of honoring her share when it comes to the worst case scenario, since already her own debt is steadily rising (due to her government's failure of budget control). She has lost her triple 'A' rating already and would be further downgraded immediately if only one of the guarantor-obligations she's entered for her Eurozone partners really became payable.

This leaves, in the end, German taxpayers as the only real 'guarantors'.

Plazidus in reply to la.výritý

Hi la, vyrity,

'LOL! Not everybody seems to share your opinion.' [la.virity]

Admit it, you were getting carried away? And some people understand shouting better than quiet, restrained explanation. you write a lot of sense. I confess, though, that I have not even attempted to read your long contribution, starting: '" . . . the failure of Germany"!!!'

I'm a quiet soul and refuse to read pages which demand that I read them, just like some kind of demented drill sergeant. Peace, Love, and Temperance, brother.

I just don't think it's clever knocking 'The Economist' in the way that you do. Such over-kill suggests a low sense of self-worth being strenuously over-compensated for.

I tend to defer to something for which I've paid good money. Otherwise, I'd feel a bit of an ass. As it is, I've just re-read the offending editorial piece and find it clear, entertaining, stylish, to the point, well-organised, honest, balanced, and shrewd. Whereas you’re just a little bit over-protective where Germany’s concerned.

la.výritý in reply to Plazidus

Plazidus: "I have not even attempted to read your long contribution".

You shouldn't comment on issues - especially not in a pejorative manner - when you refuse to inform yourself about it. That's an absolute no-no in civilized circles.

And, how can you pretend not having read my post when, in the same breath, you point so overbearingly arrogant to an "over-kill" supposedly performed by me which, in your words, "suggests a low sense of self-worth being strenuously over-compensated for".

And yes, I kind of feel sorry for guys who defer to every piece of crap, only because they've paid "good money" for it. Where does leave freedom of thought and independent opinion? LOL!

And I don't know if I'm the one getting carried away . . . or rather the Economist staff when it comes to ridiculously "shouting out" Germany's supposed "failures" and Merkel's incompetence, over and over again in a prayer-mill-like manner.

It’s, in all objectivity, rather such fact-distorting Economist leaders as the one here that perform a steady anti-German over-kill by trickling untruth into the brains of its English speaking world audience.

This Economist leader’s claims - in this regard - are further from the truth in the opinion of the rest of the Europeans than seemly possible. The latest polls taken on the Euro issue clearly showed that a vast majority of the Europeans are fed up with the mutualisation of debts without democratic legitimacy and the rescue of irresponsible banks with taxpayers’ money.

As we discussed here before, there is no other solution but living within one's means. Whatever recipe these fact-blind Economist writers suggest - Eurobonds or that the Germans and Dutch just guarantee somehow the public and bank debts of the rest - fact is that neither the Germans nor the Dutch nor the Finns are able to shoulder the approx 11 trillion public debt of the eurozone member states.

Adding over-leveraged and unsustainable bank liabilities, the toxic assets that need to be 'guaranteed' can easily exceed 20 trillion Euros. Doesn't the Economist have some old-fashioned bookkeepers in its ranks?

Most Europeans grasp this unavoidable truth . . . except the Economist . . . other than, it seems, maybe Buttonwood, who wrote June 13th 2012 ‘Disunited nations’ - an excellent piece of truth.

The New York Times wrote a few days ago, concerning the same new PEW poll mentioned above taken in Europe and the USA (Quote): "The poll also showed Germany to be the most admired country and its leader, Chancellor Angela Merkel, to be the most respected, despite her unrelenting push for more fiscal rectitude across Europe."

So, who is performing German over-kill here is rather the Economist, not me, who is only pointing to the true facts.

Plazidus in reply to la.výritý

'You shouldn't comment on issues - especially not in a pejorative manner - when you refuse to inform yourself about it. That's an absolute no-no in civilized circles.' [la.vyrity]

You struggle to make a point here. The whole purpose of my intervention was to explain my principled stand against tour polemical method: (!!! .... HHHHH***.)

This we can summarise as death by exclamation, derision, and a thousand punctuation marks. Like a hail of arrows at Agincourt.


Imagine your paragraph is a football pitch. (Do you say a football field?) Now, I don’t want to direct my parachute, many hundreds of feet in the air, in the direction of tour football field if this is bristling with sharp, noisy things. That’s how I can ‘read’ and not read your tirade, all at once.


Your ersatz scorn is unconvincing, particularly as we all are predisposed in favour of things for which – for good reasons or bad – we have forked out good money. You see blind to the elegance, wit, and lucidity. Isn’t bringing ‘freedom of thought and independent opinion’, rather like using heavy artillery when a smack on the wrist will do?


Your charges against TE self-destruct, rather, I find. Let’s summarise them by: ‘Repeatedly, Monotonously, Shouting Germany’s ‘failures’ and Merkel’s incompetence’ [RMSGFplusMI]. This is a bit of a mouthful for one paragraph in six, the conclusion, because the op-ed is about Spain and the EU – not Germany. That you should think that Germany is being targeted suggests a thin skin. Still, let’s see if TE is, indeed, shouting out Germany’s ‘failures’ and Merkel’s ‘incompetence’:

‘The real source of uncertainty about the euro’s future is . . . the failure of Germany and its European partners to commit themselves to the level of integration needed to hold the single currency together. . . Systemic reforms needed: some mutualisation of debts, a banking union, euro-wide oversight and responsibility for banks. Spain’s bank rescue could have been a down-payment on such a solution. Germany and others stopped short at placing their finds directly in Spanish banks. This is a palliative, no more.’

Yes, la. Verity, I am quite aware that what TE is proposing can be interpreted – I share the view myself! - as daylight robbery of the deserving in favour of the improvident. But you are resolutely shutting one of your eyes to the dreadful alternative of not, reluctantly, subsidising the PIIGS. That Germany should feel some of the resentment of the cowherd, seduced by the milk-maid, and is now being frog-marched up to the altar is understandable. But bluster and accusation are not going to make the incriminating bump go away.

More versed than me in the ways of finance, perhaps you could explain why, like the cowherd, walking away from these EU commitments is not a practical solution for Germany. Would a Gerxit make more sense than a Grexit ?

Plazidus in reply to la.výritý

I’ve followed your leads, la. vyrity, and I there’s lots of substance in your point of view. The trouble is, and I identify completely, there’s too much indignation in the way this POV is expressed. We’re talking about a continent imploding into smithereens here, because Germany is taking a Martin Luther Diet of Worms stand. Unlike Luther, I don’t know what Germany should do. I’m not being judgemental. All I wanted to do was defend TE. My suspicion is that all the sound and fury, all the bad grace, made by you and others is all so much displacement of air and that, when push comes to shove, Germany will do the ‘honourable’ thing.

Equally, however, I suspect that German public opinion will never forgive her southern neighbours, starting with France. A final thought, aren’t the true victims here the lower-paid German workers?

la.výritý in reply to Plazidus

Plazidus, you should leave the "lower-paid German workers" out. This is Merkel's intrinsic job, while "saving the euro" is surely not Merkel's job, by her public mandate.

Fact is that the direct and indirect responsibilities Germany has taken on for troubled EZ member-countries (in the name of future taxpayers) already today is much more than German taxpayer's can bear.

This is a situation which eventually will begin to deprive exactly those ‘lower-paid German workers’ of their supplementary social benefits, which you are using here as a cheap cover to hide your flawed claims.

Germany's position is not about imposing unreasonably some 'weird austerity'. Truth is rather that most Germans couldn't care less.

As I found out last month when visiting that country, the commonly-received conviction in Germany is that everybody and every country can and should spend as much as they wish . . . as long as they don't ask others to fund it.

Where does this place your baseless claim, Plazidus: "Equally, however, I suspect that German public opinion will never forgive her southern neighbours, starting with France".

That's BS! What will "the German public never forgive"?

Try to show at least some honesty, Plazidus. The most recent PEW poll unambiguously shows that the anti bailout sentiment is Europe-wide, and not a "German specialty".

Why are you (and the Economist) - so steadily as sickly - singling out Germany and the Germans as the 'spotted culprit' for this debt crisis?

Is it because you Brits just can't get over it that the Germans refused to lose the war after all?

Or is it because this magazine's overbearingly arrogant "over-kill" (using your term) of Germany and the German public results from vested financial interests of The Economist’s main bankrollers from The City and from Wall Street?

Your renewed finger-pointing at the "German public" which supposedly "will never forgive her southern neighbours" diametrically contradicts the latest findings of the already mentioned PEW poll, as the also provided NYT link quite straightforward proves:

The New York Times: “support for providing bailouts to crisis-stricken countries (by Eurozone politicians) diverged in what seemed to be a reversal of popular perceptions” (!!)

“The survey covered the eight countries in all with 75 percent of the 500 million people in the European Union: Germany, France, Italy, Spain and Greece, which are part of the euro area, and Britain, Poland and Czech Republic, which are not . . .
. . . Questions were asked from March 17 to April 16 of about 1,000 people in each country; the margin of sampling error ranged from plus or minus three to four percentage points . . .

. . . The poll also showed Germany to be the most admired country and its leader, Chancellor Angela Merkel, to be the most respected, despite her unrelenting push for more fiscal rectitude across the Europe. Least admired was Greece”.

NYT further: “The poll found that 49 percent of Germans were in favor of providing aid, up from 42 percent when the question was asked two years ago”, and on the other hand: “In France, where concern about that country’s economic situation has grown, support for bailouts slid to 44 percent, from 53 percent in spring 2010” (all quoted from the linked NYT article).

Grasp this, Plazidus: 49 percent of the Germans are in favor of providing aid to their ‘southern neighbors’, versus only 42 percent of the French!

So, what is this hogwash, such as “German public opinion will never forgive her southern neighbours, starting with France . . . “, while the naked polled facts rather indicate that the French public opinion will "never forgive her southern neighbors”! LOL!

It is not the Germans who the most refuse sharing debt with the 'profligate, irresponsible South' in such 'unelected', undemocratic manner.

The Finns say clearly NO as well:


So do the Austrians:
"Austrian Finance Minister joins major front against eurobonds. Austria’s ÖVP Finance Minister Maria Fekter has dismissed as “nonsense” French President Francois Hollande’s call for eurobonds in a refreshing show of honesty."

Also the Dutch have strong objections to Eurobonds:
"The Netherlands have 'strong objections' to the creation of “euro bonds” according to Dutch Finance Minister Jan Kees de Jager".

This is why a ‘Gerxit’ would most likely leave only the GIPS behind – the rest would rather follow Germany!


Almost 60 years of reading The Economist leaders have taught me that, whether I agree with them or not, they are built around impeccable logic.

Now, I'm nonplussed.

One sentence reads:The package has some good points. Compared with previous bail-outs...the rescuers acted early.

A couple of lines below another sentence claims:A year ago, a proper clean-up of Spain’s banks with this kind of outside support might have been enough. Not now.

Can you please make your mind up?

Early or late?

Both at the same time is a little difficult.

Or is The Economist so intent in discrediting any move by the Euro managing team that its leader writers no longer reason properly?

You may end by destroying the Euro, but if you pursue this "what-I-wish-is-what-I-think" will destroy first your reputation.

sanmartinian in reply to the maverick

to the maverick (repetition for my post history)

Well, I have to repeat one of my favourite quotes from one of my favourite intellectual heroes: Winnie ther Pooh.


Another intellectual hero of mine, Arnold Toynbee had, however, a peculiar interpretation of this.

He maintained that when a type of civilization is going down (like ours at the moment), new civilizations are born: my feeling is that the European Union, and its attendant Euro, is one such attempt.

It may yet fail, it may succeed.

Not even Winnie the Pooh can forecast with any certainty.

Toynbee further added that if the initial difficulties the new civilization meets are too strong, the new civilization will die. But if the difficulties are too weak, the new civilization will not find enough resistance to grow against and will not gain the necessary strength to be successful.

European Union supporters will have to be thankful to all those that in past three years have done their utmost to destroy the Euro.

At great cost for themselves (just look at the financial losses and bankruptcies among hedge funds and others who placed strong bets against the Euro) they have provided what looks to me the ideal "toynbeean" resistance to the strengthening of the EU.

Thanks to them, EU institutions have progressed far beyond what anybody could expect in the last two years.

Compare this to the institutions stalemate in rival existing civilizations since the CDO fiasco and you'll be duly impressed.

The leader writer whose poor malapropism "too early, too late" I protested against is not even aware of it.

Apparently neither are you.

It is clear enough to me, a firm supporter of a European union (this one or another) and a moderate supporter of the Euro (it was created too soon, too hastily) articles like this help the Euro (thank you) and damage the Economist reputation for being unbiased (no thanks at all. I have been a great fan of the magazine for about 60 years).

We'll talk again in two hundred years.

Hope what I mean will be clearer to you than the what the "too early, too late" slip up really means.


Will never sufficient!
Because Spain is a bottomless lake.

Spain applied to host Olympics. An excellent excuse to build more ghost towns, empty roads, empty speedrails, unused airports. A great way to provide jobs to construction industry. It is noted that 33% of Spain's economy is made of construction. Spain has the capacity to create more ghosts!

Where does the money will come from?

The answer is German tax payers!

Hilarious! Germans should work even harder.

sikko6 in reply to teacup775

It will never happen. There are good reasons that Germans don't invest in Southern Europe. German companies are mostly Mittelstands. They are too small to invest in Southern Europe. Large companies sell premium priced products using "Made in Germany" labels. Just think how they can manufacture "Made in Germany" products in Spain or Greece? They are NOT selling cheap things that require cheap labor! That's why Southern Europe is doomed!

attemptedobjectivity in reply to sikko6

That is absolute rubbish....there are plenty of major German manufacturers which have factories/plants in Spain. Lets see, there is Baiersdorf BDF, Bayer, Volkswagen, BASF, Daimler AG, Haribo, Merck, to name but a few...

And yes, strangely enough most companies in Germany are SMEs or Mittelstands as you call strange that its also the case in most other countries....reeeeeally odd isnt it....I mean, you would have thought that most companies in a country are multinational mega companies wouldnt you....
This second paragraph is all sarcastic if you havent realised yet...

My point is that SMEs, due to the contraints they often endure are generally restricted to the nation they are based in (though not always)...Nevertheless, irrelevant of this, most of the capital in the german private market is likely controlled by the major companies.

Also, regarding your original comment: More rubbish....spanish infrastructure is far from unused and doesnt really sound like you've been there much though - granted, they have built waaaay too many houses and they may have chosen some odd places for the AVE to go through, but the rest of their infrastructure (roads, highways, airports) is amply used.

Either way, considering what I started off with (German companies with manufacturing operations in Spain), infrastructure investment in Spain cant be a bad idea...

la.výritý in reply to teacup775

sikko: "There are good reasons that Germans don't invest in Southern Europe."

Big German companies are already present in Spain.

As a matter of fact, both countries have demonstrated time and again that close collaboration leads to success, for the benefit of both parties.

The many joint projects certainly spell a variety of benefits for Spain's and Germany's economies – but they also bring benefits to the whole of the EU, because of Spain's economic outreach to Latin America.

One of Spain’s most impressive qualities is her deep penetration of South America's markets – one of Germany’s is an eye for precision and quality. Thus, Germany and Spain complement each other ideally (the very same is true, in this respect, for Portugal). That's why I do not really worry about either of the two as long as they manage to improve their productivity.

Spain will be, slowly though, able to adjust to the 'lost' but formerly huge construction segment of the economy. Labor has to be intensely retrained to meet the qualification-requirements of German and other globally operating companies.

So, the task for the Southern Eurozone's future will be, in a large proportion, to build on this German-Spanish success.

This is a little different with Germany's SMEs (which sikko calls 'mittelstand'). They are usually highly specialized firms that require corresponding highly qualified labor, since those companies usually don't run 'assembly-line productions.

First of all, sufficient knowledge of the German language is required, since those SME companies' inside-communication-language is solely German.

Second, those companies are in constant demand of qualified technicians and engineers as well as natural scientists in general, a workforce Spain cannot currently provide.

Since German SMEs are heavily technology-orientated, living often from 'insider' person-to-person advertising, their demand for MBA graduates and marketing experts is relatively low.

teacup775 in reply to la.výritý

I have to wonder with a 50% (?) unemployment rate amongst the young, even the well educated, that much of what could be done to smooth out a lot of problems is to make use of them. Same for Greece. A lot of countries may be facing a brain drain due to their local economic condition. Normally, that probably doesn't justify any action, but these are hardly normal times.

la.výritý in reply to teacup775


It's already happening. When I was in Germany last month I saw a program on TV which dealt with this issue. Thousands of young Greeks and Spaniards are wandering currently north, mainly to Germany. Problem is, only very few learned German at home in spite of the fact that Germany is Europe's largest and most successful economy.

They will have to sit on their butts at first and learn the language upon arrival. Then, if they have the 'right' education (engineering, natural science etc.), I don't see any problems for these new 'migrants'.

They aren't the 'guest-workers' of the old type. They are modern young people who have a sound grasp of contemporary developments. They will get engineering experience and technical expertise, which they are able to take with them wherever they decide to go in future.

Thus, I rather see them as 'seedlings' of the successful 'German model' which can develop deeper roots one day in Spain, Latin America or anywhere else.

Therefore, the 'brain-drain aspect' is very limited, IMO.

teacup775 in reply to la.výritý

"They aren't the 'guest-workers' of the old type."

Given a lot of them sport higher education degrees, yes.

As to the issues regarding importing German model, I'd be up in the air. Almost all the Greeks I've ever met here are successful and industrious people, and it seems to be the case that on an individual basis, a lot of Greeks are pretty much the same. Government structure is completely whacked -- the system's structure is of a nature that the component elements (the population) can't switch to a different equalibrium.

There are lots of people with experience and technical expertise, but the nature of their system wastes them; the issue I see with the brain drain is that the people remaining are the ones without options or the ones with the least characteristics needed to revamp their economy.

la.výritý in reply to teacup775


And then what? Should the ones willing and capable of breaking the vicious circle sacrifice their own future by staying in a sclerotic social and economic environment which pulls them down as well?

teacup775 in reply to la.výritý

No, that's not what I am trying to say, rather that a nastier mess obtains when the problem country loses almost all of their most capable people.

What I am saying is it's equally scary that a society loses exactly the people who are best able to change things; necessity is the mother of invention.


According to the US Federal Reserve the EU fix is easy.

Simply refuse attempts to audit the ECB. In fact pass legislation to obstruct those who dare insist on audits. Give local banks unlimited overnight loans at close to zero interest, with freshly printed money, provided they buy new government bonds that other suckers, er investors shun.

Pay the buzzards, er bondholders several points on yield so they can pocket the spread to cover management bonus obligations. Without worry of being stiffed as long as printing presses exist.

Presto no more problems. Don't forget to pay your new Economist subscription rate = EU / $100,000 annually. And greece, er grease your banksters and local politicians as a New World Economy lobbyist.

Bernie Madoff is a piker in comparison.

irishprof in reply to Demon1


The ECB have already done this - to the tune of a trillion euro?


Let's be quite clear: the problem is exactly the same as when a dozen or so years ago money was lent to third world countries when it shouldn't have been. Hence the "Banking on the Poor" and similar movements.

No, the problem comes from quite clear sources: when those with funds available saw that the Spanish property market was booming they poured money into the Spanish banks: who then had to make money by lending those funds out to property developers - without an apparent concern that the bubble might burst.

If those with surplus money had not put money into Spanish banks then the situation would not have arisen.

They are the ultimately the guilty party: they should be being punished by losing their investments, not the rest of the far more innocent world!

Austrian Smith

Europe has become fairytale land, where make believe money is conjured out of thin air and disappears again. The Economist should stop promoting this illusion. There is too much debt as a result of too much credit expansion. The destruction of excess money is called deleveraging and until we recognize the problem no solution will be possible.

I am off to Mars, as there is no printing press and therefore no excess debt.

sikko6 in reply to Austrian Smith

The intelligence I gathered suggests that Southern Europe is already far behind South East Asia in industrialisation. They are in deep dark age but they don't know this because they are on high with their bonds!

attemptedobjectivity in reply to sikko6

Wow, again, stating the obvious...

Lets see, is it normal for one area of the world that is known for a being a global technological hub to outpace another area which has never been considered such, in industrialisation?

I think so... well done sikko6

Although im still dubious as to how much "intelligence" you actually posses...

Peter T.

According to the Economist, public debt in Spain was 60.1% of GDP in 2000, and 78.4% in 2012. This ratio in 2012 is substantially the same as Germany, the U.S. and the U.K.

During the last twelve years, public debt as a percentage of GDP has increased dramatically in both the U.S. and U.K. By comparison Spain compares with Germany in controlling the level of public debt as a percentage of GDP.

Spain suffered the collapse of a fiscal bubble. If any economy was in need of fiscal stimulus it is Spain. Instead the consensus opinion is that somehow Spain should be punished for their imagined fiscal transgressions.


And I thought TE's editors have spent some time reviewing the comment section......

There is not enough money, neither in the core, nor anywhere else, to avoid bankruptcy in Spain and others. Delay of bankruptcy is actually an offence!

Two more thoughts - up till now, there is no ESM to pay the EUR 100bn to Spain, and the EUR 20bn to come from Italy will not do a lot to make them safer (especially given the interest rate differential). So, time and again, it's kicking the can.

Secondly, if nothing else, start to think about depositors everywhere in the EU - like in Luxembourg - their Target 2 receivable is about EUR 170bn, roughly a third of Germany's. (Altogether it is around a trillion now). It is a receivable, in case it would not be repaid - it would leave Lux and her banks with EUR 170bn liabilities - how on earth do you think they will be repaid?

(don't start the nonsense Target 2 credits are only "technical" - they will become very real in case of bankruptcy)

MilovanDjilas in reply to Courtjester

Kicking the can down the road is instead an excellent strategy - if reforms are being enacted in the meantime.
If it means giving Spain a year's time to fix the banks - nationalising the bad loans, cutting employees, consolidating operations, etc. then in one year's time Spain will be a lot better off.
So will Portugal and Ireland in one year's time.

Italy will have achieved a budget deficit of under 2% and being officially headed for a (small) surplus.
The Euro-zone economy should have returned to growth in one year's time.
In other words, Europe will be in a lot stronger position.
On the other hand, there is still Greece...

Courtjester in reply to MilovanDjilas

Slight difficulty: Your "if"

If conditions are as easy as they have been between 2000-2008 - why should structural reform happen - it did not - nowhere during the period, didn't it?

Present me with a rock-solid plan to ensure reform. (even Monti seems to meet more obstacles than expected? and I have not heard the Greek parliament ratifying the additional EUR 11bn savings - a condition of the second bailout - and no - I am aware that Italy/Greece are two completely different cases that cannot be lumped togehter, and I do not intent to imply anything else - before you rip me off again..:- )

However, I have one more quibble - as the Monti example shows - structural reform takes longer than a year to have an effect - it normally takes five to seven year to really bear fruit - and there is no way to kick the can that much longer....

(given it has been stuffed with explovise - the next or the one after kick with lead to an uncontrolled implosion - which is the one outcome I really like to avoid.

la.výritý in reply to Courtjester

Courtjester: "Don't start the nonsense Target 2 credits are only "technical" - they will become very real in case of bankruptcy".

Of course they will. Greece will - for real - punch the first big hole into the Bundesbank's spreadsheet. Other will follow.

What Europe currently sees is the clash of 'incompatible cultures' that are forced into one and the same test tube.

MilovanDjilas (Joe) is a vivid example for this incompatibility.

MilovanDjilas in reply to Courtjester

Structural reform and consolidation of budgets is happening everywhere. You pose here a false problem, as between 2000 and 2008 nobody thought there was a problem, not even the German people. The German Social Democratic Gerhard Schroeder was one of the few leaders to insist there was a problem with wages in the western world - today, Merkel and the Germans are proud of their 2003 reform, but at the time they punished Schroeder at the ballot box because of it. He himself has said on more occasions that Merkel takes the credit for his reforms - and he has also stated two weeks ago that those reforms would have been impossible, democratically, in a recession - and that therefore Greece needs to be given more time.

Your second point is quite valid. Structural reform does take more than a year to have effect - and 5-7 to really bear fruit. That is a reason why I am a bit sceptical about all the "growth" emphasis - I suppose it is politically a good way for Monti to point to a light at the end of the tunnel...
After the French elections, Monti came under attack from certain quarters who said "You see, Austerity is unpopular and the wrong formula." He neatly side-stepped this by responding "When have I ever used the word Austerity? We are merely putting our accounts in order, which is of course unavoidable at this point."

Nobody in peacetime history has ever brought a deficit of 6% to 0 in one year. Time is needed. Good government means that macro changes in the economy cannot be imposed in 12 months' time. Raising bank capital requirements from 6% to 9% might be a good thing, objectively. But insisting they be raised thusly within 12 months' time would be a disaster for any economy.

The can must be kicked down to avoid disaster - and in the meantime, all Euro-zone countries, without exception, are strengthening their public finances. I urge you to read the numbers and not just "yellow journalism" newspaper headlines in this regard. With the exception of the recession, we are much better off than we were a year ago - and the recession will be quite mild for the EZ as a whole (-0.3%). In Italy, the largest economy of southern Europe, we are predicting -1.6% - this is quite bearable. Spain expects -1.7%.
Greece remains a problem, but I still maintain that since it represents less than 3% of EZ GDP, their problems are quite within our financial capabilities to assist.

MilovanDjilas in reply to la.výritý


MilovanDjilas (Joe) is a vivid example for this incompatibility."

Why? I am a staunch supporter here of austerity - have been for 18 years, especially at election times - and our deficit will be 1.8% this year, while we are aiming for a surplus next year. What other developed country is aiming for a surplus?

The only "incompatibility" in Europe is between the flexible response to the crisis by Draghi, Hollande, Cameron and Monti - sign of intelligence and humility - and Merkel's mentally rigid and ideological approach to all problems: a sure sign of arrogance and stupidity in a government leader.

Josh_US Lux in reply to MilovanDjilas



Ok, let's pause for a second here and reflect on those three leaders' "flexibility" and "inflexibility":

MONTI: Not enough substantial reforms at home, call for more help from abroad - yes, that's definitely "flexible", in a way.

CAMERON: Austerity at home, call for no austerity in the euro zone - that's also pretty "flexible", indeed.

MERKEL: Reforms + thriftiness at home and call for the same abroad - I guess that's "inflexible" in the eye of those used to having their politicians ask more of their european peers than of their own consituencies (Monti) or calling right abroad what they consider wrong at home (Cameron); for the rest of us, it's simply consistent.

(Draghi is not a politician, and hasn't run a government, so doesn't fit the list.)

Josh_US Lux in reply to MilovanDjilas

"(...) and Merkel's mentally rigid and ideological approach to all problems: a sure sign of arrogance and stupidity in a government leader."


Calling MERKEL "mentally rigid" and "ideological" only shows that you know absolutely nothing about German politics.

In Germany, Merkel has the exact opposite reputation - and it's not necessarily meant to be a compliment - as Merkel has proved over and over again that she's a) completely unideological and b) adapts with great swiftness to changing circumstances.

Examples of a) and b) are her decision to end conscription for the Bundeswehr (of which her own party was the mosty stalwart supporter) and to accelerate Germany's exit from nuclear enegery production by as much as 10 years, shutting down 7 reactors last year alone (herself and her party have always been for nuclear energy).

The two traits of character nobody has ever accused Merkel of are "arrogance" and "stupidity", but coming from a country that was happing being ruled by a corrupt billionaire clown with a preference for underage prostitutes for the better part of two decades, I guess we have to accept that the concepts of "arrogance - humility" and "stupidity - intelligence" might be different across Europe. LOL

Josh_US Lux in reply to Courtjester



Finally someone who's understood the problem!

The same goes for the ECB's inflated balance sheet, which is now 3.5 times as large as before the crisis, being stuffed with Southern European bonds, that range from overpriced (Italy) to outright junk (Greece), and will entail heavy losses for all euro zone members.

As a side-note, and for all those who foolishly believe the ECB could continue its (now suspended) bond purchases forever: The ECB's balance sheet already equals 30% of the euro zone's GDP, while the correspondng figures for the FED and the BoE hover around 20%. There's isn't much room for manoeuvre left for the ECB, and all those who - in Italy and Spain and elsewhere in Southern Europe - pin their hopes on the ECB are in for a very unpleasant surprise.

It's time to accept the fact that Southern Europe (all 5 Southern euro zone countries without any exception) and Ireland are de facto insolvent, and that the mechanisms set in place now have been designed to shift part of the cost of insolvency to their euro zone peers.

la.výritý in reply to MilovanDjilas

Merkel is as flexible as her German mandate allows. Different from the style of South European politicians, she can't just deceive her electorate. This wouldn't be forgiven.

Her government has no mandate to throw good German tax money after self-serving, irresponsible or simply unintelligent Southern European governments whose leaders make loudly promises . . . which they don't keep. This is true not only for the corrupt Greek leaders, but also for Italy's Monti and Spain's Rajoy. This kind of 'intrinsic' dishonesty of public figures is alien to Germans and most North Europeans.

However, if it should happen North Europe and be discovered, then the consequences are severe as seen in the cases of German Defense Minister Karl-Theodor zu Guttenberg and German Federal President Christian Wulff.

Both would still be in office in Italy, Greece or elsewhere in the South, given the 'tolerance' of these societies to their public figures' falsehood and corruption . . . a reflection of incompatible cultures with those of the North Europeans.

Your style here on these blogs, Joe, reflects exactly this.

MilovanDjilas in reply to Josh_US Lux

There is no "call for help from abroad" from Monti:

Of course the UK must and can rein in its deficits - but that is different from policy over Greece, Ireland and Portugal - which need assistance.

Thriftiness at home is easy when you have inherited austerity from your predecessor. The point is not Germany, the point is the GIP crisis countries and whether or not we are going to help them.

And, Monti asks nothing of Merkel that Italy would not participate equally in paying/asking from his own constituents.

MilovanDjilas in reply to Josh_US Lux

Italy was not "happily ruled". Berlusconi never obtained a majority of the vote in 17 years. At last elections, his party obtained 37% of the vote and his coalition allies 5% - due to the complications of the Italian electoral law (sponsored by Silvio himself 10 years ago) he was able to translate this into a solid majority in parliament. Actually, he was already vastly unpopular in 2008 (last elections) but the centre-left had committed suicide by attempting to transform itself into an American-style "Democratic Party".

MilovanDjilas in reply to Josh_US Lux

"Finally someone who's understood the problem!"

Wolfgang Munchau from the Financial Times:
"The Target 2 debate is important because it goes to the root of the problem. But Germany’s economic establishment is disingenuous. What people are really saying is that they no longer want a monetary union. They want a looser single currency regime."

If Germany is going to not behave as a member of the team, it is correct they should be penalised. Imposing impossible terms on Greece - and then claiming Greeks are not upholding their agreements - is not honest behaviour from Germany. Target 2 imbalances are meaningless inside the Euro. But they are a good way of penalising Germany for seeking the breakup of the Euro.

Josh_US Lux in reply to MilovanDjilas

"Target 2 imbalances are meaningless inside the Euro."

- No, such imbalances are not meaningless inside a single currency. In the US, imbalances among regions are balanced every quarter - in real money.

"But they are a good way of penalising Germany for seeking the breakup of the Euro."

- They are also a good way of keeping target 2 debtors such as Italy inside the euro forever - because if they left, they'd have to pay their GIANT target 2 debts AT ONCE, which would spell immediate insolvency for them, while the creditor countries of Germany/The Netherlands/Luxemburg/Finland would be able to write off target 2 losses, given their higher creditwhorthiness and lower overall debt load.
Italy is tied to the euro in ways you cannot even imagine, apparently. Lacking options is always a clear sign of "defeat".

la.výritý in reply to MilovanDjilas

Joe: "But Germany’s economic establishment is disingenuous".

As disingenuous as you, Joe?

2 months ago you were denying here that Germany is subsidizing the peripheral economies since 2008 with TARGET2 credit lines, applauding emmafinney when she blatantly claimed that Germany makes "huge profits on peripheral trade deficits".

And yes, a majority of the Germans, I found out in May, say that they no longer want a monetary union with Mediterranean countries. They don't trust governments who are mostly seen meanwhile as corrupt deceivers and a bunch of loudmouthed liars.

I can't help admitting to myself that there is some truth in that.

la.výritý in reply to MilovanDjilas

What? Germany 'penalized' for their taxpayers' approx EUR 4.634 trillion contributions to the euro rescue so far?

German annual cost for the EU budget = $46.36 billion
German Guarantees for the Stabilization Funds = $280.6 billion
German Guarantees for the Macro Financial Assistance Fund = $211.14 billion
German Target-2 Liabilities = $656 billion
German Guarantee for the EIB Debt = $157.29 billion

You are a sick man, Joe, suffering from the 'Italian Rotten Ethics Disease'!

Not those, who disregarded the laws and rules of the common currency from the beginning - actually entering the euro via fraudulent bookkeeping, lies and deception so that the euro is now at the verge of collapse - need to be 'punished', but Germany which almost singly keeps the currency alive and thus can't stand this morally rotten behavior of her Southern neighbor anymore.

Such sick body of thought is exactly what makes honest people wanna spew!

Germany, together with her friends, should turn the back on this kind of 'common currency'.

la.výritý in reply to MilovanDjilas

Cameron is the master over his own QE money . . . not over anybody else's, especially not over the taxes of the Germans.

His government is not ready to do anything for Europe; still clinging to Britain's once blackmailed reduced tribute-rate to the EU-budget.

By using Cameron 'as a witness' for your ridiculous anti-German claims, you only prove that you're ready to f*** with anybody who 'pays you right'. We can't detect much difference any more between your posting and sherryblack's. That's become a sad fact.

MilovanDjilas in reply to la.výritý

The Target2 imbalances are temporary accounting conventions.

They result from REAL money that is flowing from Italy to Germany - more or less permanently, until the trends reverse.

These monies are mostly those of non-Italians (companies) tranferring their funds out of our country.
BTW, bank deposits owned by Italians have increased by 1.5% over the last 12 months. An overall drop of 3% is a result of Italians not yet being able to replace foreign-owned deposits with domestically-owned deposits.

In the meantime, Germany is most definitely profiting from the misery of others within the Euro-zone. Italy's fundamentals have been better than the UK's, especially when you consider their deficit is still over 8%. Yet, the UK does not suffer capital flight from foreign companies since they are not inside the Euro. This is causing a fundamental re-alignment against the Euro within Italy, as German-imposed pro-cyclical rules only benefit Deutschland.
Why should millions of Europeans be forced to leave their homeland to look for work only because Germans fear inflation rising to 4% or 5%?

MilovanDjilas in reply to la.výritý

Italy's Percentage of the ECB Debt = $500 billion
Italian annual cost for the EU budget = $21 billion (BTW, as of 2010 German costs were around $25 billion, your statistic is wrong.)
Italian Guarantees for the Stabilisation Funds = $185 billion
Italian Guarantees for the Macro Financial Assistance Fund = $140 billion
Italian Guarantees for the EIB Debt = $104 billion
In the meantime, the Target2 imbalances express REAL money going to Germany from Italy.
The only morally rotten behaviour in Europe comes from Germany, which profits from the misery of others. Italy did not bribe Greek officials to sell our military equipment, nor did we condition our aid to Greece based upon them confirming their military purchases as Germany did.
Nor did our banks do anything around Europe to create this mess. We have been picking up the pieces of German banking malfeasance, and if we had never participated in the bailouts, German banks would have been bankrupt two years ago.

MilovanDjilas in reply to la.výritý

The United Kingdom still counts, in Europe and abroad. One of Monti's first acts was to visit London, where he was warmly received.
If we were to gift a bit of aid to the GIP countries, I think the United Kingdom would certainly participate in helping Ireland, at least.
My apologies for the "liar" comment. I was a bit peeved yesterday.

la.výritý in reply to MilovanDjilas

The inflation debate is just another reason why hard currency countries, such as Germany, Holland, Austria and Finland should never have agreed to a joint currency with the GIPS countries. The monetary concept of these regions was traditionally antithetical.

When the ECB was constituted, a compromise was found between the aforementioned soft currency countries such as Italy and Spain and hard currency countries such as Germany and Holland. The inflation target was set at 2%. Traditionally the Bundesbank ‘targeted’ at ‘0’, though it was seldom achieved.

This problem of antagonistic monetary cultures was exactly the reasoning behind the objections raised by the Bundesbank before Italy and countries with similar monetary cultures joint one currency together with Germany. It was those countries – exactly the ones now in trouble – that protested vociferously against the Bundesbank’s (fully justified) demurs, calling them – similar to your line of argument now – ‘prejudiced’ and ‘biased against South Europe’.

Fact is, that the influence a joint Central Bank can have on individual members’ inflation in an environment where economic policies are decided on a national not federal basis are very limited. It is done mostly through management of the money supply and the fixing of the Central Bank’s interest. This resulted in a contemporary inflation landscape where the overall inflation was, yes, 2.7%, but which masks wide variations between nations. Annual inflation in Germany was 2.2%, in Estonia it was 4.1%, while in recession-hit Greece the rate was much lower at 0.9%.

Most economists (including Keynes) are in agreement that inflation rates above 3% do more harm than good to the economy. The question for the ECB is how far it can "bend" the concept of inflation targeting by introducing flexibility without making it lose its meaning. In this respect, no matter how much one "bends" the concept of flexible inflation targeting, it will still have to keep some characteristics to "deserve" that name. This exactly is the ECB’s dilemma.

In simple language, higher inflation means steeper rising prices combined with an increase in cost of living. In economics, inflation is explained as rise in the general level of prices of goods and services in an economy over a period of time. With the rise in price levels a unit of currency will buy fewer goods and services. As a result, the purchasing power of money will be reduced with inflation. In other words the real value of money will be lost day by day along with inflation.
This means further that a period of higher inflation makes it difficult for business organizations to predict the future and accurately calculate prices and returns from investments. Therefore, it can undermine business confidence.

And: when inflation in one part of the world is more than that in a competitive region, the exports from the former region will be less attractive compared to other countries. This means there will be fewer sales for that country’s goods both at home and abroad and that will create a larger trade deficit.

While Germany, most likely, will be able to bear this, it would be catastrophic exactly for those eurozone countries which show large trade deficits already (the GIPS) because higher inflation in a country or region weakens its competitive position in the international market.

la.výritý in reply to MilovanDjilas

Joe: “The Target2 imbalances are temporary accounting conventions . . . In the meantime, Germany is most definitely profiting from the misery of others within the Euro-zone.”

Is this why the Bundesbank strongly advices the German economy to reduce imbalanced trade within the Eurozone?

Yes, TARGET2 imbalances are supposed to be ‘temporarily unsettled’ balance of payment accounts . . . in theory; but in reality, the balance sheet of, e.g., Germany’s Bundesbank reports an item labeled “Other Assets”.

The value of these unsettled ‘other assets’ was about €40 billion in summer 2007. By May 2012 the same unsettled ‘other assets’ had reached €715 billion (!!).

Thus, these “temporarily unsettled balance of payment accounts” turned meanwhile into "permanent interest-free lines of credit" the Bundesbank grants to the Central Banks of Germany’s deficient trading partners in the Eurozone (only a very small amount stems from unsettled capital flight, since most capital flight is 'committed' in cashable bank cheques or cash).

As Courtjester wrote some days ago: "Don't start the nonsense Target 2 credits are only ‘technical’ - they will become very real in case of bankruptcy" (of a debtor country).

la.výritý in reply to MilovanDjilas

"Italy's Percentage of the ECB Debt . . . "

Italy's guarantees for ECB, EMS, EIB etc. are worthless, since Italy is considered not creditworthy herself, hence, she's also not 'guarantee-worthy'.

"Target2 imbalances express REAL money going to Germany from Italy."

Fact is that Italy's negative TARGET2 account at the German Bundesbank expresses money that should have been going to Germany from Italy, but never did, as a matter of fact it is still unsettled to this day; hence, it became a permanent interest-free 'loan'.

MilovanDjilas in reply to la.výritý

You still do not convince me that a 4% inflation rate in the EZ would mean the destruction of European unity and the collapse of the free trade market.
Instead, the current policy has stretched the economy and cross-continental relations to the breaking point.
The Americans are right on this one, Draghi should also have lowered the discount rate.

MilovanDjilas in reply to la.výritý

Italy not creditworthy? Once again, in your prejudice and racism (we have discussed this before, 2 years ago if memory serves) our money is not as "green" as German money to you.

And yet, Italy is now on the hook for €45 billion to Greece, whereas we had less than €4 billion at the start of this crisis.

You steadfastly refuse to admit that the bailout fund has mostly taken Italian taxpayer funds to bail out German and French banks.

Josh_US Lux in reply to MilovanDjilas

"In the meantime, the Target2 imbalances express REAL money going to Germany from Italy."


No, they represent Italian overdues – in other words: those 280 billions stand for products delivered, but not yet paid.
And they represent the extent to which the Italian central bank is short of funds.

Italy owes these 280 billion euro (as of May 1st, 2012 – and certainly more today) not only to Germany, but to 4 Northern European countries, btw.


The ESM was supposed to be a "firewall" remember? The money was not actually going to be used, it was just meant to give "credibility" to the promise that the Euro would remain in existence and all debts repaid. It was an educational tool to teach these silly financial markets, who quite erroneously thought some governments might be insolvent, that Europe was actually healthy, alive and kicking, prosperously bathing in its warm bath of well-earned social benefits schemes. It was a tool to scare those malicious "speculators".

What now? The ESM hasn't even started and the first 100 billion have already been forked over in the black hole. And the Economist's only criticism is that the money should have been given as an outright present to the banks, not burden the nice people of the Spanish Government with something as unpleasant as extra debt.

Bad, bad Germans! When the lend someone money they actually want it back. Don't they know that Europe doesn't work that way? In Europe the Germans work and all the others hold up their hands.

I propose you rename your newspaper from "the Economist" to "the Rentseeker".


The general mood in Spain is of genuine collective depression.
The hopes for better times with the new government have evaporated
5 months only after the centre-right partry came to power.
According to the audits of Spanish banking sector, carried out by
Roland Berger and Oliver Wyman, the total figure needed for the banking sector is between 60 and 70 million euros, so apparently
the bail-out funds to be supplied by the EU are more than sufficient.
The problem is that Spanish economic situation is deteriorating rapidly and there is no one single macroeconomic indicator inviting
for optimism.
I wish I´m mistaken but it looks like the full baul-out of Spanish economy by IMF and EU is only question of relatively short time.

MilovanDjilas in reply to Afrikaner211

Based on the experience of the American Savings and Loans 25 years ago - if the government moves fast to close bad banks, assume bad loans, merge banks and recapitalise with the bailout funds - the entire scheme should cost a lot less: 60 billion?
If instead everyone drags their feet - as Merkel is so fond of doing then - ultimate bailout cost will rise by the month.

la.výritý in reply to MilovanDjilas

Why then the Obama administration poured every single year of its government more than one trillion quantitative eased dollars into the economy - to no avail? All what these huge amounts (over 4 trillion USD by now) of fiat cash achieved is that the economy isn't careening into a ditch. It's just stuck firmly in the super-slow lane. While the huge cash injections give the false statistical impression of 'growth' (similar to what all deficit budgets do that are blown out of proportion), in reality it doesn't feel that way here for millions of Americans who are unemployed or whose wages are falling due to reduced employment hours.

The nation still has 5 million fewer jobs than it did when the recession began in December 2007. Now it is estimated that not all of the 8.7 million jobs lost in the downturn will be recouped. The improvement, long been overdue now, will hardly be seen before 2016, newer employment projections suggest.

Why, Joe, digging into the 1988 housing crisis which was due to oversupply? The economy wasn't sluggish then and public debts were not really an issue.

And what does Merkel have to do with Spain's incapable Financial Services Authority?

MilovanDjilas in reply to la.výritý

You pose I think a good set of problems for the average American. I have a cousin who works as a high school teacher in the US. With 17 years' seniority, she has recently lost her permanent role and been busted down to a "substitute teacher". She told me the absurdity is that she will now become one of the highest-paid substitutes in the country - even after the 10% pay cutback, she will be earning $90,000 per year!! I think the Wisconsin elections show that the electorate is aware of further wage cutbacks that are necessary at the state level (BTW, teachers in Italy earn about €2200 gross and 1600 net, even after decades of experience).

The cash injections were necessary to avoid Depression and basic economic break-down in the country that was after all the epicentre of the crisis.

As for unemployment and crisis - go tell it to Detroit, where Sergiom Marchionne is a hero. FIAT of Italy is predicting over $2 billion in net profits this year, despite the disaster in the Euro-zone, mostly because sales at its Chrysler subsidiary are up 90% from their 2009 crisis level and are expected next year to return to their pre-crisis 2007 level of 2 million cars, just in the US. (In Canada, sales are already exceeding the 2007 pre-crisis year.)
US overall auto sales are up 13% this year after a 10% increase last year - and are expected to return to their pre-crisis level next year. Not bad.

Now let's the see the US maintain that performance while reducing their deficits (and necessarily increasing gasoline prices at the pump). Petrol prices are now $9 per gallon here in Italy. (Whew! Thankfully I am able to purchase petrol in Slovenia at $7 per gallon).

To answer your question: American wages are still too high. And yet, they are not enough to get by, as so many are forced to work 2 or 3 jobs. This is because Social Democratic European economies have created more efficient health systems, more efficient housing systems, more efficient transportation systems and more efficient educational systems - all of which have exorbitant costs in the US.


Economist do not want to understand the crucial point: The economy is an expression of the mind of the nation. Chaotic mind makes chaotic economy. Loans will not create coherence in the mind of Spain.
The source of coherence for the mind is the least excited state of the mind: Absolute peace of mind. Without peace of mind, the economy has no coherent basis. Peace of mind is pure awareness, the most alert state of mind. Awareness does not create imbalance. Why is so hard for highly educated and powerful people to accept it and act accordingly?
Peace of mind is an oil field under the surface, only it is endless. The technology to make use of it is there, with scientifically documented results. Why are the administrators closing their eyes and pissing their pants?


According to various sources, between 80 and 90% of Greeks wish to
stay in the eurozone.
In the last days, the far left party Syriza has changed his programme
and now is defending that Greece shouls stay in the eurozone, in contradiction what they were saying only 2 wekks ago, advocating
the exit form euro.
Possibly, Syriza has taken notice of the general mood in Greece, favorable for euro, but Syriza programme doesn´t encourage optimism.
They procclaim the the increase of minimum salary, retirement at 60 years and refuse to reduce the State administration and public spending.
Obviously, they insist on renegotating the bail-out memorandum what
means they have no intention of paying their debts.
If Syriza wins on Sunday 17th, Greece has to leace the eurozone rather sooner than later.
Let´s hope the Greek society wakes up before Sunday and inflicts
severe defeat to Syriza.


Angela Merkel is actually the only leader of a member state who is up to the job. The German government is not opposed to the various instant solutions being touted around: the banking union, the EU deposit guarantee scheme, direct aid to banks etc. provided that the political consequences of such measures are understood and accepted.

Those consequences are the political union of Europe, something which the German government has gone on record as favouring and encouraging. We have not heard any such declaration from Mr Hollande and the smaller members of the Eurozone all appear to have gone quiet on the issue.

We need all the member states of the Eurozone to commit openly, unconditionally and irrevocably to the political union of Europe and to the economic convergence which it will necessarily entail. Then, and only then, will it be possible to get past the stage of plastering over the cracks and start building a solid edifice which will not easily crack.

Such a commitment to political union would be a genuine result from the upcoming EU summit, but I am not holding my breath.

united_europe in reply to manofiona

Exactly! Finally someone that gets it!
No one is willing to compromise such a large amount of money if there isn't a political union. And i have to say that the Germans have been for it.
The problem now is if it is possible to do so before the crisis turns into a catastrophe...


By not giving TIME to the borrowers of the Spanish property boom, i.e a long time to repay at a fixed low rate, the rules of modern banking have charged the overdue loans to the capital of the banks, and thus had to look for cash to capitalize the banks, get it from Europe and be given TIME to repay. The same thing but all wrong, like the Titanic steering into the iceberg, instead of finding a way round. There are precedents in the IMF and Latin America of how to manage a crisis better and cheaper. I hope that it is not too late. In the end all financial crises in time have been solved as supply stops and demand restarts and asset values are restored. Or not?


Latest blog posts - All times are GMT
Yemen: Hot heads
Pomegranate 32 mins ago
China's trade surplus: Strength from weakness
Free exchange 2 hrs 1 mins ago
Regenerative medicine: Bad science
Banyan 3 hrs 18 mins ago
America's economy: Waiting for inflation
Free exchange July 10th, 9:27
The European economy: Four is a trend?
Buttonwood's notebook July 10th, 9:10


Products and events



