Sunday, February 14, 2010

Spain Crisis

Turned out Greece received a lot of funding from Goldmann-Sachs to hide the real financial situation. Now, despite of Chinese row on Obama receiving Dalai Lama for a visit, all eyes turn on Spain.

This month the Madrid stock market has tumbled and the risk premium on Spain’s bonds has risen. Aides to Jose Luis Rodriguez Zapatero, the Socialist prime minister, claim that Spain is the victim not just of a speculative attack but also of a plot led by "the Anglo-Saxon press" to destroy the euro. Ian Bremmer, president of Eurasia Group discusses Spain's fiscal woes and says the Euro will come out stronger out of this crisis and it's just a problem of the Eurosceptics ideology.(sic), see interview here: Link

"But there are good reasons for investors to worry about Spain. It has the highest unemployment rate in Europe, at 19.5 per cent; an economy still in recession, which will not grow appreciably until next year; and a fiscal deficit that jumped to 11.4 per cent of GDP last year, as recession cut tax revenues and forced up spending on the unemployed. Without a faster return to growth, the public debt will quickly become unsustainable.

To make matters worse, Zapatero looks out of his depth. He was a popular leader in the good times, during Spain’s long boom. But he failed to see the bust coming.

When he belatedly recognized that the economy was in trouble, he misdiagnosed the problem as an imported recession that he could safely wait out. He carried on doling out public money and raising pensions and public-sector wages while shunning reform...
The boom relied on a housing bubble, and on the low interest rates that came with the euro." Link

Now on Thursday the Spanish King used a speech to appeal for national unity and followed that up the next day by meeting labour and business figures and Economy Minister Elena Salgado. Alone "the fact that the name of the king is starting to appear in the papers is an indication of the seriousness of the situation," said Barcelona-based economist Edward Hughes.

But still "The possibility of reaching a pact of State focused on combating the economic crisis appears increasingly remote. The strong differences between PSOE and PP have surfaced this weekend more harshly, just days after the Socialists announced a round of contacts and that the King Don Juan Carlos intensify meetings with social and political actors, including the workers union Secretary General of CCOO Ignacio Fernandez Toxo, and UGT, Candido Mendez. 

One issue that has become a serious obstacle to closer positions is the request from the PP of a tax cut as a step prior to any negotiations. Along these lines, the general secretary and president of the PP party in Castilla-La Mancha, María Dolores de Cospedal yesterday asked the prime minister, José Luis Rodríguez Zapatero, to accept the PP's economic proposals to overcome the crisis and "stop way to others. " He added that "the covenant on economic policy would be good if he really meant a change in direction and a radical change in policy as a whole." Link

"The call of the King to a national compact has two other noteworthy aspects: first, the pact itself: on the other, the unexpected emergence of the King in this matter." writes ELDIA and continues with three suggestions:
"How to get out? 

The question and things, is how to get out of this mess if there is no pact. I see three possibilities: the first is that Zapatero dissolve Parliament, to call elections and the winner assumes full responsibility for the newly acquired legitimacy at the polls. The second would be to resign him, which is the major obstacle to the pact on its very strong and irreversible lack of credibility, and appoint another candidate to succeed while supplies socialist mandate, and who tried to govern the agreement or once: Javier Solana? Joaquin Almunia? The third, finally, would be that everything remain the same because Zapatero is bolted to his chair. I'm afraid this is the most likely, and certainly the least exciting of all." Link

stay tuned!


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