Spaniards are understandably fed up with 45% youth unemployment and 20% general unemployment. They have recently directed their anger at socialists in local government. The causes of their misery are the level of the Euro, the EU austerity programme, their over borrowed state and above all their weak banks. These things are the result of past Spnaish governments signing up to the EU and Euro project. Now they are locked in it is difficult to do much about their problem.
The EU thinks higher taxes are part of the answer. They are part of the problem. The EU thinks the banks need to be buttressed with more cash and capital. That is true in the longer term, but when you want an economic recovery it is not a good moment to become more defensive about bank balance sheets. Nor should they believe the bad debts and other issues in the banks will simply go away. They do need to tackle those, so the banks that remain after asset sales, write downs, capital reconstructions and the like have better assets and are in a stronger psychological position to lend more money sensibly.
There is nothing the Spanish state can do about the high valuation of the Euro. As a result, in order to compete and sell more abroad they have to either work smarter or accept lower pay. US and UK workers have had their effective wages cut by devaluation in recent years. Spanish workers have to agree to cut their wages directly, or agree higher productivity working with their managers.
The state does have to get closer to living within its means by showing it too can bring its spending into line with its income. This also requires productivity boosting measures, or a tougher approach to state employee pay.
So what can power growth when all these adjustments are going on? For growth is needed to help create the jobs. If they take the sensible actions of adjustment the economy can start to export more. It will need more capacity to export, so private sector investment will also rise. If they mend the banks or create some new ones there will be more credit available for suitable projects and businesses. Over time, as jobs are created, private sector consumption can then start to rise as more people have work incomes to spend.
It will not be easy, but that is the only approach. Playing around with more state and bank debts without sorting out the underlying imbalances will not work.
Today PArliament has an opportunity to vote against any further UK involvement in Euro bail outs. We do so just as the EU markets are once again puttingpressure on Greek, Irish and Portuguese debt, and just after a debt rating warning for Italy.
May 24, 2011
I agree – an excellent article!
May 24, 2011
“45% youth unemployment and 20% general unemployment” – Large numbers of people doing nothing is rather unlikely to help the economy recover or reduce debt. The real problem as always is the undemocratic EU’s half baked Euro plan and central, over regulation, of everything. This leaves governments with little or no power to manage things properly but still taking any political blame regardless – doubtless this is all part of the EU undemocratic superstate plan.
People will need to take huge drops in salary to get them working again, doubtless these will mainly be in the private sector as usual so recovery will still be hampered by an overpaid state. If they take these salary drops and have mortgages these will debts will become very large relative to new wages levels. A floating currency (devaluation of wages and debts) and a return to democracy is a far better option.
What is the likely outcome/actual impact of the vote today where does the anti- democratic, pro EU, say one thing do another, Cameron/Clegg stand on this one?
Reply I expect this pro EU Parliament to vote down the motion seeking to stop UK money going to Euro bail outs.
May 24, 2011
Your reply would indicate that our existing Parliament is, as we suspect, totally out of touch with public opinion on the EU. There has to be root and branch change in our democracy if MP’s continue to deny and go against public opinion.
May 24, 2011
Yep, the whips of the pro-European parties (Conservative, Labour, Lib Dem) will make sure that the vote will pass. Without knowing any of the details I’d guess that Conservatives may be allowed to abstain to show a pretence of Euroscepticism / common sense but the government knows only around 30-40 ‘rebels’ will vote not to throw good money after bad so it’s a foregone conclusion.
The prospect of losing the vote and actually having to stand up to the EU, however remote (and it’s infinitisemally remote), would horrify Cameron & co.
May 24, 2011
Highest April public sector borrowing on record £10B or about £400 per household (working and not working) for the month. Good to see Cameron and Osborne are getting a firm grip on government expenditure! And that is before they start borrowing more to lend/give to the other EURO basket cases.
May 24, 2011
It’s interesting to see S&P put Italy on negative watch. I ve been pessimistic about Italy for a year, but that is based on information I can’t disclose. It doesn’t take a banking genius to realise Italian banks avoided the crisis because their counterparty risks were so high no body would deal with them, but the country still borrows – so how’s that then?
May 24, 2011
A CRUCIAL point is that when there was a crisis in the banking sector it was NOT because banks were borrowing too much but because mortgage holders were borrowing too much. Banks got greedy by trying to expand beyond their loan bo
May 24, 2011
But if there was too much borrowing why did rates not rise and throttle off the excess borrowing ? Supply and demand, that is how the market is supposed to work. The root of our problem is that under this fractional reserve system there is almost no limit to the loans(money) that can be created. ANY demand for loans can be met with new money and the rates never get to reflect the demand. Demand is swamped by supply at every point. Even as we had an orgy of borrowing, rates were falling. This is Frankenstein economics. We are now thoroughly , and probably irretrievably, swamped with debt.
May 24, 2011
‘Today PArliament has an opportunity to vote against any further UK involvement in Euro bail outs.’
And if the EU decides that we do have to become involved what are we going to do, leave the EU? Or will our leaders have the backbone to stand up for the UK after decades of craven subservience?
May 24, 2011
I do hope that you and your brave stand against pouring our money into the failing Euro gains a small victory today.
I had the pleasure of living in Spain at the start of the millenium. what impressed me most of all was the dedication of many of the younger generation then at school. They were, for a start, much taller than their parents. Their manners were, on the whole, courteous. They looked fit and had many hobbies and interests when not doing their homework in the library. They thought they had a future and were working towards it.
Now, 45% of them are on the rock’n’roll.
It is not right.
May 24, 2011
The people will be watching very closely to see which MPs care so little about their Country and their constituents that they absent themselves from today’s vote.
When is the Committee for Standards and Privileges going to take appropriate action against the insulting truancy of Gordon Brown?
Reply: Non attendance is a matter for the press and public, not for Standards. Have you checked Mr Brown’s attendance record ?- I see him at Westminster from time to time, so I do not associate myself with your comment. Whips are not allowed to speak in the House, but they can still be effective MPs. Some MPs travel a lot because they handle foreign affairs, but again can be good MPs.
May 24, 2011
Thank you for the correction. I read so much about GB being in other places pursuing his own agenda that I assumed his Parliamentary duties were being neglected.
May 24, 2011
The EU thinks the banks need to be buttressed with more cash and capital. That is true in the longer term, but when you want an economic recovery it is not a good moment to become more defensive about bank balance sheets
It’s the only way. It’s the same as thinking we should be borrowing and spending lots like Millibean.
As for Growth, you aren’t telling the truth. The only bit about growth that solves the government’s problems (the population doesn’t have this problem), is Growth in Tax Revenues. You need to steal more of the public’s money in order to feed the beast.
Each time you say growth, with out mentioning, its growth in taxes that you really mean, you lie a little.
Reply: I do not lie. I have repeatedly pointed out that the whole strategy relies on growth to deliver higher tax revenue. Growth can also deliver higher living standards at the same time, which is a good thing.
May 24, 2011
“Growth can also deliver higher living standards at the same time, which is a good thing.”
Not if the State is taking more of your income through higher taxes and reducing the services you receive, concurrent with 5% inflation and your employer struggling to survive with rapidly increasing costs, which necessitates a pay freeze.
Even you, Mr Redwood, appear a little out of touch with reality of life at the ‘coalface’.
May 24, 2011
5% ?
I think effective inflation is a lot higher than that.
Mr Cameron’s idea of getting middle classes to donate through cashpoints shows a woeful lack of insight as to how potless we actually are.
May 24, 2011
I recall JR pointing out that obliging the banks to use cash infusions to purchase back eurodebt might leave them weaker not stronger, as recent events more than imply. With banks sitting on ‘assets’ of questionable value, sensible lending is needed to generate an income stream to enable the banks to generate enough trading profit to cover the writedowns of dodgy ‘assets’.
May 24, 2011
John
I really do hope that the majority of Mp’s will at attend this debate today, and not just turn up as lobby fodder for the vote, having not listened to a word.
Given the financial state of individual countries in Europe it is now time for UK politicians to think of the UK taxpayer first and foremost, as that is why they have been elected “to serve the people of the UK”.
Why should the UK taxpayer fund the expensive socialist policies in other Countries who will not bite the bullet and attempt to live within their means. Goodness knows we have enough financial problems in our own country that needs sorting, without being hampered with more debt, and debt it will be, because not one of those countries in trouble has the ability to make any repayments on their loans for decades, if ever.
Given the huge financial mess these socialist experiments have caused throughout the world, and especially in Europe, with the free movement of people (immigraion) adding to the problem and distorting local labour rates in the private sector (not in the public sector where wage rates are guaranteed) the idea that any country can grow out of this mess in a few years, is simply pie in the sky.
Time for the world to wake up and realise that each country is responsble for its own future, you simply cannot keep on extending credit for ever hoping that ever increasing taxes will eventually pay for it.
Ever increasing taxes simply reduce the disposable income of people in work, reduces their spending, and reduces any chance of real growth in the economy.
Parliament has an opportunity today to reasert its authority over Europe, will it take it ?
Best of luck to you and all those supporting the motion, but I will not hold my breath.
Reply: There was a good attendance on the Conservative benches, one Lib Dem and a handful of Labour MPs present. Under one half of all MPs voted, with Labour being asked to abstain by their whips.
May 24, 2011
Our Parliament will do nothing. It will not vote against the bail-out as most Tories will vote in favour as they don’t want to blight their chances of advancement; the LibDems are pro-EU and Labour will see it as a way of causing this government further financial problems.
I hope I am wrong, but . . . . . . !
May 24, 2011
As ever, a splendid resume. Sadly, “The state does have to get closer to living within its means by showing it too can bring its spending into line with its income. This also requires productivity boosting measures, or a tougher approach to state employee pay.” the medicine described is rejected by our own children in Office.
May 24, 2011
I wonder if our youth unemployment figures would be any better. Only around 5% of my peers went on to university 25 years ago – most of us were in paid work at sixteen.
The Spanish should – as well as seeking growth – be careful to see that their own youth are given priority in getting the new jobs created over foreign workers. Otherwise what would be the point ?
I see that Michael Gove is keen to open up j0b opportunities in British teaching posts to foreign competition in order to ‘get the best talent possible.’
I take it that there must be problems with our university system and our own ‘talent’ pool and that this has nothing to do with driving down wages and training costs then.
Please factor in the cost of one person down the chain put on the dole for every public sector job taken by a foreign national. Otherwise the cost benefits reported to the taxpayer can be a bit misleading.
May 24, 2011
Today’s Order paper is here:
http://www.publications.parliament.uk/pa/cm201012/cmagenda/ob110524.htm
As it stands, the Motion
a) accepts the view that “the EFSM is legally unsound”; and
b) “requires” the government to take certain actions at the next EU meeting:
“… and requires the Government to place the EFSM on the agenda of the next meeting of the Council of Ministers or the European Council and to vote against continued use of the EFSM unless a Eurozone-only arrangement which relieves the UK of liability under the EFSM has by then been agreed.”
There’s now a spoiling amendment to the Motion, almost certainly arranged by the government whips and supported by some of the supposedly “eurosceptic” but tamer Tory MPs, which would dilute the last part to:
“… urges the Government to raise the issue of the EFSM at the next meeting of the Council of Ministers or the European Council; and supports any measures which would lead to an agreement for a Eurozone-only arrangement.”
I think that’s a clear indication that the government doesn’t want this Motion to set the precedent it must accept unwanted instructions from the House of Commons.
May 24, 2011
‘These things are the result of past Spanish governments signing up to the EU and Euro project. Now they are locked in it is difficult to do much about their problem.’
You are right that it’s difficult, but sooner or later, the Euro area is going to have to make some hard decisions. If Spain has 20% unemployment, that is a huge number of people who have been sacrificed to the European project. ‘In a different world,’ says a metaphorical European leader, ‘those people could lead happy, prosperous, successful lives. However, the Euro is too important for that. We must sacrifice them, to preserve the European dream.’
When Britain was in recession because of the ERM, leaving the ERM was the only thing that helped. The ‘peripheral’ Euro countries need to do the same, reintroducing their own currencies, and getting their people’s lives back on track.
May 24, 2011
Sadly this government will not stand up to the EU any more than it’s stood up to any and every critic that have forced U turns on it so far. No real cuts, give huge sums to Brussels, start a war in Libya and actually increase the deficit. If this is the best that the coalition can do then it begs the question “What are real conservatives doing supporting it?”
May 24, 2011
The only practical way to cut Spanish wages is a devaluation. This either means getting out of the Euro or a devaluation of the Euro.
I do believe the sdpanish, like us could work smarter simply by goevernment not enforcing Luddism. However changes like that, which would impriove the growth rate & thus have an enormous long term cumilative effect (as China proves), cannot change much in the short term.
May 24, 2011
The entire EU burocracy should take a 25% pay reduction.
They should stop moving countries every six months.
All EU Cars should be sold and replaced by electric cars.
May 24, 2011
No not by 25% but to 25% of current levels.
Stop moving countries yes and yes to electric cars – at least if they ran electric cars they might realise that they don’t really work very well.
Better still just close the lot now.
May 24, 2011
There is huge swaths of the European population exist on a thousand Euros a month, so expecting them to take a pay cut is not real. Millions more are on the dole, so no pay cut there. A large amount of the people are probably just keeping there heads above water on very low wages for what they do. My wages are less than in 1996, so the employers have had their pay cuts and will not be getting any more from me and many like me, so who exactly is going to take this pay cut? Creating productivity assumes there is a market to sell to and working smarter means working harder for many. In trades there is no smarter way. Get a Spanish worker to do it for minimum wage. I ain’t that desperate and I suspect not many Spanish are either.
May 24, 2011
The Euro is a failed experiment. I urge countries to revert to their own currencies ASAP.
Spain is about to descend into total chaos as it has nothing to offer its young.
Such a lovely contry destroyed by idiots and charlatons. Let by Power Point I bet.
May 24, 2011
led not let
May 24, 2011
Bludgers are leading us into chaos.
June 2, 2011
first of all, I apologize for my english…another spanish hang up and deficit…
Sorry, but some of you, and mainly the article’s autor, are talking about the sleeves (slaves?) of trees…not about the forest and the wolves into it. And all those things sound a little bit ridiculous in the general context (come on guys, make a productivity effort, overcome that pseudoscience called Economy).
Spain social-political-economical problems are huge and old, sure,…All kind of matter about political history, education, economical paradigm, “Growth” model, politician responsability, spanish idiosyncrasy, EU, Euro, etc etc…but I think that it`’s some kind of dishonesty trying to see or analyze all these points, from an a priori point of view about Euro convenience, spanish slackers and our epic un-productivity, and other neocon or anglosaxon neoliberal cliches.
You should know or investigate some other “insignificant” data/info…like Eurostat indicators…that shows that spanish employers perceive (in average of 27 members!!!) 3 times the average benefit!!! Surprisingly…the average worker perceives about 1/3 of the average wage!! And FYI, about 76% of the working population in spain, receives less than 1000 euro, and is one of the EU zone countries with the smallest labor and dismissal costs (with Greece and Portugal) in the EU…
Maybe our productivity could be better or improved (long social argument in relation with all these points: Spain is too many people ordering, organizing anything, having useless meetings and “auto-hanging medals”…as long as one or two learn without training, work and produces for all of them…)
Take for guaranteed that our productivity doesn’t fullfil the kind of proportion that I referred…even comparing with norwegian people!!
Here it´s always the same…80% work as slaves for 20% of high bourgeoisie and aristocracy (or that kind of mentality even in medium class workers playing to be bosses)…
We stay at offices more that 10 hours for wages of 2000 Euros/month (in the best cases!) (passing 30 years old and 22 free days…we are not japanese but nor germans)…
Even more…culturaly spanish people is “new rich mentalitycitizen”, and ok, nobody claims, organize protests and fight for rights (40 years of dictatorship, “promoted” by a lot of developed countries, mainly USA and UK)…but when you see the price of home renting…and massively, population decide to undertake a mortage (wild conditions and un-sure, irresponsible bank policies…etc), we pay 4, 5, 6 times the logical, market or legal/moral price of the houses…with the same wages! ¿¿?? Enormous piece of shit.
Oh, and we are the UE country with the greatest amount of 500 Eu notes in “the street”…but you can be sure, believe me, that it´s hard to see or touch one of them.
Have you heard about B Economy, Black Money? You call it Laundering Money…one point else.
Even more…being like this, our working class tax bourden….is on the average of Europe (and I know perfectly the wages level for physicists, engineers, analysts, sciencists, etc…in Holland, UK, France, Germany, Sweden, or even in Slovakia, Czeck Rep, etc…)
And obviously, the response to all of this is usually the classical brain drain and the results of : disquietude, indignation, dejection, etc…of our Youth (not so bad mannered, even brilliant, with all kind of degrees, certificates, courses, masters, languages…) , but in a shameful short-term benefit feudal-inheritance context and economical culture.
Now we are in the streets…maybe tomorrow we will be changing the rules.
For all these things…it´s so easy, a bit much easy for people with high education, knowledged and information about the world, …. doing that kind of simplistic, one-side minded analysis, with those worn-out “arguments” settled on a priori, conservative, neoliberal, reductionist, decadent…economy “thought”.
Try to travel, and talk with people of any class and condition, and practice the doubt about life, human and earth…maybe you will be a little bit near science, truth, balance, wisdom…