The Spanish crisis

 

              Today the markets will worry again about Spanish bond yields. It now costs the Spanish government 7.2% to borrow money for ten years, above the magic 7% level which many say represents the upper limit of affordability for a distressed Euro area sovereign to pay.

              Spain reached this sorry state late last week. Just as the details of the Spanish bank bail out money were once again being worked over, Valencia announced it needed loans from the Spanish federal government to keep it going.

             The EU spin so far has said that Spain the country is not bankrupt or overstretched. It is only the weak banks, say the authorities, that have led to financing problems. The much vaunted brilliance of the last Euro fix was to segregate financing the banks from financing the state. If the Euro rescue funds could go direct into the banks, without having to go via the state, markets would be relaxed about state borrowing. The markets rallied on this ragged proposition. The Germans were meanwhile trying to ensure there was some Spanish Central Bank/ state guarantee on the money the banks will borrow from the bail out funds, undermining part of the reassuarance.

             Last week the whole  argument over keeping the Spanish state safe from banking excess was overwhelmed by the news that Valencia needs help. Catalonia, Murcia  and others may also in due course want similar assistance. The Spanish provinces have devolved responsibility for big spending areas like health and education as well as more traditional devolved matters in a European federal EU member. As a result the federal government’s austerity packages, demanded by the Euro bosses, of necessity demand substantial cuts in regional spending as well as in federal government spending.  There is little love lost between the main regions and the centre. There is even less when the national government demands cuts. Some of the cuts are proving too painful or difficult. As a result the regions are now asking for some relaxation of the discipline, and at the same time saying they need help from central government to borrow the money they need.

           The Spanish government has also had to announce worse forecasts for the length and depth of its recession. This means less tax revenue and more state spending. The country is in a vicious circle, with more cuts and higher taxes leading to lower output and more cuts, all driven by the Euro scheme. Spain cannot try money printing or credit easing, cannot decide to borrow more because the cycle is against it. It has to increase the cuts.

           That is why Spanish yields are now dangerously high. The EU seniors will need to meet again before their summer holidays if they are to find another way to fend this off with spin and loans. There simply is not enough money to keep Spain going on current plans.

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94 Comments

  1. Posted July 23, 2012 at 6:12 am | Permalink

    Don’t worry your EU loving boss will come to their rescue with more of our money.

    • APL
      Posted July 23, 2012 at 8:29 am | Permalink

      Barnacle bill: “Don’t worry your EU loving boss will come to their rescue with more of our money.”

      Money which we have to borrow.

      • Posted July 23, 2012 at 2:48 pm | Permalink

        Perhaps we might borrow from the foreign assistance as England is essentially a foreign Nation in the current (formerly) Great Britain.

      • zorro
        Posted July 23, 2012 at 3:42 pm | Permalink

        Or print the stuff – you can be sure that if Cameron prints directly rather than obfuscatory QE, it will be to bail out the PIGIS, and in his mind to secure our economic future (sic)……

        Zorro

        • zorro
          Posted July 23, 2012 at 3:49 pm | Permalink

          I also see that Greece needs to pay back some money to Germany quickly or the Germans are saying that there will be no more bailout money……Let’s hope they mean it this time, and Greece can start printing some drachmas. They can still keep the Euro as legal currency, and stay in the EU……The EU has no intention of letting any country go……..

          On that point John, why not give your leader an example to prove himself? Let’s see if he’ll refuse to pay this new demand for money (350 million?) from the ever voracious EU…….Surely, it will be an opportunity to gauge if you have a hope in hell of him ‘repatriating any powers’ whatsoever…..

          Zorro

          • Posted July 23, 2012 at 5:57 pm | Permalink

            There is clearly no hope with Cameron. How could anyone appoint Lord Patten to the BBC and think that being a “Greater Switzerland” with a fiscal surplus, nearly double the GDP per capita, better like expectancy, better health care, better services, lower unemployment, lower crime, fewer divorces, a strong currency, a trade surplus ……… is something not in the National interests. We do not have to have the cuckoo clocks after all just all the above please. What is his vision I wonder? A job for him near the top of an undemocratic, socialist backwater the United States of the EU one assumes. He offers no other vision.

          • zorro
            Posted July 24, 2012 at 8:18 am | Permalink

            His idea of the national interest only coincides with what is in his interest. Surely his contempt for the nation is displayed in his ‘Greater Switzerland’ rhetoric, and his pathetic posturing on the referendum and how it’s not in the UK’s interest to leave the UK. Who in the EU would respect him? They respect power and strength. He would achieve nothing. He is actually worse than Brown and the worst PM in living memory. At least Brown had uncanny powers to influence sporting events (often in the wrong direction) and various disaster for companies he visited……But we could have worked on that and used him as a roving ambassador to sabotage other countries businesses. With Cameron, we don’t even have that!

            zorro

      • Posted July 24, 2012 at 8:11 am | Permalink

        Money Cameron will borrow, immorally using the UK population and future population as security for it.

  2. Posted July 23, 2012 at 6:20 am | Permalink

    Indeed, good old positive feedback doing it worst. But just like Major’s ERM no one can turn round (due to group think and the history of their mad scheme) they just keep heading for the cliff. The concepts of positive feed back seems to be beyond them.

    Mind you it was also beyond a BBC reporter I heard (the usual second rate art graduate I assume), I remember him reporting on global warming. He clearly thought “positive” feedback was a “positive” thing in relation to global warming.

    Led by Donkeys cheered on by the BBC as usual.

    Why on earth do we have people like Baroness Worthington, a graduate in English responsible for the insane climate change act. Passed almost unanimously by MPs but the most expensive legislation in British history as Christopher Booker sensibly points out in the Sunday Telegraph. But is it as expensive as the absurd Euro structures that is slowly Killing the PIGS?

    • oldtimer
      Posted July 23, 2012 at 7:42 am | Permalink

      Perhaps it is all part of a plan? It could certainly be the basis of a more convincing hypothesis than the flimsy reasoning said to support the CAGW hypothesis.

    • GJ Wyatt
      Posted July 23, 2012 at 7:52 am | Permalink

      Quite. It’s a kind of technological newspeak. When they want to emphasise damage they even call it “negative feedback”! Perhaps adjectives like “attenuating” and “amplifying” should be used instead of negative and positive.

    • Bazman
      Posted July 23, 2012 at 10:17 am | Permalink

      Says an admirer of that king of the ad hominem attack Delingpole who bleats so much when the same sort of attack is used on him by calling them eco fascists and saying things like.
      “It’s not my job to sit down and read peer-reviewed papers, because I don’t have the time; I don’t have the expertise.”
      At the same time feels has the expertise to spout off on any scientific subject. Now what is this scientific illiterate individuals degree in lifelogic for you to give his views so much weight that you quote and admire him so often and make you scoff at Baroness Worthington’s scientific credentials? Its English literature. Now just shut up your ranting.

      • Posted July 23, 2012 at 6:11 pm | Permalink

        Clearly there are many sensible people have degrees in English – Delingpole and Simon Heffer I understand. It is perhaps not a very high proportion of them but better than some other subjects I find.

        It is just that Baroness Worthington is clearly not someone who should have had anything to do the UK’s energy system. Any more than I with my training in Maths, Physics and Electronic Engineering should be put in charge of teaching Anglo Saxon.

        That should be the job of some sensible engineers and physicists. Not any priest/evangelist for new quack green religion Labour can lay their hands on.

        • Bazman
          Posted July 25, 2012 at 1:17 pm | Permalink

          A What is Delingpole if he is not a priest? What makes hi right as he is not a sensible engineer or physicist but just some one you agree with?
          Many of your views on the free market are little more than bigoted religious views with little provable basis like his are on many things.

  3. Mike Stallard
    Posted July 23, 2012 at 6:30 am | Permalink

    I love Spain. It is where I go to renew my spirit.
    Franco suppressed the provinces because they were behaving appallingly. That legacy is still there with each region a eurocratic dream of anti Castilian adolescent pique.
    When the Euro was brought in they went mad building unwanted flats for holidays. I was there when they did it. They transformed a rather nice little bay in Murcia and some good walking country with historic monuments from the time of Charlemagne in blessed Asturias into ghastly tower block estates where nobody, but nobody, would live. Add to this a good bit of sharp practice like doing up plumbing with duct tape and Moroccans taking copies of the keys of buildings they had just built and a system of pickpocketing and fraud that would shame the Nigerians and – Bingo!
    I was an eye witness to all of this.
    What I do not know, but am guessing, is that the banks put up the money and now they hold all that useless disgusting and, yes, boring, stock. It is just bits of paper now. The buildings are just bricks. Castles in Spain……..

  4. ian wragg
    Posted July 23, 2012 at 6:32 am | Permalink

    When will all this nonesense end. Next we have Italy, they are all borrowing money to lend to each other. The whole house of cards will soon come crashing down and then what.
    Which country will be the first to exit the Euro, Germany, Finland Austria………, who knows. I see Brussels is increasing its budget and we have to fork out £350 million. We can’t afford to defend ourselves but there is a never ending stream of cash for the EU and overseas aid. Ther sooner Roon and Gideon are history, the better. We can’t afford such cowboys destroying this once great country.

    • zorro
      Posted July 23, 2012 at 7:59 pm | Permalink

      If this goes on much ‘Cast Elastic’ and Mr Morally Repugnant will be the most unpopular and least regarded politicians in recent history. They really will make it very difficult for the Conservatives to get in power for a long time. I do not think that the Conservative MPs will stand for it, and ill be forced to make a move before the end of this Parliament unless things improve dramatically (which of course will not happen with the current direction).

      zorro

  5. Pete the Bike
    Posted July 23, 2012 at 6:34 am | Permalink

    How can the source of the problem cure it? The EU and national governments are entirely, 100%, totally to blame for the financial crisis which they utterly failed to see coming. Their incompetence is matched only by their greed. They cannot solve the problems except by abolishing themselves which isn’t going to happen. Reality can only take so much hot air and manipulation before it kicks you right where it hurts so even if they stamp out this newest flare up the raging inferno they started will get us all in the end.

  6. Iain Gill
    Posted July 23, 2012 at 7:07 am | Permalink

    Well you know I’m a senior IT pro, been doing it for 30 years, have a long track record of putting in successful systems on time and budget, what would I know.
    Worked with public sector customers a number of times over the years and seen it all. The extremes of the NHS multi billion pound of waste that was obvious to any of us with a clue from the beginning. But then Blair picked a right good un to run that didn’t he.
    And the last few days I’ve been looking at the work of one Liam Maxwell ex head of IT at some posh school (the same one Cameron went to) who apparently knows more about putting in successful timely cost efficient systems than I do (please………) apparently he is kicking tyres waiting for a safe Conservative seat in what we laughingly call a democracy (that will be another seat excluded from anyone with a normal background) pretending to be deputy government CIO (oh how we laughed nobody in these seats has a clue) and has been busying himself putting lots of extra box ticking culture in place (like that’s going to help), and lots of tick boxes like we are signing laptops out in a school, and assuming the centre knows best just like Stalin did
    Meanwhile the government continues with the crucifixion of the British IT business by printing work visas and indefinite leave visas for half of India to work here
    You couldn’t make it up
    Is this REALLY the best the political cloud can do?

    • alan jutson
      Posted July 23, 2012 at 7:51 am | Permalink

      Iain

      “Is this REALLY the best the political cloud can do”.

      Afraid the answer is yes.

      Because if you do not have any experience of managing people, working contracts with deadlines and budgets, purchasing in a commercial world, hiring and fireing and are without any technical knowledge, then you tend to take on anyone with a good story who you tend to like, or who has something in common with you.

      Thus you tend to get people like you, who know little.

      Whilst I share your frustration in many other areas, Mr Cameron does not exactly have a good track record of employing the right people does he, so why does this surprise you.

      • zorro
        Posted July 23, 2012 at 8:00 pm | Permalink

        It’s the ‘Tim Nice but Dim’ syndrome……

        zorro

    • APL
      Posted July 23, 2012 at 8:36 am | Permalink

      Iain Gill: “Is this REALLY the best the political cloud can do?”

      No, they will do a lot worse yet. What they cannot concieve is that the systems they put in place to ‘improve’ the situation, will inevitably make it worse. But they cannot say ‘we should take a step back and try something different’, simply because that different thing would mean no greasy pole to slither along.

      So the solution is always more ‘czar’s’ more ‘overlords’ more check-boxes, more databases.

      Don’t worry they can make it worse.

    • Bazman
      Posted July 23, 2012 at 9:11 am | Permalink

      It would be great if you could help the UK and business by working for minimum wage like the rest of the trades Iain. Or even better on the side. IT? Just pulling cables through walls I imagine? Your boss takes all the risks so deserves all the rewards.

    • REPay
      Posted July 23, 2012 at 12:58 pm | Permalink

      I am so depressed that there is no clear narrative (save in this blog) about the banking crisis which is now so clearly a sovereign debt crisis…and in the case of the USA and other federal countries like Spain a local government crisis. The overhead in financial terms, results from vote grubbing politicians borrowing from the future to secure votes now. the greedy bankers – the BBC’s chosen scapegoat, should be joined by politicians, mainly of the left, in the stocks.

      These elastoplast solutions to the euro crisis are leading somewhere very bad…and i don’t think our media is able or wants to explain it to us. The media in the UK loves the ridiculous austerity v growth narrative the Labour party has put forward.

      Democracy depends on debate. With no coherent set of facts and narrative this becomes impossible. So people concerned about and knowledgeable about the euro are still called “swivell-eyed” or extreme right wingers.

      Re the IT appointment Liam Maxwell may be very good – I just googled him…but yet another Eton-related appointment does make one embarrassed to (faute de mieux) support a party run by such a clique. Actually, I realize that I vote Tory to keep the wastrel Labour party out. Living abroad my vote will be confiscated after ten years. The only western country where citizenship does not guarantee a vote!!

      • forthurst
        Posted July 23, 2012 at 5:41 pm | Permalink

        “Re the IT appointment Liam Maxwell may be very good – I just googled him”

        Banging the drum for ‘open’ systems is all well and good, but the next revolution, already underway, is about SoCs. Software suppliers who fail to keep up will simply exclude themselves from the party. They’d be better off getting a briefing from Tudor Brown about the future direction of IT, although he might not have the same grasp of the ‘Open Society’ as Maxwell.

        • forthurst
          Posted July 23, 2012 at 8:05 pm | Permalink

          …’Big Society’. ‘Open Society’, no chance.

          …or Mr Maxwell could simply look at:

          (refers to a presentation which seems to be copyright protected so I have had to delete it.)

      • Jon burgess
        Posted July 23, 2012 at 8:23 pm | Permalink

        Hopefully Cameron will have taught you that by voting Tory you kept out Labour and got….no discernable difference. Please don’t make that mistake again.

  7. alan jutson
    Posted July 23, 2012 at 7:18 am | Permalink

    One is forced to ask:

    When will politicians stop banging their heads against the same brick wall.

    The answer.

    When the wall falls down.

  8. Brian Tomkinson
    Posted July 23, 2012 at 7:28 am | Permalink

    What amazes me is that the markets always rally after the latest EU “euro fix” and subsequent spin. They then realise that it was all smoke and mirrors and the whole charde begins over again. At the root of the problem is the dishonesty of the EU and the determination of the politicians and bureaucrats to create a country called Europe by stealth. The EU is an anti-democratic organisation and it is that same dreadful cabal that is supported so strongly by your leader and under whose leadership the prospect of the UK leaving will never be contemplated.

    • zorro
      Posted July 23, 2012 at 8:03 pm | Permalink

      Markets exist to set pricing and facilitate the making of money, and there are opportunities to make money on the back of these silly bailouts.

      zorro

  9. Duyfken
    Posted July 23, 2012 at 7:29 am | Permalink

    Newspapers have been reporting ‘The euro is “irreversible” and not in danger, says Draghi’, this in an interview over the weekend. This is supposed to impress us, the public but of course means nothing. The head of the ECB is unlikely to say other than bullish things about his currency and we can expect similar useless statements from other eurozone officials and political leaders right up to the day it all collapses. Meanwhile, they must be making attempts to save their own skins and we should look for signs of any covert manipulations they may be making.

  10. Ferdinand
    Posted July 23, 2012 at 7:54 am | Permalink

    You are right to say a Spanish crisis but it is a priori a Euro crisis. Picking off one state at a time will not produce a cure unless that state leaves the Euro. Each time a state leaves the Euro it will strengthen the Euo – even if it was Germany – not by raising its value but by the opposite , effectively devaluaton for those countries left , which is exactly what they need.

  11. oldtimer
    Posted July 23, 2012 at 7:58 am | Permalink

    Spiegel Online has an interesting piece in its “The World from Berlin” series in which it recaps opinions from several leading newspaper editorials. The latest headlines “Merkel is Driving Europe into the Abyss”.

    This follows her success in getting the German Parliament to approve the latest Spanish bailout package. It is increasingly evident that editorial opinion (and public opinion) is hardening against the the increase in potential German liabilities implied by these bailouts = a recognition that the can, kicked down the road over the past couple of years, is rapidly turning into a dustbin.

  12. GJ Wyatt
    Posted July 23, 2012 at 8:16 am | Permalink

    The basic design faults in the Euro now reveal the design faults in Spanish devolution and Italian regions like Sicily.

  13. The Prangwizard
    Posted July 23, 2012 at 8:17 am | Permalink

    I think I may go out and get myself a pick-up truck. You know, like the ones we see in the news!

    • alan jutson
      Posted July 23, 2012 at 3:31 pm | Permalink

      The Prangwizard

      I have got one !!!!

      Imported from New Zeland at the time, with lots of extras included in the price, but not the one extra I think you my be attempting to outline.

  14. Leslie Singleton
    Posted July 23, 2012 at 8:38 am | Permalink

    They are all saying different things which makes an appalling situation even more appalling. Could the different languages have something to do with it? Not to mention that a lot of them despise each other. All these different names spouting off. Wasn’t but a week or two ago that somebody of importance in Spain ()don’t want to be too rude and mention names) seemed genuinely to believe that the Spanish banks had been granted a “Line of Credit” he called it, showing how much he knows about (American) Lines of Credit (given only to the most creditworthy borrowers). Robbing Peter to pay Paul. Haircuts all round I reckon. Germany sticks out like a sore thumb and should leave. Best I can see that would solve everything given that the D mark would go up not down. If certain other countries wanted to parallel the D Mark that might work. The present situation is ridiculous.

  15. Sue
    Posted July 23, 2012 at 9:17 am | Permalink

    Spain seems to be making up their own rules for EU migrants now too, including Britons. Isn’t his something we should all be doing in Europe? Are they allowed to do this? I thought member states had to treat other EU citizens with impartiality, (as if they were their own?)

    Having lived in Spain myself for 6 years, I know of several people who would no longer qualify to stay. I expect some of them are getting concerned.

    “The Spanish Government has introduced new residency requirements for all EU citizens – including Britons – who plan to reside in Spain for more than three months.
    Under the new rules, EU citizens applying for residency in Spain may be required to produce evidence of sufficient financial means to support themselves (and dependants). Applicants may also be asked for proof of private or public healthcare insurance.

    The Ministerial Order sets out the new requirements and some of the documentation applicants may be asked to present. A British Embassy (and therefore unofficial) translation with more detailed information is available on the UKinSpain website.
    All EU citizens planning to reside in Spain continue to need to register in person at the Oficina de Extranjeros (Foreigners Office) in their province of residence or at designated Police stations. More information is available on the Ministry of the Interior’s website”.

    http://www.theleader.info/428/article/35320/new-residency-requirements-for-eu-citizens-planning-to-live-in-spain-for-more-than-three-months/?

    • Bob
      Posted July 24, 2012 at 9:58 am | Permalink

      What about their human rights?

  16. Posted July 23, 2012 at 9:41 am | Permalink

    Meanwhile the rest of the world, outside the EU has never been part of the advertised “world recession” and growth of 6% continues. The could be out of recession in very short order if we adopted UKIP’s economic policies and every serious politician, economist or journalist knows it.

    • uanime5
      Posted July 23, 2012 at 5:12 pm | Permalink

      No matter how many times you post this rubbish it will never become true.

      Japan, the USA, Canada, Australia, and New Zealand are outside the EU yet their growth if much lower than 6%; proving that low growth is not the fault of the EU.

      • Posted July 25, 2012 at 11:37 am | Permalink

        The EU is not the only problem – socialist leaders like Obama and Cameron are too.

  17. Posted July 23, 2012 at 9:50 am | Permalink

    What a shame that we can’t get at the 21 trillion dollars hoarded away in off shore tax havens by the very wealthy.

    There is a national feeling that the wealthy pay less tax by percentage than the poor. That is poisonous and national governments need to, in this time of emergency, act to stop this off shore tax haven scam.

    • uanime5
      Posted July 23, 2012 at 5:13 pm | Permalink

      This tax haven scam won’t stop any time soon as all the major political parties ignore it in the hope of favourable donations during election years and directorships when they leave office.

    • libertarian
      Posted July 23, 2012 at 5:41 pm | Permalink

      Really and what do you think the politicians would do with the alleged £trillions? Redistribute it to the workers? Build a hospital and school on every street corner. Or waste it on vain glorious pork barrel projects?

      Oh and by the way please stop falling for this tax nonsense. The vast majority of this offshore wealth, is offshore because its owned by overseas companies that just happen to have offices in the UK ( currently)

    • Jon burgess
      Posted July 23, 2012 at 8:42 pm | Permalink

      ah yes, everything would be just chipper if the wealthy were just squeezed a bit more. Reducing the complexity of tax regulation and reducing the overall levels of taxation will yield much more revenue and do much more to limit the activities of a few offshore accountants than bringing in a super tax. But best not learn from history, I guess.

  18. Atlas
    Posted July 23, 2012 at 10:07 am | Permalink

    … and problems often come to a head in the summer recess(1914, 1939). So where will the riding of the Economic Tiger’s tail take us this time?

  19. Acorn
    Posted July 23, 2012 at 10:08 am | Permalink

    There will always be enough money, the ECB will keep printing it and swapping it for Spanish; Greek etc IOUs. Nobody is ever going to pay it back. There is no limit to how large the ECB – or any Central bank – balance sheet can get; they are still way behind the Japanese debt to GDP ratio. Mind you there will be a hell of an interest bill to pay each year; ask the Irish.

    Remember the days when we used to talk about “money supply” and metrics like “M3″. The BoE did away with all that media speculation by cancelling M3 and making up another metric called M4; which is M3 multiplied by the square root of Uncle Merv’s underpants. Anyway, everyone else still uses M3. So, hopefully, this link to an ECB graph may work:-
    http://sdw.ecb.europa.eu/browseChart.do?node=2116082&BS_SUFFIX=V&sfl5=4&SERIES_KEY_checkall=1&DATASET=0&sfl3=4&SERIES_KEY=117.BSI.M.U2.Y.U.A20.A.I.U2.2250.Z01.V&SERIES_KEY=117.BSI.M.U2.Y.U.A21.A.I.U2.2250.Z01.V&SERIES_KEY=117.BSI.M.U2.Y.U.A22.A.I.U2.2250.Z01.V&SERIES_KEY=117.BSI.M.U2.Y.U.A23.A.I.U2.2250.Z01.V .

    It gives a clue to why money lending has collapsed because money borrowing has collapsed. And, why nobody talks about the “money multiplier” anymore. Austerity kills, should be overprinted on every Euro and Pound note.

  20. norman
    Posted July 23, 2012 at 10:43 am | Permalink

    Often on websites there’s a little drop down box that lets you change currencies.

    Couldn’t Merv hire someone to add this to his computer? Then the next time he types in 50,000,000,000 he can change the pound to a euro, help out our biggest trading, so many million dependent jobs, etc. A small price to pay.

    Worth thinking about.

  21. Martyn
    Posted July 23, 2012 at 11:32 am | Permalink

    John, are we not worrying too much about this? I am reassured by this extract of an interview conducted by Der Spiegel with the Eurogroup President and Luxemburg Prime Minister Junkcer on 16th July, which would appear to resolve all concerns about the strength of recovery for Spain and the Euro….
    SPIEGEL: Apart from the German-Italian disputes, the summit didn’t make much of an impression on the financial markets. After a brief respite, interest rates for Italian and Spanish bonds have returned to crisis levels. Why can’t Europe find a way out of this vicious circle?
    JUNCKER: I would caution against putting too much stock in the short-term assessments of the financial markets. The most important outcome of the summit was that Europe’s politicians managed to agree, for the first time, on a long-term structure of the euro zone: joint banking supervision and enhanced cooperation in fiscal and budgetary policy. I’m confident that this realization will take hold in the markets sooner or later.
    SPIEGEL: After two-and-a-half years of crisis policy, we see things differently. The number of troubled countries is growing, the bailout funds are getter bigger and politicians are divided. Are you seriously calling this progress?
    JUNCKER: Absolutely. Contrary to your distorted portrayal, European politicians have actually proven to be capable of taking action and making decisions during the crisis to a degree that I wouldn’t have expected. I’ve been in this business for 30 years, but I can’t recall another time when Europe was capable of making such sweeping decisions as in the last three years. Do you want examples?
    SPIEGEL: Yes, please.
    JUNCKER: Europe got extensive aid and reform programs off the ground for Greece, Ireland and Portugal; we have established completely new foundations for cooperation in fiscal, debt and budgetary policy; and we are in the process of developing a sustainable solution for the Spanish bank problem.

    Problem? What problem?

  22. Jim (Spain)
    Posted July 23, 2012 at 11:42 am | Permalink

    The situation here in Spain is, er, interesting …

    Present government blames the previous government’s policies. The previous government blames the present government’s policies. In fact both parties (PP are in power now, and PSOE were in power until they lost the election in November) have had exactly the same policy: do what Brussels tells them to do.

    The present government is now very unpopular but so is the opposition.

    One of the tragedies of this 30-year-old democracy is the low quality of the politicians. Spaniards are very talented and hard-working in many fields but they have, for example, never had a president who speaks English.

    Franco lowered expectations greatly … When will the Spanish people realise that they deserve better?

  23. Liz
    Posted July 23, 2012 at 12:05 pm | Permalink

    People in the grip of fanatism – as are the Brussels bureaucracy & political elite – are beyond reason. They will not admit that there are any flaws in their project until Italy or maybe even France is threatened with bankruptcy

  24. kfc1404
    Posted July 23, 2012 at 12:23 pm | Permalink

    They will stick another plaster on, just like the last time.

  25. Phil Richmond
    Posted July 23, 2012 at 12:26 pm | Permalink

    John – the company I work for has unoffically washed its hands with Europe. All our profits and growth are coming from Asia and we are expanding rapidly into the emerging markets. Countries like the US, Australia & Canada are still holding up well. Our share price has doubled in the last 5 years.
    Your boss seems to think this countries future is tied to this economic corpse aka the EU however from personal experience I can tell you he is an idiot! I wish I could tell him to his face one day.
    Also can I add that if we left the EU my company could massively increase its profits as we need the UK goverment to negotiate trade deals in places like India which would benefit UK exports.
    Anyway I have left your political party and joined UKIP. I dont care which of the Lib/Lab/Cons gets in power. You are all the same. Even the more enlightened Tories show know signs of removing their worthless EU-fanatic leader. The country is finished!

    • Posted July 23, 2012 at 2:42 pm | Permalink

      Asia is our future: and it is a bright one! Set the children of England free from this rot & let’s get on with it.

      UKIP is ready to lead.

    • Derek Emery
      Posted July 23, 2012 at 4:10 pm | Permalink

      The problem is that the political elite from all UK parties are from a very narrow public school and arts degree at Oxbridge background. Most have never has a real job in their lives. Worst still all their contacts are with a very limited group of individuals out of the UK population. They will meet EU top politicians, lobbyists for company contract and representatives for the public sector. There will be barely any contact with the private sector which can only flow upwards to the top by MPs from their constituencies.

      The political system today is top down with an elite few who are isolated from the real world determining policies from a position of splendid isolation.

      Blair effectively broke the back of the parliamentary system of representation from the constituencies and that practice has been continued today.

      Hence there is no representation possible for companies like John Richmond’s as the view from the top is blinkered.

    • uanime5
      Posted July 23, 2012 at 5:18 pm | Permalink

      I don’t understand why you want the UK to negotiate with India rather than the EU? The EU can far more easily open up the markets in India because it is more powerful than the UK.

      Also the UK is free to export their products to anywhere they want, so it’s not necessary to leave the EU to trade with India.

      • Jon burgess
        Posted July 23, 2012 at 8:49 pm | Permalink

        So you would rather have someone else do trade deals on your behalf? How does this mean you get the best deal for you and not for them?

        • zorro
          Posted July 24, 2012 at 12:03 pm | Permalink

          uanime5 obviously believes that the EU has the UK’s best interests at heart……..He believes many things.

          Zorro

    • Michael Lee
      Posted July 23, 2012 at 11:50 pm | Permalink

      Phil Richmond reports his company’s disaffection with the European market. I’ve reduced my exposure to Europe. But following the news of further financial problems in Spain, I checked my portfolio which was down £730 today. Gold is looking increasingly attractive.

      Mr Richmond has joined UKIP. I’ve previously been disappointed with UKIP; despite encouraging noises little seems to have been achieved. But I listened to an edition of “Any Questions” recently, in which Nigel Farage was on the panel. There was no knock out, but Mr Farage won on points. Despite having unfortunate initials, Nigel Farage would appear to be a distinct improvement on the DysgeniC DC.

  26. Leslie Singleton
    Posted July 23, 2012 at 12:27 pm | Permalink

    Argument by analogy is notoriously weak but I cannot help thinking of my Chemistry lectures so long ago. To get from A to B, albeit that that there is where everybody knows the reaction wants to go because of B’s lower Energy Levels, there is often a hump in the graph representing the Activation Energy required in the middle before B can be reached. Like a mountain in the way of a verdant valley beyond. Everybody knows that this side of a another 1,000 years we need the Euro to be remodeled or shrunk, just as the mountain needs to be climbed, but the real problems are not addressed so we get nowhere. It is something like cowardice in the face of the enemy. Can it be possible that there are people who think the problem will be solved by this continuous robbing of Peter to pay Paul when it is obvious that the debt levels, though serious enough, are merely a symptom and not a cause? Someone will be assassinated soon or worse and the dreamers in Brussels will be (ir)responsible.

  27. Dennis
    Posted July 23, 2012 at 12:34 pm | Permalink

    ‘There simply is not enough money to keep Spain going on current plans.’

    I do not pretend to understand what is going on but I think this final sentence is the key point. As far as I can see there are no other possible plans that would be acceptable to Germany (the ultimate paymaster) that could keep Spain going. Coupled to Italian bond yields now over 6% and rising it looks like the end game is now upon the Eurozone. The credibility of the Eurocrats and their summits and rhetoric has pretty much been blown apart.

    I really feel for the ordinary peoples of these countries whose lives have been ruined by this grotesque political experiment.

  28. Dan Course
    Posted July 23, 2012 at 12:43 pm | Permalink

    Thanks again for explaining the news! I catch so many headlines and don’t understand, but I read your blog posts and it starts to make sense.

  29. David Langley
    Posted July 23, 2012 at 12:44 pm | Permalink

    Indeed but as I understand it the EU bailout fund is pretty much used up. There is a vote in Germany later this year to allow a further 400 B Euro to EU central banking. That is if the German people fall for it. It will not be enough and things by then will be worse. I was told never to throw good money after bad, but this simple dictum has never been heard of by the EU politicos.
    I also understood that in economics one had to let bygone be bygones. In business stop doing things wrong and do the right thing even if one had to strangle your favourite “project”.
    The EU is a project too far I am afraid and we need now to accept this. We have little time to build up a war chest for our expensive withdrawal but we need to start. Our present government must understand how serious this is, I feel totally frustrated that we are not already on a war footing with the corrupt EU and seeking common ground with all the defeated nations to escape from the impending defeat. By the way what does Hague really need to know about the EU that he doesnt know already or have we joined something that is an enigma to our government. Buying time is ok for cancer victims but not my England.

  30. Jeremy Maynard
    Posted July 23, 2012 at 12:47 pm | Permalink

    For forty plus years I’ve supported the Conservative party and yet I despair at the complete lack of leadership in our party. The Euro experiment is a busted flush and although as an ex-coporate banker like yourself there would be a somewhat negative downside to the UK if the people were allowed a free vote on the EU and we actually decided to leave, the pain would be relatively short lived and we’d be at least £13.5 Billion a year better off.

    Our overseas aid budget is completely indefensible as we’re now giving more on overseas aid than we spend on our entire police budget – this is manifestly wrong when our people are having to endure real cuts to government spending at home.

    So many of us who have been lifelong supporters of the party are now seriously considering switching their political allegiance to UKIP if only to send a strong message to the party that enough is enough. We need a Conservative government with a strong overall majority at the next election so that we can shake off the shackles of Coalition politics which are now seriously hindering our recovery.

    It’s time that our Prime Minister listened to his back benchers properly who are more in tune with their constituents and the real mood of the country and followed some policies which will restore the Conservative party to its rightful place as the only government which can actually sort out the mess that Labour left us to manage.

    • Posted July 23, 2012 at 2:39 pm | Permalink

      Mr. Redwood are you listening? The Chap is going to multiply by the millions. UKIP only need a Conservative of stature to assume leadership very soon…who will it be? Perhaps not an elected politician…

  31. Conrad Jones (Cheam)
    Posted July 23, 2012 at 12:56 pm | Permalink

    “There simply is not enough money to keep Spain going on current plans.”

    But is there a related lack of Resources in Spain?

    24.6% Unemployed, about 50% Youth Unemployment. This is a Spanish Depression.

    “money acts as a unit of account” – from Wikipedia.
    A shortage of money is like saying that there is a shortage of Accounting Entries.There are not enough Account Entries to represent goods and services so people are unemployed and Goods are not being produced making the situaiton worse.

    If there was sufficient Money in the System (Money is not a Natural resource but it i supposed to represent Natural Resources) , there would be money for Farmers to take on more staff and increase Farm Production.

    The Housing debt has to be written off someone without abandoning the people who haven’t got into debt. Some sort of Debt Jubilee – as proposed by Professor Steve Keen.

    Mortgage debt – excessively high house price inflation, is dragging behind the Spanish Economy, holding back a generation just so Banks can make a profit on debt they should never have issued, or created.

    The EURO is a monster debt machine that is as bad idea as the Treaty of Versailles.

    John Maynard Keynes was correct – the Germans did seek revenge and so will Spain.

  32. Posted July 23, 2012 at 12:58 pm | Permalink

    Spain and the other failed states should leave the euro either volountary or be forced into it.

    • zorro
      Posted July 23, 2012 at 10:20 pm | Permalink

      That option is not on the Euro a la carte menu……It is the ultimate ‘Hotel California’….

      zorro

      • Conrad Jones (Cheam)
        Posted July 24, 2012 at 10:40 am | Permalink

        Last thing I remember, I was
        Running for the door
        I had to find the passage back
        To the place I was before
        “Relax, ” said the night man,
        “We are programmed to receive.
        You can check-out any time you like,
        But you can never leave! “

        • zorro
          Posted July 24, 2012 at 12:07 pm | Permalink

          Indeed…..except the EU is not ‘a lovely place’!

          Zorro

  33. Derek Emery
    Posted July 23, 2012 at 1:01 pm | Permalink

    The Spanish crisis will pale into insignificance once markets realize the French economy is bankrupt. John Mauldin of “Thoughts From The Frontline” correctly forecast the Greek problems and was laughed at when he first forecast the Spanish problems but has since been proved to be right.

    He now forecasts that the French problems will come to a head in around a year or so. A web search for “John Mauldin” with “lion in the grass” will find his latest predictions. France’s problems will be too big – even for for For Germany. Mauldin has been spot on so far.

  34. Derek Emery
    Posted July 23, 2012 at 1:44 pm | Permalink

    Greece could be leaving the Eurozone soon as the IMF and Berlin have refused fresh aid according to Spiegel http://www.spiegel.de/international/europe/germany-and-imf-to-refuse-greece-further-financial-aid-reports-say-a-845860.html.
    Perhaps the first domino to fall?

  35. Alte Fritz
    Posted July 23, 2012 at 1:54 pm | Permalink

    Countries are suffering heart attacks and the EU applies sticking plaster.

  36. peter davies
    Posted July 23, 2012 at 2:04 pm | Permalink

    One thing after another, now Spain next Italy then who? – its clear the game is up and its high time these countries starting reverting back to their old currencies. At least then they can delavue and recover and avoid any more contagion.

    Did the best economic minds in Europe really put this stupid experiment together – you couldn’t make it up.

    • Bob
      Posted July 24, 2012 at 10:22 am | Permalink

      @peter davies

      “Did the best economic minds in Europe really put this stupid experiment together?…”

      Economics were never a consideration, it’s pure politics.

    • Chris
      Posted July 24, 2012 at 7:48 pm | Permalink

      It has given the political elite massive power and wealth with no accountability. For them it was not stupid, but deadly serious.

  37. Bert Young
    Posted July 23, 2012 at 2:04 pm | Permalink

    There is no sign that Cameron is going to swing to the right and get us out of the awful European mess . We cannot afford to stay in it yet, he says , we cannot afford to leave it . He must not be allowed to front up for the UK when the majority say they want out. This is a democracy and the politicians have a responsibility to maintain it . It’s too long to wait for the next election ; MPs – act now !!

    • Bob
      Posted July 24, 2012 at 10:24 am | Permalink

      “It’s too long to wait for the next election ; MPs – act now !!”

      Good advice!

  38. Normandee
    Posted July 23, 2012 at 2:13 pm | Permalink

    No sign of that stand against all this stupidity yet, nobody resigning with a fire and brimstone departing statement that only the BBC could ignore, no crossing the floor, plenty of votes for insignificant actions that threaten nothing, but lots of complaining and gnashing of teeth.
    And the joyride goes on.

  39. Christopher Hawkins
    Posted July 23, 2012 at 2:15 pm | Permalink

    Spanish 2 year paper hit 6.74% earlier today and 10 year bonds 7.53%. In the face of up popped Luis de Guindos, the Spanish finance Minister saying that Spain will “absolutely not” need a propper bail out. Is it any wonder that when they have lied so many times in the face of any and all evidence to the contrary, that nobody believes them anymore?

    They said, a long time ago it seems now, that no bailouts would be needed. Then Greece was the exception… Now we have Greece (2 bailouts), Portugal, Ireland, Cyprus coming and Spain needing. These people must be prosecuted when the hour of freedom strikes, as it inevitably will.

    • Leslie Singleton
      Posted July 23, 2012 at 3:08 pm | Permalink

      It was also said – by Merkel I believe – that (said with derision this) there was no chance the IMF would ever be allowed, repeat allowed, in to help, which translated for the benefit of the weaker brethren, became the IMF not just being allowed but begged to help. Germany is big and ugly enough to go on its own–where is it written that it has to stay a member of the EU? Everything becomes right if they withdraw. Even the leaving the Euro aspect would be easy with reinstatement of a D Mark that everybody knows would appreciate. Germany is the problem not the solution.

  40. Posted July 23, 2012 at 2:32 pm | Permalink

    Finally the beginning of the end! Murcia is next. Spain is the prime example of euro madness. An economy like Flirida with regulations like East Germany; regional often worse. Essentially they are in contraction with jobs being maintained due to inflexible work rules. May it come just in time for the US presidential election & send the ludicrous Nobama back to well-earned obscurity!

    Cast Iron better put on his dancing shoes because England is about to wake up…

  41. MajorFrustration
    Posted July 23, 2012 at 3:16 pm | Permalink

    Summit after summit reprieve after repieve and still it goes on. The suggested e100b for Spain is unlikely to be enough – so lets say e450b for Spain and its banks. What about italy – well think of a number. Put another way – does anybod think that come 2014 that the Afghans will be able to sageguard their population. It all boils down to culture even tho money will be thrown at Spain and Italy its not going to do any good. Let them take the hit – its the only way they will learn. So UK banks might suffer but they have had it good for the last ten yrs or so. Unless DC starts to take control and thinks about the UK its goodbye Tories. OK the others are muppets but the Tories promised so much and………

  42. uanime5
    Posted July 23, 2012 at 5:03 pm | Permalink

    Given that the UK has printed hundred of billions of pounds yet is predicted to only grow by 0.2% it seems that printing money doesn’t help.

    Also if seems that 30-40% of the staff G4S are meant to be providing aren’t turning up for work and those that do turn up often haven’t been properly trained. It seems that more police officers and soldiers will be needed.

    http://www.independent.co.uk/sport/olympics/news/g4s-shambles-revealed-in-internal-report-7965137.html

    • alan jutson
      Posted July 23, 2012 at 6:00 pm | Permalink

      Unanime5

      This G4S thing was doomed to failure from the start.

      So why is everyone surprised.

      Who is going to pay people to be properly trained for weeks/months, so that they can be employed for just a 4 week period, and then dumped.

      If they were to be used as simple marshalls/helpers then they would have some hope, but 10,000 new proper security people from scratch, no way, anyone with a reasonablwe brain should have worked that out.

      Almost forgot, we have thousands of volunteer marshalls doing it for free as well.

      If you want proper security, you have to go with the professional full time people, which is the Police and Army.

      Who was dim enough to think this one up, oh yes Labour with the original contract, then the error was multiplied by the coalition.

      Another £280 million down the drain.

      Soon all the drains will be blocked.

      The mind boggles.

      • alan jutson
        Posted July 23, 2012 at 6:01 pm | Permalink

        Second thoughts, was it £480 million ?.

        • zorro
          Posted July 24, 2012 at 8:25 am | Permalink

          £284 million to G4S…….including a massive management fee which G4S is insisting should be paid to them, when not only are they unable to provide the number of staff contracted but also of the ones they have, only 50-60% are showing up for work……an utter shambles.

          zorro

          • zorro
            Posted July 24, 2012 at 8:26 am | Permalink

            A policeman said on the news that they could have had 15,000 fully trained PCs for a year for that price…..private sector cheaper?…ho hum….pay peanuts get monkeys.

            zorro

    • zorro
      Posted July 24, 2012 at 8:22 am | Permalink

      Certainly not when that QE is used to fund government spending or pay off bank debts rather than stimulate economic activity.

      zorro

  43. Electro-Kevin
    Posted July 24, 2012 at 10:21 am | Permalink

    Very informative and well written, Mr Redwood.

  44. Posted July 24, 2012 at 10:32 pm | Permalink

    This is desperately sad. I believe that most people genuinely enter politics to make a positive contribution to the world in which they live. However, they get caught up in the “policy selling”. In this country it was called “spin”, with the experts called “spin doctors”.
    We need a new moral standard among the political classes akin the the medical doctors. Politicians should have a duty of care towards the people that they represent, like a GP has a duty of care towards his patients. That means substantiating the policy case, and understanding alternative points of view. If painful policy needs to be enacted, then it should be done early. Spain is on a downward spiral, like Greece. If Germany is downgraded it too could be on the slippery slope. All this because politicians have been too enamored with”spin”, and have been in denial of the underlying systemic risks and the structural deficits. Now the results of their spinning is bearing fruit they blame anyone but themselves. And they are still spinning, whilst proposing schemes without any thought into the consequences of their policies. A GP who even approached such levels of malpractice would be disbarred from practicing for life. So should the politicians.

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  • About John Redwood

    John Redwood has been the Member of Parliament for Wokingham since 1987. First attending Kent College, Canterbury, he graduated from Magdalen College, and has a DPhil from All Souls, Oxford. A businessman by background, he has been a director of NM Rothschild merchant bank and chairman of a quoted industrial PLC.
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