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Let us all extend our sympathies to the Spanish people. They face the greatest national emergency since the Civil War yet their vote for drastic change is palpably useless, even if democracy has in this case at least been respected.
As union leader Javier Dos put it, the EU-imposed austerity plans of the incoming Partido Popular are “nothing more than the continuation of policies leading Europe toward disaster”.
The new government of Mariano Rajoy has precious few policy levers at its disposal and cannot alone do anything at this late stage to prevent a death spiral within the strait-jacket of EMU.
The immediate destiny of his country lies entirely in the hands of Germany, the AAA creditor core, the EU authorities, and the European Central Bank, the nexus of policy-making power that together dictates whether Spain will be thrown a lifeline or be pushed further into depression and social catastrophe.
What can the quiet Galician do to stop Spain’s 22.6pc unemployment rate – or 46pc for youth – from ratcheting higher this winter as the combined effects of fiscal austerity and a credit crunch together do their worst? How can he stop real M1 deposits contracting at a 5pc rate.
“Spain is going to take the lead in economic stability once again, as we did in the 1990s: the situation is not so different now,” said Mr Montoso.
One admires the grit, but this is nothing like the mid-1990s, when the world was growing briskly, and the devalued peseta was super-competitive against the D-Mark. Today the whole of Europe is tipping back into recession and Spain is 30pc less competitive against Germany.
My own view is that Spain is still fundamentally “saveable” within EMU. Spanish exports rebounded from the 2008-2009 crash almost as fast German exports, outperforming Italy and France.
But this cannot be achieved as long as fiscal and monetary policy are set on slow grinding slump; nor if the burden of adjustment falls entirely on the weaker states as in the 1930s, forcing these countries to slash themselves into a Grecian vortex of self-feeding recession.
German finance minister Wolfgang Schauble – the most dangerous man in the world – is imposing a reactionary policy of synchronized tightening on the whole eurozone through the EU institutions, invoking a doctrine of “expansionary fiscal contractions” that has no record of success without offsetting monetary and exchange stimulus. What is abject is that EU bodies should acquiesce in this primitive dogma.
“Too much virtue has become a collective vice. The collective outcome of all member-states tightening fiscal policy has proved brutally contractionary for the region as a whole,” said the CER paper.
“Household and business confidence is crumbling rapidly across the currency union. On current policy trends, a wave of sovereign defaults and bank failures are unavoidable. Much of the currency union faces depression and deflation.”
It Germany genuinely wishes to save Spain and Italy, it must allow EMU-wide reflation and mobilize the ECB as a lender of last resort to halt the bond crisis, since the EFSF rescue fund does not exist.
To create a currency without such a backstop is criminally irresponsible. If this role is illegal under EU treaty law – and that is arguable – then EU treaties must be changed immediately.
If Germany cannot accept this for understandable reasons of sovereignty or ideology, it should accept the implications and prepare an orderly break-up of monetary union. That is the only honourable course.
In the meantime, one can only watch with grim foreboding as the fifth successive government collapses in Europe’s arc of depression, to be replaced by saviours who can save nothing.