Wednesday, September 26, 2012

Spain Joins Portugal and Greece as Increasing Rather Than Decreasing Problems for Europe

Before Things Can Get Better They Have to Stop Getting Worse

There has never been any question as to whether or not the austerity programs imposed by Europe’s stronger countries (yes, we’re talking about you Germany) on the weaker countries of Spain, Portugal and Greece was a loser, both economically and politically.  The only question was just how much damage the Europeans would do to themselves before they recognized what they were doing was wrong.

The Rain in Spain Falls Mainly on the Plain
The Disruption and Protests Fall Mainly on the Government
Anybody Want to Invest in a Country Undergoing This?

In Spain all of this is illustrated by the growing political problems of the center/right government which has imposed severe contraction on the economy in an attempt, largely useless, to satisfy the European creditors and get its budget deficit reduced.  Spain is a very de-centralized nation, and now some of the larger semi-autonomous areas are starting to talk about secession, you know, the thing that caused the Civil War in the U. S.

The pressures facing the government of Prime Minister Mariano Rajoy mounted on several fronts on Tuesday, as thousands of demonstrators besieged Parliament and Spain’s two largest regions took steps that underscored their deepening economic troubles and displeasure with his austerity plans.

The larger local regions are calling for early elections, elections that could be considered a referendum on whether or not to split from Spain.

Presenting the biggest domestic political challenge, the leader ofCatalonia, Spain’s most powerful economic region, called an early election for Nov. 25 that could turn into an unofficial referendum on whether to split from the rest of the country.

Catalonia’s demands for more autonomy have been fueled by its own financial problems, which forced the Catalan government last month to request $6.5 billion from an emergency fund of $23.3 billion set up by Mr. Rajoy’s government to help regions meet their debt financing obligations.

Exactly what all this means, or how it will play out is unknown.  And that in itself if a problem, financial institutions and economics hates uncertainty. 

Economists warned that the call for a Catalonia election added yet another element of uncertainty for Spain.

“Once comforted in power after elections, the government could then work more constructively towards a redefinition of the relationship between the central government and the regions,” said Gilles Mo√ęc, an economist at Deutsche Bank in London. “Still, in the meantime, political turmoil in Spain’s richest region could generate the kind of market reaction which would precipitate a request for European support by Madrid.”

Eventually even the blind European policy makers will come to understand what they are doing is wrong.  How long is that eventuality?  As long as it takes.

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