Re: Re: Spain: the new crisis in Euroland

#99278
rt21
Participant

Hi Chris

I have just read your latest post. I think your question about who is managing the whole collapse better – Eurozone or Britain – is impossible to answer. Remember that the Eurozone is not a country nor a state, so comparisons would be very difficult even for a trained economist, which I am not. The problem is that the Eurozone is a collection of states, each sharing a common currency, but facing quite different economic problems. If we take Germany for instance they have a declared policy of building trade surpluses with the rest of the world. They have the infrastructure, investment, training, economic practices, culture etc to sustain this. Spain on the other hand has a very under developed and uncompetitive economy compared to Germany. So it’s not surprising that Germany has been building large trade surpluses with Spain. To sustain this imbalance Spain has to borrow money from other sources to pay for it. It cannot continue for ever with such a state of affairs otherwise it would become overburdened with debt. In the real world these trade surpluses would diminish as the country with the deficit devalued its currency. But Spain cannot do that.

Unlike the UK, Spain is not only having to address the economic problems emanating from the credit crunch but also those emanating from its membership of the eurozone. A one size economic policy for eurozone members is only effective if all members are facing the same problems and for that matter the same size of problems. Clearly this is not the case. Spain is having to suffer the harsh consequences of having had low interest rates set by the European Bank at a time of economic boom in Spain and of not being able to readjust its competitiveness with Germany through currency devaluation. Someone in Spain facing a cut in wages or pensions or benefits or the worse cut of all a loss of job may well feel that it isn’t just a matter of learning to live with the benefits and drawbacks. In my opinion this is where idealism and realism clash full on.

Richard