The news that Spanish unemployment is now at 24.4% deserves a thread. It is the latest reminder of the complete and utter failure of the Eurozone’s absurd strategy of generalized, undifferentiated austerity for all, simultaneously. What is so frustrating is that it was obvious in 2010 that this would be the result, which is why some of us objected at the time to what was happening: you didn’t have to be a genius to figure it out. I don’t see any way that the Eurozone will survive in its current form unless the macroeconomic policy mix changes, and I’m not sure it will change, even if M Hollande gets elected.
65 replies on “Spain”
So, at this very late stage, what would you like to see happening? Do we write off debt and start again with a clean slate? What can be done to get the economy growing again?
“Bond bears are in control of peripheral markets and there is a cruel sense of inevitability about this crisis. Only savage austerity or an extraordinary measure by the International Monetary Fund of European Central Bank will stop them.”
in fairness, Spain would have a monster unemployment problem regardless of austerity. Remember, they haven’t implemented all that much domestically as of yet.
Wow. Good to see someone blogging here actually pinning their colours to the mast.
Given the recent changes in employment law there, one assumes the situation is going to get even worse in the next quarter. Those hot summers can cause mighty short tempers.
Does anyone know how to fix this situation or is Europe broken and it’s just going to take some time to see just how bad it really is.
A war (or two) generally sorts these things out.
Super Mario needs to wake up and stop talking about inflation in Germany as an issue. There are 16 other countries in the Euro zone. The real issue is decline and the social unrest that is brewing across Europe as people struggle more and more under the jackboot of austerity that is not curing the ills but making the patient worse.
Given Spanish yields, is Spain’s room for removal not very small?
Even ignoring political constraints, do we really believe that fiscal stimulus in the core would make much of a difference to the performance of the periphery? And taking into account political constraints, and considering the scale of stimulus that would be required to make a difference, is it not plain as day that it won’t be forthcoming?
It looks like there is already a slow motion run by foreign investors from Spanish and Italian bond markets.
So, even with the right policies, (which at this stage still seem very unlikely), are we still not going to see a train wreck?
“I don’t see any way that the Eurozone will survive in its current form….”
It’s hard to think of a good reason why we should want it to. There comes a time when even a painful cure is preferable to suffering the disease.
I’m pinning my hopes on Hans Werner Sinn. However bad his arguments, if he can persuade the Germans to abandon the project he will be doing us all a huge favour.
What austerity did you see in Spain? You can see austerity in Baltic countries only.
“Super Mario needs to wake up and stop talking about inflation in Germany as an issue.”
The ECB has to drop price stability as its sole focus . Jobs are more important. Long term unemployment is very, very expensive. Look at what happened in Moyross over 30 years.
The root of the problem is that it is banks which create the money supply as a loan is processed. And they can only create money with a debtors signature.
This is why every euro has a matching debt.
If the eurozone breaks up and we allow the banks to create punts in parallel with debt nothing will change in principal.
Allowing a public institution to create digital money free of debt would solve our problems almost overnight.
I have always favoured attempting to escalate the crisis so as to realign German/ECB interests with the peripheries’ but the government parties in each of the peripheral countries have thrown away the various opportunities for doing so (especially in Ireland) in order to try and identify themselves with the ‘virtuous’ core EU – which is now of course reduced to Germany. So complete has been the submission of the GIPSIs that the German narrative of the European component of the global financial crisis, a fantastical self interested story of time travelling confidence fairies, is being signed into law. The EU has always been at war with inflation. Fiscal irresponsibility has always been attacking the Eurozone
This idea of somehow becoming German by doing what Germany wanted and believing what Germany believed was always a mirage, not only can no one else have Germany’s economy – even Germany could not be its current self outside of the dysfunctional variety of EMU we have.
So the peripherals divided themselves and were duly conquered. Looking into the future the political failures (eg: Lisbon) that left an unaccountable ECB and a neoliberal Germany with very closely matched interests (eg: being psychopathic monetarist blowhards) means that Eurozone policy will never again match our needs. Germany and the ECB are in control and intend to remain so, a touch of manifest destiny in their eyes.
If we can not fight German Eurozone hegemony every EZ member not sharing a border with them needs a path from their current level of integration with the EU to a more Scandinavian distance, that will involve reneging on commitments that should never have made. In our case EMU and the banking guarantee have to be unwound in a way that causes the minimum possible losses to Ireland which will mean a degree of unilateralism.
On that point the fact that the ECB and Germany’s interests are now so directly opposed to the peripherals means that EU mulitlateralism is dead and we need, if perhaps only temporarily, to move apart once more. Think of it as our Dunkirk moment.
What is laughable about Spain is that we have all known for some time that it has a distorted bursting of a property bubble – residential prices down just 20% from peak when it has not ghost estates, but ghost towns! Santander’s €3bn extra provision announced this week is akin to Anglo in 2008 thinking its losses might be a few hundred million.
Spain will have debt of 80% of GDP at the end of 2012 if it is lucky. If it faced up to its true bank/property losses, it would need extra provisions of over €250bn which would bring Spain nicely into Ireland’s debt ballpark.
25% unemployment is mind-boggling.
Hard to see how a (western) society functions in such a scenario.
Very very sad.
Lets help him along if we can, a little bit of angry public rhetoric from various peripheral premiers might help.
Mrs Merkel should offer to move the Champions League final back to the Bernebeu or Camp Nou as a stimulus measure.
1 million more unemployed than there are residents of Ireland.
Er, kids scavenging for food in bins in Madrid in February – but being fought off by the confused looking newly released patient from a nearby mental hospital. As the taxi driver said when I pointed this out to him: “Bienvenido a la nueva España.”
Then there’s my friend’s brother in the northeast who works for some regional council and hasn’t been paid for three months.
You think I’m joking?
I was in Estonia recently. Most people there just seem to buy vodka in six-packs and go home to drown their sorrows. Didn’t see much evidence of austerity on the street.
“If it faced up to its true bank/property losses”
I have every faith that you are right and Spain’s property slump will follow Ireland’s trajectory. The current 8% or so impaired loans will be 14% or more by this time next year. Current bank valuations in Spain are ‘mark to fantasy’ territory.
@Bond. Eoin Bond.
” in fairness, Spain would have a monster unemployment problem regardless of austerity. Remember, they haven’t implemented all that much domestically as of yet.”
Why would Spain have a monster unemployment problem regardless of ‘austerity’?
Is it not highly likely that Spain’s tourism business has been badly hit by austerity in all European countries. Spain now has a burst property bubble together with massively reduced tourism spending.
One cannot nationalise and socialise the ‘financial sector’ debts and then expect that free trade is still the order of the day because it suits the stronger economies (with their banking problems offloaded, of course).
Many European countries must now be looking at measures designed to keep what is spent in their own countries.
Protectionism must only be a step away at this point.
Germany’s European austerity formula works only for Germany. It is destroying Europe. It is time to level the playing field.
Unfortunately Official Spain seem almost as deluded as Official Ireland:
“When asked whether the plan would create additional losses for banks, he [de Guindos] said assets are already priced at market value. “
Some interesting charts from Morgan Stanley:
Ah, it’s all OK.
Wolfgang Schaeuble has just been quoted as saying, “…the country had not deteriorated in objective terms.”
So that’s alright then. Nothing to see here. Move along.
Let’s hope Hollande gets elected….he is the only person capable of taking on Merkel…
““Parliaments all over Europe are about to adopt it. Ireland has a referendum on it at the end of May. It cannot be negotiated anew.”
Hollande responded swiftly to the remarks, telling French TV: “It’s not Germany that decides for the whole of Europe.”
5.6 million people don’t matter.
If Spain hasn’t deteriorated then why the need to pile on austerity..Wolfgang is engaging in ST.
@ Joseph Ryan
Austerity is a feature of the last 18 moths outside Ireland and Greece. Spain was running unemployment rates around 17-18% in Q1 2009 once the property bubble burst. Phase one (property/banks) and two (fiscal crisis) of the Spanish crisis, like Ireland, were not caused by austerity.
From your link
““The key element is going to be transparency and valuation,” said the minister, who used to run the Iberian unit of Lehman Brothers Holdings Inc. When asked whether the plan would create additional losses for banks, he said assets are already priced at market value.”
Didn’t Lehman have a funny notion of valuation…I saw something recently that they were insolvent for some time before filing for bankruptcy.
The key element is credibility and it’s not looking good.
@ BEB No one is suggesting that austerity created the crisis.
@ Paul W
Per Joe Ryan
“Why would Spain have a monster unemployment problem regardless of ‘austerity’?”
Another story on Bloomberg has the Economy Minister saying no growth or stimulus pact…only austerity.
I wonder how long he will last.
Thanks for your forthright and unambiguous comment. I agree with your sentiments 100%. In particular, I believe Europe is in need of a complete policy rethink and a refutation of the current German narrative of the crisis. An important step in this regard, in my view, is a rejection of the upcoming treaty referendum.
Therefore I would be very interested to hear your opinion on the treaty and if you would advocate a yes or no vote.
The Partido Popular will get the same boot as the Socialists did. Rajoy had a very short honeymoon. The job is thankless.
I was just thinking about the next couple of years (yeah – I’m one of those ‘visionaries’).
What if 25+ % unemployment becomes the ‘new normal’ in the periphery countries by 2015 (with 50% youth unemployment)?
I wonder what that would do to ‘yer social fabric.’
Hard to be a visionary these days…here is a cautionary tale for all property investors…
Warning to Germany?
“García-Margallo draws parallel between eurozone & Titanic – when ship sank 1st class passengers also went down (not inspiring confidence)”
@ Kevin O’Rourke
This is frustrating and is a huge tragedy for one section of the population in particular, similar to the experience in Ireland.
So what are you specifically proposing that would help Spain in particular?
A massive pan-European stimulus?
I have argued for years that in Ireland and elsewhere, the conditions for a pan-European response would be enhanced if reforms to tackle the powerful vested interests in countries were progressed but there’s no apparent interest in that issue.
Germany’s strong ex-EU 27 trade has increased demand in the Eurozone and the likes of SEAT is doing well.
There is a two-way process that has to be looked at. Why is Greek FDI so poor compared with Romania, Bulgaria and Turkey?
However, it’s not just an issue of trade within the Eurozone and Nokia’s travails after spending four times Apple ‘s R&D spend as a ratio of sales, illustrates the challenges in the globalised world.
The World Bank’s Doing Business 2012 rankings of the ease of doing business in 183 countries puts Greece at 100, behind Yemen and Vietnam and just ahead of Papua New Guinea. This compares with Italy at 87, just behind the former communist ruled Mongolia; Spain is at 44; Portugal at 30 and Ireland at 10.
This maybe boring stuff but following a massive bust, there are no simple solutions.
John Kenneth Galbraith put it more than 50 years ago: “The enemy of the conventional wisdom is not ideas but the march of events” and in 2006, Spanish families on average paid six times their annual salary to buy a home, compared with 3½ times salary in the late 1990s, according to the Bank of Spain and in that year, Spain built more new houses than France, Germany and the United Kingdom combined.
Spain and Ireland headed the 1993 unemployment rankings of the member countries of the OECD. Spain’s rate was at 22.4% and Ireland’s was at 15.8%.
It’s easy to bemoan the current situation. Let’s have specific proposals.
Maybe the ECB should flood the markets with more money but the US situation shows that when there is a huge housing bust, the Fed’s firepower is limited. There could have been more done on the fiscal side but as regards Europe, there is of couse a limit to how much core country taxpers would pay.
The Irish would of course be in that boat if Ms Prudence had her way.
Specific proposal. Ease off the brakes on pay in Germany a bit more. That will stimulate every economy in Europe without needing the German government to run a deficit. It will also give us a little lift to euro area inflation that will help all the peripheral economies to regain competitiveness without hard-to-achieve nominal reductions in pay.
Krugman from a couple of weeks back on the reason for Spain’s present crisis:
The BIS report link is instructive.
Germany is not sovergin either – its capital is Frankfurt.
They are almost as pathetic as the Baltics.
Its the oldest trick in the book …. the banks use one favourite “sovergin” against the others to extract the maximum yield….when all resourses are extracted they change loyalties by whispering into Kings ears.
Its merely a question of smashing the financial sector or they and their agents in each European Treasury will smash you.
Its clear where the morality of Europe lies……… the Stock of debt is superior to the stock of Humans.
“Super Mario needs to wake up and stop talking about inflation in Germany as an issue. There are 16 other countries in the Euro zone”
I don’t know what to say to that…. Mario and his crew are a bunch of satanic henchmen.
Appealing to their inner souls is not a wise move me thinks.
At best they are to be pitied & scorned.
In reality they have no power over us…. it just takes a moment of awareness and action.
Nope you certainly don’t have to be a genius to figure it out. But you do have to make an effort to shift aside the propaganda that promotes the euro as a rock of stability. For example, watch out for a big dollop of propaganda from our shadow banking sector as they chorus the Govt Y over the next coming weeks; Dukes, Sutherland, Bruton, Honahan in the wings. We may even get some Rehn or Regling visitors with certain members of cabinet beaming and glowing in the best boy competition for photo calls. Behind the scenes the whispers from the DoF and NTMA senior officials who instead of answering investigations into the banking collapse still have their hands on the tiller as they head us to an even bigger iceberg in ESM. No Garda investigations or banking inquiries or probes into the ‘guarantee’ with its missing logs for these boys as they usher tickets for everyone on the euro ghost train.
Interesting S&P threat to downgrade us if we vote NO. They must be concerned we’ll default and burn some of their blue chip clients. The financial sector is beginning to totally control the political sector, Draghi himself is ex Goldman Sachs and his LTRO bazooka is a more extreme form of the QE bazooka turned down by Congress in US. More and more power has been seeded to the financial sector since 1970; similar to the buildup in the financial sector pre 1929. Its created the same problems. Yet propaganda from its proponents point their finger at macroeconomic conditions in the real economy; but the real problem is caused by loose credit in the virtual economy fed by unreal currency movements, financial speculators who’ve turned the money supply into their own private casino. Now with the ESM they want to purge real economies to suck even more debt into the casino run under their rules. The austerity blueprint for Europe will wreak havoc across Europe. In Ireland its real effects are just beginning to be felt.
The financial sector needs to be brought under control before it wipes out democracy in Europe. This should include debt write down and new financial rules bringing shadow banking under control. Hooking up austerity transfusions for the real economies of Europe to provide unlimited financial aid to financial institutions across the world will prove to be a Frankenstein experiment Europe can do without.
Watch out for banana skin slippage by Kenny/Noonan and Gilmore in the coming weeks.
I have been arguing for specific proposals for weeks, including:
The announced targeting of higher levels of inflation, say 4%, which would precipitate a booming the core and facilitate adjustment in the periphery.
The reduction of ECB interest rates to .5%, say.
Introduce banking system reform to regulate banks at a European level, including a bank resolution regime which would certainly help Spain.
Definite debt restructuring in Greece. Ireland and Portugal. In Greece and Portugal this would have to be accompanied by significant investment and dramatic structural reforms, but it would be tolerable if the benefits were clear. In Ireland a 50% write down of the prom notes would probably suffice.
All the above could be done with minimal cost to the European taxpayer. Compared with the current course which will send the Euro onto the rocks, the choice should be a no-brainer.
However, the required change of policies would mean a lot of Serious people would have to eat humble pie, so it is unlikely to happen.
The changing model of globalisation, European ageing and rising public spending burdens, suggests that there are no simple panaceas.
The inflation target will not be raised; rising demand for commodities and the end of 30 years of falling manufacturing prices, would bolster resistance to change.
‘Dramatic structural reform’ — unlikely.
It’s always easier to propose what others should do — despite the brutal recession in Ireland, has for example any beneficiary or future beneficiary of the public staff pension system proposed reforms except for ones that would impact future staff?
@ Paul W
There’s is seldom a simple explanation for an economic collapse.
But to argue that German banks caused the Spanish boom and bust is rubbish.
Germany could reform its services sector but international companies cannot be instructed what to pay.
Even if Germany’s weakest regions were to grow a steady 4 percentage points faster than the strongest regions, it would them take more than 45 years to catch up, according to Deutsche Bank Research.
As for Spain, it would be necessary to go to the trouble of investigating trade linkages etc to be in a position to make credible suggestions.
No need for reforms or for instructions to German companies. The brake on pay in Germany has come from consensus between government, employers and unions that it should be so. The existing institutions will produce faster pay growth if government changes its stance, and the unions firm up their stance in favour of a higher wage share.
Yeah, it was not like looking onto a crystal ball, rather than reading the paper of tomorrow today already, back in 2010 that was.
Merkel being asked why she still supports Sarkozy in this interview, her answer was “We belong to the same party family”, and she means the EPP of course.
Since 2008 I was pointing to the truly unhealthy political landscape in Europe that is dominated top down through all three major institutions by the EPP, essentially a rightwing organization that has become the extended arm of vested interest groups, rich and super rich and bankers.
I agree agree with Kevin, this Eurozone does not have a chance of survival, and honestly, I wonder, was that not the real goal in the first place?
“…..There are 16 other countries in the Euro zone. The real issue is decline and the social unrest that is brewing across Europe ….”
Behind it all is a massive transfer of wealth over the last 20 years to the top decile that austerity now is compounding. Long term unemployment is just another dose on top. Apple could make i phones in the usa and pay workers 22 usd per hour and still make 42% profit margins. It all comes down to politics. Plutocracy is
no better than rule by drug cartel. It is the same logic.
Spain is headed for an Argentinian type revolt where we will see hundreds of thousands marching on the streets of Madrid. Governments will fall one after the other over a period of a few months. Negotiations will take on a hard edge in Brussels and Frankfurt. The EC and the ECB will buckle. Unlike Greece, Ireland and Portugal the fall of Spain would reverberate around the globe bringing down Wall Street, London, Frankfurt, Paris and Tokyo in quick succession. This would precipitate a world wide recession as Europe freezes, China’s exports drop as Europes imports drop. The US slams the gate on imports as they did in 1932. The rest has been scripted starting in 1929, hopefully it will not take a major war to restart the major economies.
Ireland has little effect on the outcome, referendum or no referendum, voting yes or no. We can help by joining the group of nations that want to debase the Euro with Germany in or out. If Germany leaves the drop will be swift and substantial. This would not be necessary if we were capable of restoring competitiveness by the front door, that would take guts which will not magically appear in the candy shop on Kildare Street.
I would agree that your rather dismal scenario is becoming more likely by the hour.
@ Mickey Hickey
I see you have started to distill the various ingredients and the brew is looking decidedly bittter. Mohamad el erian has said all along that Europe does not seem to realise that it needs structural reforms. It thinks it can stumble along and that growth will resume as if it were simply a cyclical recession. I take that to mean political and governance reforms. In Ireland, we had the social partners running the gaff like it was their own private fiefdom for almost two decades. Oh! I forgot they are still running the gaff giving themselves a free pass and a CP deal spanning the period from 2010 to 2014. It defies any logic and is utterly disgraceful that our government absolutely refuse to lead the country. The only policies are bailouts and MOU’s this will end badly mark my words.
Spain will be the country that tears the EZ experiment apart and Ireland will be one of the countries least prepared for the fallout. BTW youth unemployment > 50% is classified as up to 29 years of age in some parts of spain. Makes the covering up by our ESRI look almost inept.
The news that Spanish unemployment is now at 24.4% deserves a thread.
The irish unemployment situation deserves a thread.
But would it attract the same attention?
The last thread here on irish unemployment and jobs a month or two back so attracted so few interested reactions an alien could be forgiven for mistaken indifference for complacency.
The train bearing hard facts doesn’t stop at platforms mobbed by politicians courting the next election.
Standards of living are falling in many countries in Europe. It is inevitable that they will fall further. No political party with an eye on government will admit that.
Meanwhile politicians of all hues tuck away pensions and entitlements that would make Noah weep.
I have said this many times here but it is crazy to have so much human capital undeployed for want of a workfare program and adequate personal debt write-off procedures.
Doing research on this. saw an awkward journal article:
“In the last decade Spain definitely became a country of immigrants. This
article describes the characteristics and economic role of immigration, the official policy towards the phenomenon and the effects of the financial and economic crisis of the last two years. The five million immigrants had important effect on the Spanish demography, employment and education system. Foreigners found vacant jobs first of all in the construction industry and agriculture. To the end of 2007 however, the construction boom ended and Spain sank into a deep recession. Unemployment
rate jumped to 20 percent to the spring of 2010 leaving mass of immigrants without jobs. Tolerance of the Spanish people towards immigrants seems to decrease and foreigners has become another problem for the – otherwise overloaded government”
The gist seems to be that without opening its borders so much it would not have been possible to create such a boom. The corrollary would appear to be that without such a credit rich system there wouldnt have been such movement of people in the first place?
How soon before the Spanish start following the French neighbours?
with the spanish unemployment rate hitting 24.4 % i have read somewhere that unemployment benefits run out after two years how do the long term unemployed survive in spain i hope somebody is keeping an eye on the army
i remember the eighties when a young king Juan Carlos was brought in to help face down the generals
“i remember the eighties when a young king Juan Carlos was brought in to help face down the generals”
Quite. The generalissimos haven’t gone away – in Spain, Greece or Portugal….. l’histoire se répète.
dangerous times indeed conditions are getting worse and the ostridge head is still in the sand the money policy and politics is failing people in Europe as M Hickey say`s things are eerily looking like the roaring twenties boom and the thirties depression
how many times have you heard that history has a habit repeating itself
Dont worry about that. Rest assured that this time its different
Very refreshing to see your thread here. Well said.
As you suggest, the results we see were all predictable (& predicted by heterdox economists).
Nor is the solution rocket science.
If the Euro is to survive, it must be radically redesigned. And it will only work if there is real commitment to junk the mercantilist race to the bottom agenda. We wouldn’t put up with this cr@p between regions here, sharing our national currency. We shouldn’t in the Eurozone either.
It goes without saying that the fiscal compact should be dumped in the bin along with all the other neo-classical rubbish that is both the cause of the original crisis & the ongoing mess of these last years since.
Of course, the Eurozone will blow up long before the radical reforms can be agreed. If they can be agreed, given the 2 decade in the making level of ignorance & ideological blindness near universal amongst politicians & economics ‘advisers’.
However, the attempt should be made.
Whilst we’re doing that, we must apply the only policy that can stave off the collapse & reverse the vandalism caused by the ‘austerity’ fallacy of composition stupidity.
The non-government sector cannot increase its spending to create growth. And certainly not compensate for the austerity vandalism.
So that leaves only one sector to do job – the government.
That is, stimulus funds need to be injected into the real economy. (LTROs & QE are useless for this purpose.)
Now, we have a not-fit-for-purpose (except for the top few percent ) currency union where we limited our governments’ debt capacity by 2 or 3 times (vs UK, US, Japan etc.) to facilitate price gouging by ‘markets’. So governments can’t go there for more finance.
But, collectively, we do have a (fiat, free floating) currency issuing authority which, in economics/monetary terms, can supply all we need, free of any debt or interest whatsoever. It’s called the ECB.
Probably the most effective way of applying stimulus funds to the real economy, whilst also relieving the misery of the worst affected, is to implement an MMT style Job Guarantee. Offering every unemployed person a minimum wage job in non-competing, socially useful employment.
With such high unemployment & idle productive capacity, inflation will not be a risk for some time, & at least not until we can return economic activity to pre-crisis levels.
This does two things. Gives us time to agree the needed reforms to the Euro system & if we can’t achieve that, we will all have considerably stronger economies making a return to national currencies far more orderly & less traumatic.
And if the latter occurs, we can also give up the pretence that a sovereign (free, fiat) currency monopoly government need ever ‘borrow’ a cent in order to spend.
It goes without saying that the fiscal compact should be dumped in the bin along with all the other neo-classical rubbish that is both the cause of the original crisis & the ongoing mess of these last years since.
Irrespective of the fiscal compact, the unpalatable fact is that Ireland like others has to pay its way and live within its means.
This is tricky bit. The alms bowl and the free lunch canteen have departed.
How strange those rules do not apply to the Eurozone financial sector.
The current flavour of EMU makes traditional real economy focused remedies to the European component of global financial crisis impossible so the countries not sharing a border with Germany have to choose between saving the real economy or adherence to the toxic neoliberal dogma that passes for economic thinking in German establishment/ECB circles.
That is the unpalatable fact that the collective peripheral establishment can not face. European economic multilateralism is no longer a possibility – Germany, the ECB and the political right in many German client states have interests directly opposed to those of the peripherals.
“….the unpalatable fact is that Ireland like others has to pay its way and live within its means.”
I’m going to keep insisting we apply the principles of micro economics (of households & businesses) to macro economic situations regardless of their inapplicability or empirical evidence of suitability. Regardless of all the lost real output caused by mass unemployment, for a decade or more, or a messy collapse of a deeply flawed currency union. I also refuse to properly understand the nature of fiat money especially. Nor do I regard Ireland as retaining any sovereign rights over its economic future.
(The Red pill is now available for those who wish to expand their horizons.)
Interesting program on Italy by Neil MacDonald, covers all the bases. Note the similarities with Ireland. Of note but not mentioned in the program is that the overseas Italians have the right to vote and it is set up in Embassies, Consulates and cultural institutions. This means that the disenfranchised can voice their opinion unlike Ireland where the government is glad to get rid of them. In the TV interview Mario Monti states very clearly that there will not be a second round of austerity in Italy. His Minister responsible for pensions breaks down in tears when announcing that there will be pension cuts, Monti has to finish her announcement. Caring people Italians.
My reading is that if this round of austerity does not work they will leave the Euro and debase their currency. Italians invented bonds in Venice (1171) and Florence (1397) they also have a long established record of debasing their currency.
This places the onus on Germany to arrive at a consensus with the rest of the EZ. In a sense Monti is positioning the country in anticipation of negotiations.
Political economy and history are now more important than ever.
@ Mickey Hickey
Angel Gurría, OECD secretary general and former finance minister of Mexico, said in Tokyo this week that Japan needs a bigger “sense of crisis” about its financial predicament.
Unfortunately that is usually necessary to bring change and sometimes it isn’t enough. Look no further than Ireland.
The globalised world is a little different to 1980 when it just comprised part of North America, Western Europe and Japan.
It was easier to agree solutions; maintain state companies such as telcos, airlines etc by gouging consumers and devaluation could help a member of the club when necessary.
This year, the majority of China’s trade will be with the south and in years to come, EM companies will take competition directly into the home markets of OECD MNCs.
In an illustration of the dysfunctional Italian state, a Chinese enclave of about 30,000 of mainly illegal immigrants in the city of Prato, many working in slave-labour conditions, produce ‘Made in Italy’ textiles for the Chinese market where ‘luxury’ means European price levels.
The government of Germany cannot alone ‘save’ countries like Italy.
The demise of once powerful Japanese companies and the once high tech stars of Europe and Canada, Nokia and RIM, shows that it may only be low-paid services jobs that are safe from globalisation.
@ Michael Hennigan
The Italian government is heavily indebted, Italian businesses and families are in excellent shape. In Ireland the gov’t, small businesses and families are over indebted. Italian business has proved to be very resilient and creative for centuries. They now lack an influx of young workers due to the birth rate being as low as 1.2 for decades (shades of Japan). This accounts for the hundreds of thousands of Africans and Chinese in the country. First the small companies hired Chinese, then the Chinese bought the companies. The Chinese owned company exports to China are not low quality, in time the production machinery will be moved to China where production costs are lower. Illegal immigration is not a good long term business strategy. Something similar is going on in Germany where Chinese buy Mittelstand companies and continue to operate them in Germany while replicating them in China. They are not closing the German companies, Chinese are socially and politically skilled people who take a long term viewpoint.
There is a big furor in Spain about engineers emigrating to Germany. It is seen as a hollowing out of Spain and Germany’s gain, which in the short term it is. They are being hired by Mittelstand companies. In the medium to long term it means that Mittelstand know how will migrate to Spain at Germany’s expense. Underlying this is the low birth rate in Germany which is leading to problems that are already under way in Japan and Italy.
Globalisations have collapsed in the past and this one will suffer the same fate. Protectionism will rear its head and engulf the world.
In the short term Ireland has to align itself on the side of EZ countries that are willing to debase the Euro using low interest rates and QE. We are still too small to go it alone, even Germany is too small to go it alone. Hopefully tariffs will not go over 20% from the present 6%. The world still needs the EU and the EZ and in particular the inhabitants of Europe have to match the military and economic might of the Chinese, Indians, Brazilians, Americans, Russians.
Life never proceeds in a straight line and wiping out the middle class to replace it with minimum wage earners leads to civil wars or worse. The 1920s hyperinflation in Germany is an example of what should be avoided at all costs.
@ Mickey Hickey
Two people who were living in Italy in 2011, seem to have a more cautious view of the state of Italian business.
The high level of family control of businesses, with a tradition of family members occupying executive positions, is one explanation for the large number of Italian graduates living abroad, according to the OECD: four times the number of Germans, triple the English and double the French.
Bill Emmott, ex-editor of The Economist:
Bank of Italy governor Mario Draghi last summer:
Italian firms, on average, are 40% smaller than their Eurozone counterparts. The top 50 European corporations by sales include 15 German and 11 French but just 4 Italian firms. Italy’s industrial structure seems static; rarely do firms grow and move up to the next size class.
In the early 1960s, plants with over 100 workers employed 43% of Italy’s manufacturing workers, as against over 60% in France and Germany. Since then the employment share of large plants has declined much more sharply in Italy than in France or Germany, to under 30%.
Governor Draghi said when an Italian firm has a chance to expand, it may be deterred not only by a fiscal, regulatory and administrative framework still perceived as uncertain and costly but also by corporate structures that are often kept impermeable to outsiders.
Widespread family control of businesses is not a specifically Italian phenomenon; what is, is the restriction of management to the family circle. Sixty per cent of all Italian manufacturing firms with ten or more workers are exclusively family controlled and managed, compared with under 30% in Germany and France. These firms have less propensity to innovate, engage less in research and development, and rarely penetrate emerging markets.
Italian small businesses and German small businesses are now faced with the problem that they do not have children at all or no children capable of running the family business. In the days of 4-7 child families succession was no problem. Businesses are being sold, to employees, larger businesses and foreigners.
The Italians and Irish have been emigrating in large numbers for over a century. The Germans in large numbers for limited periods after WW1 and WW2. You can enter Italian communities in Buenos Aires, Toronto, New York where you have all the comforts of home including language, radio, TV and Masses in Italian. It is easy for the Irish and Italians to emigrate and they do so at the slightest provocation. The German overseas support networks are set up by the German Gov’t and businesses to accommodate German employees abroad. German language and school programs are provided so that it is a seamless experience for the whole family. The Goethe Institut and Deutsche Schule along with numerous clubs and private schools are the mainstays. Austrians and people like myself and my wife take full advantage of the opportunities.
Small family businesses have a stabilising effect locally and nationally and are the back bone of German and Italian resiliency in down turns. At the other end of the spectrum is the MNC who will pull out after one or two unprofitable quarters and lay off after one unprofitable month. All determined by a computer far removed from the site of the crime.
In recent years Braun, Hoechst, Continental were sold, the latter for $12 Bln. The daughter now has a large horse farm in Kronberg which is positively palatial.
Ther germans are finally putting in place improved childcare reforms.
Part of the problem with the low birth rate in Italy and Germany and Spain is the failure on the part of those countries to break the dominant social model which heavily penalises kids with couples.
Until and unless central and southernn Europe actively and widely makes children society friendly at all levels (and in unexpected ways) then demographics will continue to be a problem.
Rather than changing society to be more child friendly and thus to boost the birth rates Europe has elected to run with the same model.
Wont work and isnt working
As an example: http://knowledge.allianz.com/demographics/aging/?1760/queisser-interview-women-in-work-boosts-birth-rates