Rajoy must enact a radical plan for Spain

Jesus Fernandez-Villaverde and Luis Garicano lay out the necessary steps in this FT op-ed.

72 replies on “Rajoy must enact a radical plan for Spain”

“The eurozone must understand that the current practice of making all private sector creditors whole is unfair and counterproductive. ”

Cue usual suspects bleating on about how senior debt is not risk capital.

@ Garo

“Cue usual suspects bleating on about how senior debt is not risk capital”

Cue usual suspects not understanding how a bank balance sheet is set up. You’ve got equity, you’ve got junior debt, you’ve got subordinated debt, you’ve got senior debt (including depositors). Its not rocket science.

The article really doesn’t say anything other than ‘hurry up’ with structural reforms and a restructuring of the debt. ‘Reform, reform, reform’ is as empty a public policy proposal as Obama’s ‘change, change, change’.


no, its not correct either – subordinated debt has been scalped to the tune of 80%+ in the Irish banks, and something similar is likely coming down the line in Spain. Whether this should be extended to senior debt is, of course, the favourite question of the Irish commentariat. There are very significant legal and practical problems with such a policy, which will inflict a non-zero cost on end-users. It could be massive, it could be moderate, no one can say with certainity, but the ECB seems extremely reluctant, for i assume honest reasons, to try it out.

The writers quickly gloss over the transfer of sovereignty which is ultimately required.

Spain has to decide if it is willing to do that. That is the real game of chicken which the ECB / EU is playing with the Spanish people (not the Spanish government which likely would sign up to anything to keep the cosy pensions etc).

The endgame is a showdown between country establishments pushed by ECB / EU to argue for transfer of sovereignty and the people having to decide.

Enda saying at Beal na mblath that he wasnt going to rest until he had won back our economic sovereignty was a mixture of laughable and stomach churning.

Eventually the curtain will have to be lifted…

What a joke to suggest that it is Spain that has most control over its economic destiny. Since ECB president Mario Draghi’s “whatever it takes” intervention at the end of July 2012, Spain’s stock exchange is up 30% (!)

Of course Spain must throw shapes to get its house in order but it is the might of the ECB that is key to Spain’s short to medium term future.


Thanks for that. The error rather undermines the credibility of the rest of the article.

On the other issue, the emphasis in the written reply by the MOF is unmistakeable, notably; “The value of the support that we are receiving from our European partners now and in the future outweighs any short term gain from imposing burden sharing on senior bonds in the face of European opposition to such a move.”

” you’ve got junior debt, you’ve got subordinated debt, you’ve got senior debt”

It’s like ragwort, more than anything. There is simply too much debt.

There is not enough activity in the real economy to pay it off.

Hmmm – so the solution is default widely, reduce wages, more structural reforms. This is despite unemployment already at 24% and rising. Why do so many economists now repeat the mantra that we must keep the euro in perpetuity because the one-time costs of dissolution are too large to bear? I’ll wager Spain’s unemployment will fall by half, and they will be growing in 3 years, if they leave the euro this week.

Actuary: you clearly are not in the EU leadership. Our leaders hope that no actual people will be permitted to decide.


what will those 10% Spaniards do, who worked in the construction sector and overbuilt for more like 10 than 5 years ?

Eastern Germany also had for a long time unemployment of 15 – 20%, and no magic bullet was found, despite having a much larger big brother in the west.

I am curious

“you’ve got senior debt (including depositors)…”

Only if the return on this debt and deposits is equivalent can they be equated…..Senior debt investors in banks like anglo cannot be equated to granny murphy who put her few quid on deposit….one is a speculator the other looking for somewhere safe to hold her cash. Balance sheet status arguments clouds what we all know to be the truth here…the ever wise dogs in the streets can see how the financial classes like to spin the senior debt to deposit equivalency argument.

@V Barrett


Spot on.

The crap that we hear regarding senior bondholders is exactly that as noted above. Sane people are expected to believe that guys buying bank paper on margin and flipping it 6 or 7 times before 11am on a daily basis are in the same category as the aforementioned granny murphy..pass me the bucket.

The single biggest issue that we have in the entire crisis is the inability for risk taking investors to take a loss. The ECB/IMF and senior bank bonholders all believe they are immune from bad investment choices and losses are someones elses problem. This goes to the heart of the problem – taking risks can sometimes not pay off, that’s the capitalist society rules we’ve decided, for better or worse, to play by – but ALL players must play to the same rules. Otherwise it really is men against boys and nobody will want to play that game.

That’s the problem – the bank balance sheet and how it’s made up.
Depositors are not creditors. Their expectation is small but guaranteed return (I think they should just expect their money back). An investors’ expectation is different.

They really need to separate deposit banking from everything else. I wonder sometimes if the ECB should take deposits directly from depositors – they would have a cast iron guarantee and then lend money out to private banks to invest as they want

@ V Barrett

“Only if the return on this debt and deposits is equivalent can they be equated”

Depositors typically had much short tenor on their holdings (ie demand/call, 1mth, 3mth etc) vs long term nature of bond funding (ie 2-5yrs for much of it, even longer for some), so comparing returns is somewhat difficult.

@ YoB

“but ALL players must play to the same rules”

Isn’t this an argument that legal rules around seniority of depositors/senior debt should be respected, as opposed to the “well we all know bondholders had a much better idea of what they were doing” line you are trotting out? And there were guys buying senior Anglo Irish Bank paper, yielding around Libor, on margin?? Really? It’d probably be a negative carry trade. If you can find me someone who actually did that, ill shoot them myself.

Eoin bond. Surely we can compare the “per annum” interest rate on deposits v bonds? If the latter is much over the former then it’s for risk at least in part so….?

Maybe the parallel cuts the other way too, east German is in a currency union(albeit a full, functional one) with a far more productive, wealthy society, it cant compete on equal terms, hence the transfers.

Dean Baker has fantastic fun quoting 1930’s commentators fretting about the structural deficiencies of the American labour force. Mysteriously enough when the Government needed full employment to fight the war , these deficiencies stopped being such a problem.

The most alluring solutions are often ones that cannot be credibly implemented, at least in the short-term.

In 1994, Spain also had an unemployment rate of 24%+ In Andalucía, the rate exceeded 30%.

The peseta was’t able to provide magic solutions and the unemployment rate was 21% in 1997.

According to the IMF, high unemployment was persistent in some regions because of centralised wage setting, giving business no incentive to move to areas, where inevitably there would be a shortage of skilled workers. Collective bargaining dating from the Franco regime mostly takes place at the industry or province level and collective agreements have the status of a law, affecting all workers and firms in the relevant area. This leaves little scope for small firms to adjust wages. Temporary jobs represent on average one third of employees because of the high cost of cutting permanent staff .

The construction boom began and unemployment fell to a record low of 8% in March 2007.

Excluding construction, Ireland had no real growth in the past decade; Italy only managed 3% in 2001/2010  – – 0.3% per year; US 16% (worst since 1945); UK 15%; France 12%; Germany and Japan 8%. Japan had a per capita annual GDP of 1.6%; US 0.7%; France 0.6% and Germany 0.8%.

In Italy, household incomes are lower than they were ten years ago. The public debt is larger. In the US, the inflation-adjusted median wage of the full-time American male worker is at the 1969 level.

John Authers of the Financial Times has written that Spain enjoyed a construction splurge in the middle of the last decade, egged on by low interest rates that were appropriate for the German economy (sluggish at the time), but not for a country where credit was growing fast. Just as the US credit bubble was helped by low rates driven by Chinese demand for US Treasury bonds, so Spain’s domestic property bubble had its roots abroad.

He asks why is Spain now in crisis, while the US is not?

Because its banks have not yet admitted the scale of the writedowns they must take in the wake of the bubble. In terms of their book value (the value of assets minus liabilities on balance sheets), have multiplied eightfold since 1998, according to an analysis of MSCI data by David Morris of Global Wealth Allocation in London. That is twice the growth for the rest of Europe, and 80% more than in the US.

The FT reported last week that Spanish and Italian commercial property markets have virtually collapsed with only three property transactions registered in Spain during the second quarter, down from 58 deals in the previous quarter. In Italy just two buildings were traded during the period, down from 56, according to data from Real Capital Analytics.

The total value of transactions for offices, shops and industrial property in Spain was €67m for the second quarter, down 74% from €260m in the first quarter. The inactivity meant Spanish property transactions were below those of neighbouring Portugal for the first time.


By all players playing the same game means that all players must be willing to take losses on bad investments. Don’t understand why the ECB/IMF and senior bondholders consider themselves above the risk/return dynamics. Bad investments normally mean you lose money. In the case of the Irish banks the senior bondholders should have been told to piss off and cry elswhere.

Now we have McCarthy/Whelan suggesting that the ECB went well above its station in requiring that senior bondholders be made whole and we should now try to bring the ECB to court and seek compensation. What a joke. Everyone knows possession is 9/10ths of the law. When we had the cash we should have held onto it and told the ECB to take a hike because compensating private investors for bad investment decisions when they had the means and the capability of knowing better is crazy. The latest call to bring the ECB to court is the absolute definition of locking the door after the horse has bolted.

The senior bondholders should have taken their share of losses, you know it, I know it and from the latest ECB soundings they know it too. Please stop trying to defend the indefensible, you’re tone suggests you’re compromised, for that I have some sympathy but not your argument.

Senior debt and depositors have equal claim on the bank’s assets. Unlike depositors, holders of senior debt have no claim on deposit insurance.

In the event of bank resolution involving an injection of capital, holders of senior debt only have a claim in excess of what they would have received through liquidation if the authors of the resolution legislation or the recapitalisation scheme have been seriously negligent or are determined to donate money to them for some rational policy reason.

Genaeur: a 33 percent effective devaluation will do wonders for Spanish competitiveness over three years, and the inflation will reduce defaults. Those people will challenge Australian wine producers and fend off German imports. Mexico’s Carstens likens a fixed fx rate to a system where you need 1000 people to pick up the house and spin it in order to change a light bulb.

I wonder for how much longer voters are going to tolerate austerity. Especially when it’s hard to see an end to the crisis.

@ All

Karl Whelan in his paper – linked to on the other thread – has the following to say.

“By mid-2008, it was clear to international bond markets that the Irish banks had made enormous loans to the construction sector for speculative development loans and that the losses on these loans would be substantial. These banks had relied on issuing bonds to international capital markets to finance their rapid growth and suddenly found they were unable to roll over this funding. The banks began to borrow from the Eurosystem to pay off maturing bonds. When Anglo Irish Bank ran out of Eurosystem-eligible collateral in September 2008, the Irish government choose to offer a blanket guarantee to all depositors and the vast majority of bondholders in the domestic Irish banks.

While this guarantee temporarily stabilised the condition of the Irish banks, the severity of Ireland’s recession and growing international realisation of the huge size of recapitalisation costs of the banking sector (now put at €63 billion or about 40 percent of GDP) meant that the state guarantee became essentially useless to the Irish banks during 2010.

In September 2010, the Irish banks failed to raise funds to roll over large quantities of two-year bonds that had been guaranteed in September 2008. Ratings were cut, non-resident deposits began to move out of Ireland and the dependence of the guaranteed banks on ECB funding increased sharply. There was also a sharp increase in Emergency Liquidity Assistance (ELA), i.e. loans from the Central Bank of Ireland against collateral that is not eligible for standard Eurosystem operations. While the risk associated with ELA is borne by the issuing central bank, these loans must still be approved by the ECB’s Governing Council.”

As experience with Greece, Spain and Italy, has revealed since, the phenomenon of bank bond investors taking fright – and flight – is not unique to Ireland. Bland assumptions about investors taking losses are no more than that. Each situation has to be viewed on its merits and the only firm conclusion that one can draw is that the only thing holding the entire edifice together is, in fact, respect for the rules. Indeed, a market has opened up for the jurisdictions where this is most likely to be the case.

By the way, did senior bank bond investors in Greek banks take losses? Maybe someone has the answer.


Maybe it will end well for de Schwiiz but if the crisis goes on for ages I wouldn’t fancy being in the SNB

Worth a relink


Worrying too much about the deficit in a recession makes the recession worse. The problem with a recession is that it punishes a relatively small number of people and it punishes them a great deal. The unemployed, new school leavers and ethnic minorities bear the brunt of it. The cost of recession to them is not only lower income, but loss of self-esteem, loss of skill and damaged future career paths. Less concern about the deficit and more attention to the economy’s ability to create jobs will reduce unemployment and improve well-being.

@ Anewdawn

is a demand account safer than a long term deposit account? If so, you should be paid less on the demand account than the long term one. Ditto for demand account vs long term bonds. Its not quite comparing apples with oranges, but its certainly comparing two very distinct types of apples – they dont all taste or look the same despite their shared characteristics.

@ YoB

“Please stop trying to defend the indefensible, you’re tone suggests you’re compromised, for that I have some sympathy but not your argument.”

Huh? Eh, no, nothing compromised here. Do you just write stuff cos you think it sounds good, rather than if it makes sense? Your tone just sounds like you’re very bitter (very), and you have my sympathy for that for sure. But we all are.

I do not disagree that what has happened has been grossly unfair on the Irish taxpayer, but it was a policy decision of the ECB that to their mind, at the time, was key to stabilising the EZ banking system, with the complete ineptness of Irish regulation at the time perhaps also limiting any sympathy or argument in favour of burden sharing with these private sector creditors.

For a variety of practical and legal reasons, enforcing losses on the (still) heavily protected senior debt has proved a rubicon that the ECB is thus far unwilling to pass, the EZ banking system reliance on unsecured lending, as well as the lack of any tried n tested resolution legislation, making any attempt at it a very dangerous, and probably irreversible, leap into the unknown in their view. Further, the alleged premium that these investors received was so scant as to be close to a rounding error as a comparable to sovereign debt.

As an example, Anglo Irish Bank senior debt, issued in April 4th 2007, with a maturity of three years, at the peak of the bubble, and when it is claimed investors should’ve known full well how heavily exposed the Irish banks were to the property market, priced at 3mth Euribor +4bps. Irish government bonds on the same day priced at around 3mth euribor -18bps, ie you got the massive amount of 22bps per annum more for taking on the risk of Anglo Irish Bank. Or about 0.66% in total additional return over the life of the bond. High risk speculators and margin traders were no doubt hoovering up this stuff such was the exorbitant rate on them…

@ Michael H
AFAIK at least a part of Spain’s’ problem in the 90’s was caused by the need to conform to EMU standards, which ruled out expansionary policies. Of course having your own currency isnt a panacea, you can still make bad economic decisions. England is surely a good case in point, the Tories seem intent on austerity for ideological reasons but its seems clear that if there was the political will quite radically different policies could be enacted. This of course wouldnt be the case if England was in the euro.

@ All

On the issue of senior bank debt, Alphaville had the most comprehensive coverage some weeks ago.


The late Seamus Brennan is reported to have remarked to the – now defunct – Greens, on joining the government, that they were “playing senior hurling now!”.

This also holds true for any discussion of the euro crisis.


Regrettably, Seamus Brennan’s party of hurlers, were worse than Tipperary on a bad day. The bank guarantee and Tipp’s plan A had a number of things in common. They were both disastrous and there was no plan B.

Eoin are demand depositors not paid less than term? So demand is because it’s demand less risky. You have to draw a line somewhere and insuspect most people would do it at bonds

This is a bit tangential but anyway. I was in a hotel in Gorey last week and my attention was drawn to a notice for customers.

Intoxicating Liquor acts. Intoxicating Liquor Act 2008, 2003, 2000, licensing act 1872 and the criminal justice act (public order) Act 1994. No children after 10 pm.

All that law for individuals who become drunk and neither Ireland nor the EZ has a bank resolution scheme for when banks become intoxicated with toxic property and useless balance sheet debt. And it is all part of the same system.

And this fella is very interesting on the elasticity between rich and poor and when things snap


@ Joseph Ryan

That is not the point! It is the manner in which the game is played that is at issue e.g. ideas such as suing the ECB are not even on the pitch.

As to the collection of cowboys who issued the blanket bank guarantee, I would have no argument with you there.

From the link

“The original guarantee was very much a solo-run”

I’m afraid I haven’t seen the documentary evidence. And Eircom must have the call records for the end of september 2008.

@ B-E-B
‘As an example, Anglo Irish Bank senior debt, issued in April 4th 2007, with a maturity of three years, at the peak of the bubble, and when it is claimed investors should’ve known full well how heavily exposed the Irish banks were to the property market, priced at 3mth Euribor +4bps. Irish government bonds on the same day priced at around 3mth euribor -18bps, ie you got the massive amount of 22bps per annum more for taking on the risk of Anglo Irish Bank. Or about 0.66% in total additional return over the life of the bond. High risk speculators and margin traders were no doubt hoovering up this stuff such was the exorbitant rate on them’

It’s clear now, and ought to have been clear then to anyone with a smidgin of economic historical knowledge, that the bank and sovereign risks were being horribly underpriced, as well as fatally interlinked. The local lunacy at Anglo didn’t stand out because ‘safe institutional investors’ were frantically buying toxic derivatives, subprime MBAs and worse. All based on the fairy VaRs which Taleb has exposed, and the bonus-driven principal/agent issues.

In other words, the buy side is as dodgy as the sell side, and the euro has been the vector for transmission of the disorder across Europe. As Draghi and Co well know, the financial services ‘industry’ is a house of cards, which can be collapsed in various ways, but cannot be sustained. Ergo, the old regional tensions are likely to reassert themselves bigstyle in Spain.


FT op-ed by former Iceland Minister of Finance:

A further lesson to be taken from Iceland – one of universal relevance – concerns depositor protection. Experience from around the world shows that deposit insurance schemes only offer limited, and in many cases, false protection. Iceland’s prefunded deposit insurance scheme was not very different from most of the schemes currently in use elsewhere in Europe. With the onset of a systemic banking crisis, the deposit “protection” proved totally irrelevant. The Icelandic parliament, through emergency legislation on the eve of the meltdown in 2008, granted priority to depositors over other claims on the estates of fallen banks. This proved crucial to the resolution of the crisis, and as the winding-up of the fallen banks continues, the legislation will ensure all depositors’ claims have been or stand to be covered. And they will be covered in full, not only up to the minimum stipulated by EU directives.

Our lads got fancy Latin terms from barristers to say nothing could be done. Iceland just went ahead and did it.

@Frank Galton

Agree completely – have to laugh at the government saying you cant do something because it is against the law!

You are the government for *&^%s sake!!!!!

@ Seafóid




However, Lagarde did admit that it was ‘a bit of a shock’ when Lenihan rang her in September 2008 to tell her about the bank guarantee scheme.

She said: “I immediately thought, oh my gosh, this is going to be a major issue to address and to deal with, because clearly other countries around are going to suffer from that and we are going to have to react collectively.

“Again, he was extremely honest, open and blunt about it”.

@Kevin Lyda

“I hope Spain’s economic plan involves needless suffering for the poor and middle class. It’s not a serious plan unless it has that.”

The really serious plans always appear to cut from the bottom up!
The inter-country tensions are giving excellent cover for dumping the costs of the crisis on the lower orders. Plus ca change..


I can’t see how that fits. There is a code of omerta hanging over what happened. BLTD has passed away. Everything that followed was about power at the highest level. The “bailout”, how it was engineered. I saw Dick Roche inteviewed by Paxman as the deal was being organised. He said Ireland did everything that was asked of it. It was a mixture of poignancy and comedy. The people calling the shots managed to get all the bank bond money out and they stiffed the sov. That is the way the system works innit.

Is there much of a doubt at this stage that the costs for Spain (and Ireland) would have been less had they ignored the ECB (direct underwriting in our case & via a clause in Spain’s).
More to the point, what would the market reaction be to a thirteenth hour renege by Spain – borrowing costs reduce or not ?
I’ll add as a sidenote that it would be perfectly legitimate for Ireland to place debts to the ECB countered and cancelled by the illegal and immoral actions of the ECB in creating them for us in the first place – and as soon as a trust has been established that other lenders would not be defaulted upon, repayments to the EU/ECB should cease.
One can only imagine that the behind the scenes work going on at the moment is the engineering of a colossal blackmail clause in an attempt to push through the Grand, or final, Solution for european social democracy and self-determination as a whole; and sadly, in Spain as in Ireland, local representatives are in the service of the unrepresentative Corpus (and the position grows ever more farcical with Collins on the € coin and kenny-two-face talkin’ sovereignty on a blasted heath).
But unless we’re talking several more generations of economic waterboarding and political erosion on a geological scale, this aint going to work and there’s much trouble ahead.
Finno foreign minister (and not even a ‘tru’ one):
‘The minister expressed his scepticism over plans for a fiscal, economic and political union drafted by the heads of the EU commission, Council, European Central Bank and Eurogroup.

“I don’t trust these people,” he said.’

Nor me neither….

re- Eoin Bond: ‘…but it was a policy decision of the ECB that to their mind, at the time, was key to stabilising the EZ banking system, with the complete ineptness of Irish regulation at the time perhaps also limiting any sympathy or argument in favour of burden sharing with these private sector creditors. ‘

No doubt, but only a false veil of modesty donned over their own carnal act.
There is nothing that extends or extended the regulatory obligation into a liability. Either in legal fact or by any moral or ethical standard; which latter are quite irrelevant to their way of thinking in any case.
No more than we are obliged to make good the losses of shareholders in Intel because they have a presence here were we obliged to guarantee for the ECB.
Call their ‘loan’ an emergency liquidity fund, and call a cessation of repayments explaining the reasons and create a butress of confidence around other sources that clearly seperates and isolates the ECB/EU alone for that kind of treatment, and see if it scares other lenders.
If it does, worth the try. If not…..? Result ?

re- Seafóid
‘From the link

“The original guarantee was very much a solo-run”

I’m afraid I haven’t seen the documentary evidence. And Eircom must have the call records for the end of september 2008.’

There have been comment from Ryan, Gormley, Lenihan, O’Rourke and at least one other, though I think two, contradicting the ‘solo-run’ story.
I’ve posted links to three of those interviews here at various times. The material on the VB show I’m sure is held somehwere. Even leaving out O’Rourke, as most of us might tend to, it’s a remarkable chorus of dissent from the official version included the press-release. The Greens even think it was an act of meritous loyalty to the ECB and often seem perplexed that their heroism isn’t recognised at home.
It does no harm to remind people of these particulars when there are still some others around who try to muddy the waters by digging up the rather unconvincing attempts of Asmussen and those others who either at the time or afterwards tried to create an impression of distance between themselves and the directive they issued, complied with or were aware of.

I wonder what sort of Spanish unemployment rate would meet the criteria for a radical plan.


lagarde’s eulogy on lenihan is a little more than the usual shameless white lies, at least for my taste.

Reminds me somehow of a scene in “The Godfather”, where shortly after nearly everybody is dead.

If only…..

Conspiracies and nefarious bondholders always trump issues such as growth which lacks the potential for drama.

Anyone here who has experience of working as a manger in a multinational subsidiary knows that only a fool would make a consequential decision for the group on the basis of a nod or wink.

The 2008 guarantee deal was to save Anglo Irish Bank and its year end was a day away with a €4bn deposit from IL&P contingent on a State guarantee.

Wonder why FitzPatrick was Banquo’s Ghost at the fateful meeting in Government Buildings?

Ireland wasn’t Iceland to borrow a phrase and the State guarantee removed all leverage for a 2-year period, but without it, at some point the reality would have hit that the whole Irish banking system was f-cked.

Wondering what could have happened if we still had the punt has no practical relevance in respect of the actual problem that existed.

All bank bondholders and even some depositors could have been told to take a hike but a new State-owned Hibernian Bank would have needed funding from the ECB.

As for the €60bn+ bank rescue cost, some appear to believe that it all should be paid by other European countries.

The elephant in the room is the long drawn out process to squeeze bubble time costs out of the economy and absent foreigners to blame, the piling on of debt each year has evoked little outrage.

There is a long litany of continued scrounging that in a bankrupt country is funded by foreign borrowing.

Five years this month after the onset of the credit crunch, I ask again as I did when the gravy train riders did their best to drown out dissent, where is the outrage?

As for growth, there are long-term problems not only in the so-called peripheral countries that have not easy solutions.

Among the world’s biggest companies, it’s only the US and emerging economies who have a significant number of companies that were created in recent decades.

Europe, including Germany, have old companies using old technologies. Japan is in a worse state.


“Five years this month after the onset of the credit crunch, I ask again as I did when the gravy train riders did their best to drown out dissent, where is the outrage”

Why don’t you go to Ireland, Michael, to a provincial town and ask someone aged between 20 and 25 preparing to emigrate to Canada or Australia for work ? Get off your high horse and talk to people at the sharp end. I was talking to a young man in Co Wexford last week and he had plenty to say .


It seems from reading the posts above that your stance regarding protecting the senior bondholders because of a potential calamity doesn’t wash. I suggested above that trying to defend the indefensible is a bit of a fools errand and I now know I’m about right with regards to this issue.

You say:

“..Huh? Eh, no, nothing compromised here. Do you just write stuff cos you think it sounds good, rather than if it makes sense? Your tone just sounds like you’re very bitter (very), and you have my sympathy for that for sure. But we all are..”

As suggested above the one individual not making sense with regards to this issue seems like your goodself. I don’t find too many (none in fact) agreeing with your stance. I know being contrarian has its attractions at times but not on this one. Compensating private investors for bad investment decisions regardless of whether the bonds were 500bps over Govt yields or 5bps is irrelevant. The mere act of doing it is the kernel of the issue and the so called good intentions in pursuing such a policy sounds like a bad excuse.

You are correct I am extremely angry with the sheer stupidity associated with some of the policy choices made during the crisis and suggesting that the ECBs hands were tied is simply a sop to their banking buddies.

The wrong policy choice was made in relation to this issue and no amount of ‘well we afraid of the consequences’ bladder will change that fact.

@ seafóid

I don’t have a horse.

Your reaction is likely common but stupid.

Have you ever wondered why high youth unemployment has been a way of life for forty years in countries such as Italy and Spain?

Your reaction points to a reality that it will take years yet for the penny to drop that there is going to be no big international recovery around the corner to provide 200,000 new Irsh jobs.

Meanwhile, it is business as usual for those who can get away with it and hope that the status quo can be maintained.

Thanks but no thanks for your advice. I have always worked at the sharp end of the market where something has to be sold to make a shilling.

I still do and my son is a startup entrepreneur in Dublin.

So what do you do?


People are angry. They know that those with connections got away with their money.

It’s more nuanced than “nobody is outraged”.

Have you been to Ireland recently? Bank of Ireland have an ad about people staying up all night worrying.

I know it’s a very deep depression. And those jobs won’t be coming back. But people are figuring out how capitalism works too. They aren’t all sheep.

Keep up the good work BTW. I agree much of what you say but the outrage thing wasn’t fair.

Michael brings up a very important point,
where are the new jobs coming from ?

What are the 10 % Spaniards doing, with little or no education, who over built Spain (15% empty) to such a degree that they are not needed for the next 10 years ?

A few remarks, to characterize, and may be to help with ideas:

– The US has Microsoft, geared towards the low end, consumer, Germany has SAP, focused on SME, long term, and also more robust business
– If we (Europeans) do not spent that much on military, the respective industry is not thriving, and historically, a customer who is willing to spent insane dollars on getting the latest and the greatest is of course very good to start with initially very expensive technology
– Richard Florida “the creative class” needs a ton of additional remarks, but people should know it
– 1.5 years ago, when I discussed the valuation of facebook and linkedin with a french VC, part of that was based on XING, the German linkedin.
Who of you has ever heard of that? Please show me some hands ! Please !
Point is, you can have the same or better idea earlier in Germany (like studiVZ to facebook) and you will still loose out every time to a US competitor, despite a supposedly integrated market.
– Germany specific: if you have a 7% current account surplus, it is kind of hard to argue that you must bail out some failing DRAM company with a new round of government subsidies

@ DOD,

those plots are of very limited value, as long as you dont say, at what level the maximum marginal tax rate kicks in, and what counts towards “earnings”

typical example : German capital gains tax since 12/31/2008
bottomline: I lost at least 20 % of net income value, but people will crow a lot about “increased Gini coefficient”, “more injustice”, “low tax rates at the top”
should I go into numerical details ?

in order to stick with the headline topic “radical plan for Spain”
AND gearing towards Michael,

2 more stories:
1 spanish entrepreneur complaining about spain, effectice wages factor 2 lower than in California, the tech guys actually more competent, but the risk.
Me: what risk? you have the same limited liability laws like elsewhere. He: not really, judges can find for personal criminal liability, and they do so very often, until they bankrupt the owner.
Well, would you incorporate / invest there ?

b) some Greek “entrepreneur” with a small scale brewery at the end of the world somewhere in Greece, whining about “unfair” competition by the well entrenched Heineken, giving start up loans to new Restaurants.


It is the general trend that I find most informative …. esp on capital gains … or deconstructing the general trend as correlated with the corporate takeover of US democracy ….

even I with my gargantum experience in the service business (I actually run a Bistro for 6 weeks, after I fired the idiot running it), even I know, that most folks starting up a pub or restaurant have limited to no capital and since time honored times, suppliers like breweries help out, with strings attached, awkward clauses, ….

If a guy running a brewery in Greece does not know this, has no clue about his business model, hmmm, why is he not successful ? Maybe he needs some loan from Irish and German peasants ?

@Eoin. Everyone else

This is getting boring.

If you want to encapsulate yourself in the reference-frame of bank’s accounts then senior bonds are not “risk capital”.

If you view it from the perspective of an investor or asset manager, then senior bonds are “capital at risk” and should have been evaluated and priced as such.

Investors who failed to adequately evaluate and properly price them, and who bought them at almost the same yield as gilts should have been left with the problem.

It matters not one iota whether bank bonds should, would or could have been burned. The ECB and EZ PTB would have been very very angry if little old Ireland went on a solo run and burned core European Bondholders. So would Mr G of DC. Retribution would have been swift including probably ejection from the Euro.
We might or might not be in better shape by now. We almost certainly would have our own currency and the budget would have been balances by necessity. County managers would certainly be paid less than Rajoy at this point.


John Bellamy Foster sums it up well. I’m sure he is on the economicks curriculula at our third level institutes …

@ D-O-D and seafoid,

you are NOT looking at a GENERAL trend. The plot is just showing the FEDERAL taxes, and not state taxes and local taxes on top of it.
But new business and you and I do not retire to some god forsaken place in Kansas, but go to Boston, New York, California. And there the real taxes are higher than in Eastern Germany.

The official German “capital gains tax” was “full personal income tax” until 2008, 45% * (1 + 5.5% “solidarity contribution), so it would be a no brainer to stick to the US with just 15 %, wouldnt it ?

But in Germany that applied only to half of it, to dividends, and if you sold within one year, effectively taking only something like 0.7% of a pre-tax gain of 8% (long term).

In the US, in all relevant places, you put 10 % state tax, and sometimes 3% local tax on top of the 15% federal taxes.

Your “general trend” is for stupid people only.


Blind Biddy, who is not stupid, nor is J B Foster, wants to know if you wish to buy back your rifle, which you lost somewhere, for two schillings? The only interest on eBay was from a retired Greek Colonel, but he is under netiquette orders not to deal with deutsched goods at the mo.

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