|
June 9, 2012
The Eurocrisis continues to deepen---it actually grows worse by the week as the bond market continues to yank Europe’s chain. In Greece, the problem is an insolvent government bringing down the banks. In Spain, the problem is now insolvent banks bringing down the government.
The latest episode is that dodgy Spanish banks now need bailing out. The politics of austerity have seen Spain enter a double-dip recession, 4.7 million people unemployed, unemployment at 24%, a million unsold properties; hundreds of housing developments left unfinished by construction companies and real estate promoters,
Martin Rowson
The cause is a real estate boom that began in the 1998 and ended in 2007---Ponzi Growth. Robert Tornabell in The Guardian says that the consequences of the speculation in real estate are that:
Banks have now discovered that their balance sheets were filled with non-performing loans and toxic assets: urban land, unfinished housing developments, unpaid real estate loans to developers, and so on.The total assets of Spain's banking system amount to about €3tn.
The Spanish government does not have enough funds for a tough restructuring or a bailout to cover the "toxic" assets left over from a burst housing bubble.
There is a fundamental restructuring in Europe.It looks increasingly likely that the troika is moving toward a plan to combine much of Europe’s bad debt into a single fund with the idea of paying it off over 25 years. Is this the first step on a new path forward for the union, one that encompasses fiscal integration, Europe-wide banking supervision, and tighter coordination of economic policies?
A more immediate question is: will Germany allow the periphery to collapse and exit or will Germany try to save the euro? Saving the euro means greater integration in the form of a federalised eurozone. This means a eurozone banking union, which would take on responsibility for propping up failing banks and guarantee depositors' savings across the 17 countries, backed by the financial strength of Germany. The price to be paid is for eurozone governments to surrender sovereignty over their budgets and fiscal policies to a central eurozone authority.
The most likely scenario is that the ECB will reluctantly and haltingly provide funds to other nations – eg., Spain---an on-again, off-again pattern of support — and that simply won’t be enough to stabilize the situation.Then there will be the capital flight from Spain to the German banks. Meanwhile the periphery suffers ever deeper recessions — failing to meet targets set by the troika — and their public debt burdens will become ever more unaffordable.
How far will Germany go to pay for the looming bill to bail out their euro partners?The politics of austerity is now generating miserable unemployment and deep recessions in Ireland, Italy, Greece, Portugal and Spain.
Update
If Germany yields to the pressure from France to pay to save the euro, then Berlin will insist on major steps towards a eurozone federation or political union with budgetary, fiscal, and scrutiny powers vested in Brussels and in the European Court of Justice. That means vast transfers of sovereignty from member states. It's a shift to federalism.
|
No doubt conservatives everywhere will continue to maintain that it's all the fault of the damn liberals in the USA and the way they forced banks to make bad housing loans, and the only cure is a bit more austerity. I mean it's working in Estonia, what more evidence do you need?
(I read an American imbecile right winger yesterday claiming that Australia was another example of 'austerity working'. Someone should tell Abbott.)