Saturday, April 7, 2012

Spain Will Exit The Eurozone First—This Year

This post is adapted from a piece that originally appeared at my Strategic Planning Group. I've been doing a lot of work over there—hence the scarce postings over here. Sorry! GL

In the LiraSPG Scenario “When The Euro Breaks”, I discussed what would happen to the euro and the eurozone when those countries—unable to continue under their massive debt burdens—began exiting the European monetary union.

One of the assumptions I made was that one of the smaller nations of the eurozone would leave the monetary union first, thereby encouraging one of the bigger nations to follow their example and leave as well. I postulated that the small country would likely be Greece, and that the large country would probably be Spain.

From this exodus, I analyzed what would happen to the euro vis-à-vis gold and the rest of the world’s currencies—namely, that the euro would suffer a staggered loss of value against commodities and other currencies: An initial drop-and-recovery when the smaller nation exited the eurozone, followed by a sustained drop when the big nation exited the monetary union.

The Scenario was written and published on the LiraSPG site in May 2011.

Since then, I have changed my mind: I no longer think that a small country will exit the eurozone first, followed by one of the bigger countries.

I now think that Spain will exit the eurozone first—precipitously and without warning—and that the impact on the euro will be much more sudden and dramatic than I had earlier thought.

In this SPG Supplement, I will explain my thinking. First I will discuss the general European situation; then the Greek debacle, and how the European leadership has lost sight of what salvaging Greece was supposed to be about; then the current Spanish situation, how it is unsustainable, and how the new Rajoy government’s only escape—politically and economically—is to default and then exit the eurozone.

Plus Ça Change, Plus C’est La Même Chose

There has nominally been major changes in the European political situation since the Global Financial Crisis of 2008—which in fact have proven to be minor: To wit, the Italian, Spanish, Irish, Portuguese and Greek governments have been replaced by the opposition, and the French government of Nicolas Sarkozy looks like it will fall in this coming May’s elections. Of the replacement governments, the Italian, Greek and Portuguese are dominated by “technocrats”—that is, austerity hawks that will genuflect to Brussels’ and Frankfurt’s desire for the debtor countries to pay every last pfennig back to the bond holders.

Excuse me, did I say “pfennig”? I meant “euro cent”.

I can prove quite easily that the political “change” has been totally cosmetic because the economic prescriptions remain the same: On the one hand, austerity for the smaller countries (Greece, Portugal, Ireland), coupled with surreptitious bank bailouts by the European Central Bank (ECB) via Long Term Refinancing Operations (LTRO).

Keep on doing’ the same thing, you’re gonna get the same results: Since May 2011, Europe-wide unemployment has increased, to 10.8% across the eurozone; sovereign debt levels have increased both nominally, to €14.8 trillion ($18.35 trillion), and as a percentage of gross domestic product, to 113% of GDP; growth has slowed to a crawl in the big economies of the zone, with France projected to grow 0.7% in 2012 and Germany projected to grow 0.8%; while the economies of the smaller countries have been and will continue to shrink, with Italy projected to be flat in 2012 and Spain to shrink by 1.5% to 2.5%.

Why Greece Used To Matter

Everyone has been paying attention to Greece for so long—and all the European bureacrats have been trying to save Greece from sovereign insolvency for so long—that everyone has forgotten why Greece mattered.

But as I said in the Scenario, saving Greece does not matter in and of itself: After all, it’s tiny—less than 2% of the total GDP of the eurozone.

Saving Greece mattered—past tense—as a sign to the rest of the eurozone and to the financial markets that the European bureacrats—namely the ECB, the European Commission (EC) and the International Monetary Fund (IMF)—were willing and able to guarantee the sovereign debt of all the members of the Eurozone.

The European monetary union never explicitly stated that all the eurozone nations would back up the sovereign debt of any of the member nations. This collective guarantee was tacitly assumed—but never explicitly agreed upon.

When Greece got into trouble with its sovereign debt, the idea was to salvage it not because Greece was a large piece of the eurozone, but as a sign that the eurocrats would honor the tacit promise.

In other words, saving Greece was never an end in itself—it was just a symbol.

Saving Greece was also supposed to scare away the bond vigilantes and anyone else who might think that the sovereign debt of any of the eurozone members was vulnerable to financial rape and pillage.

We saw how that all worked out: The failure of the ECB-EC-IMF Troika to “fix” Greece between 2010 and 2012 wasn’t just a political embarrassment. It undermined the markets’ belief that the eurocrats knew what they’re doing. They quite obviously don’t.

It doesn’t matter that—finally, at the last second—the Troika sort-of saved Greece: The impression remains that they’re the Gang That Can’t Salvage Straight. And the impression is accurate: If they did know what they were doing, they would have solved Greece back in May of 2010—completely and definitively—and we wouldn’t still be talking about Greece.

But we are. Which means that now, we’re also talking about other, bigger countries—

—like Spain.

Spain’s in Trouble

Spain’s GDP in 2011 was €1.05 trillion (US$1.33 trillion). In 2012, as previously mentioned, the general consensus is that it will shrink by between 1.5% and perhaps as much as 2.5%; a figure of –1.75% seems reasonable.

Protests in Spain.
Unemployment in Spain is 24%. Youth unemployment (under 24 years old) is a shocking 53%. Both figures will rise during 2012 as the economy continues to contract. An unemployment of 30% by year’s end is within the realm of the possible. Hell, within the realm of the likely, even.

Total government debt is projected to be 79.8% of GDP in 2012—that is, €800 billion. Much more troublingly, the debt last year was “only” €680 billion—but that was still 21% higher than in 2010. So at this rate—assuming the status quo remains unchanged, and without factoring in the contraction of GDP—in 2013 the projected Spanish government debt could well rise to 90% of GDP.

(Throughout this Supplement, when discussing “government debt”, I am referring both to Madrid’s and to the autonomous regions’ consolidated debt situation.)

Private debt is an additional 75% of GDP—and let’s not even start talking about the delinquency rates—while the banks have a capital shortfall estimated at a mere €78 billion.

On top of all this—as if “all this” weren’t bad enough—is the issue of the outstanding Spanish debt—

—the nub of the problem.

Spain has redemptions totalling €149 billion in 2012. It will issue a total of €186, with an eye to extend the maturity of the outstanding debt. But even with these concerted efforts, in 2012, the maturity of Spanish debt will in fact shrink from 6.4 years to 6.2 years. Add to that, in 2011, interest payments totaled €28.8 billion—up from €22.1 billion the year before. Why? Because of rising bond yields: Spain is considered riskier—due to the Troika’s inability to finally “fix” Greece and Spain’s own obvious domestic financial issues—and thus Spain has to pay more to borrow money.

In other words, Spain has fallen into the classic “borrowed-short-but-my-income-is-long-and-on-top-of-that-my-loans-are-getting-more-expensive” trap.

Last week, April 4, Spain’s Treasury held a bond auction—and fuck-all was it nasty: Of the expected €2.5 to €3.6 billion, Spain barely managed to get bids for €2.6 billion—and the yield on the 10-year spiked to 5.85%, before settling at a still-way-high 5.75%.

Worldwide markets all got down on this auction—

—but here’s the thing: Spain has a lot more of these auctions coming up—on average one every two weeks.

They have to raise €186 billion in 2012.

And of the first of these, they had a quasi-failed auction.

One hundred eighty-six billion euros—in less than a year.

They’re not going to raise that kind of money—simple as that. The April 4 auction was not an outlier—it’s what’s in the post for all of the next 17 auctions.

And the Germans—being the passive-aggressive dicks that they are (my maternal grandmother is German-Danish—so I know whereof I speak)—will not allow the ECB to open the money spigot to Spain. Just like they did with Greece, Germany will dither, while all the while blocking money to Spain until it’s too late.

Germany is thinking—in its passive-aggressive way—that it can string Spain along (just like it did Greece), and then save Spain at the last minute (just like Greece was sort-of saved).

But there’s one difference: Spain is bigger—much bigger—than Greece. You can’t pull an all-nighter and save Spain like they did Greece. You want to save Spain, you best be starting now.

Of course, they’re not.

So This Is What Will Happen

The new Spanish government of Mariano Rajoy, who took office this past December, has entrusted the running of the country’s finances to a so-called “technocrat”, Luís de Guindos.

De Guindos is a technocrat—and he is doing everything in his power to keep Spain steady, like a good technocrat would. He has presented a budget that will shrink Spanish government social spending by 4.3%; he is moving aggressively to stabilize the Spanish banking sector, decreeing that all banks with assets of less than €80 billion under management will be “encouraged” to merge, in order to foster stability through size.

You know: Some German austerity coupled with some Geithnerite Too-Big-To-Fail-ism, like you’d expect a good technocrat would.

But de Guindos is not a europhile-technocrat-insider à la Mario Monti or Mario Draghi or Lucas Papademos or Cristine Lagarde: De Guindos is a private sector nationalist. He is Spanish—not European. Look at his résumé: The guy’s worked only in Spanish institutions when he’s done a public sector gig, and though his private sector jobs were with Lehman and PricewaterhouseCoopers—high-echelon international gigs—in both cases it was with their Spanish offices.

Coupled to that the fact that, ever since Franco’s time, Spain has never been fully accepted as “European” by the rest of the continent.

Now, de Guindos isn’t stupid. Rajoy isn’t stupid. An unemployment of 24%—and rising—coupled with a shrinking GDP is a recipe for political turmoil. That’s polite-speak for “political shit-storm in the making”.

There have been massive demonstrations in all the major cities in Spain—and there will be more, without question.

Rajoy and his Partido Popular currently enjoy absolute dominance in the Congress (186 of 350 seats), the Senate (165 of 266 seats), and the regional governments (13 of 19). But Rajoy knows the score: He ran in 2004 and 2008, losing both time. He’s under no illusions that the Partido Popular didn’t so much win in 2011: Rather, the Rodríguez Zapatero’s PSOE lost, because of popular discontent with the economy.

If there are another couple of failed auctions of Spanish bonds, and the message from the Troika is clearly that they won’t turn on the printing presses to save Spain—or worse, if the Troika telegraphs the message that Spain is going to have to get down on bended knee and beg and plead, while simultaneously squeezing its population ’til they scream—then rather than continue to cut services and social spending and appeasing the Troika, Mariano Rajoy will exit the euro.

“Don’t blame it on me! Blame it on the euro!” will be Rajoy’s slogan—and his people will believe him. In fact they will get fully behind him, regardless of the short-term (12-18 month) pain.

Why will Spain exit the eurozone? Because you can’t squeeze blood from a stone. With a 24% unemployment rate that is rising, and over half of the young people unemployed, no politician in his right mind—especially a nationalist—will decide that even more austerity is the cure for the disease. One thing is cutting off the fat—it’s quite another to be cutting to the bone.

For Rajoy and de Guindos, it will be simpler to exit the eurozone, go back to the peseta, and devalue by 20% to 30% right off.

It is always easier for a politician to cut expenditures via devaluation than via nominal spending cuts. Since the Eurocrats won’t allow a 20-30% devaluation of the euro, and since Spain cannot really cut any more or find any more money in the bond markets, then the only thing left for it to do is devalue a currency that it controls:

The New Peseta: Coming to Spain before the end of the year.

And The Effect On The Eurozone Will Be . . .

The effect on the eurozone will be quite something. In next week’s SPG Supplement, I will outline what will be the immediate effects of Spain exiting the European monetary union—and what would be some smart bets and ideas to keep in mind, in anticipation of that event.
If you’re interested, check out the Strategic Planning Group’s preview page to see what it’s all about.


  1. Excellent article. I find it interesting that back in late 2010 people felt that Spain would go first and then Italy. Then in 2011 Italy jumped into the spotlight and now it is Spain that has re-emerged.

    Is there a possibility that Japan enters the radar screen sooner than people think? I recently talked to a credit analyst at Morgan Stanley, and he said that while everyone is watching Europe Japan could surprise everyone with the quickness in which it collapses.

    At close to 240% government debt to GDP and with interest rates only needing to rise from 1% to 2% to have interest payments consume over 100% of all annual tax collections, it seems like it is a ticking time bomb.

    I came across this article recently which provides an excellent update on all coming sovereign debt troubles:

  2. Awesome analysis. "Austerity" is code for making workers, students and pensioners sacrifice while protecting the interests of fat cat creditors (German, French and American banks and their share- and bondholders).

    The simple fact is that Spanish (and Greek) debt keeps Germans employed since that debt finances consumption of German industrial output.

    1. Actually not true. Spain binged of its own accord. Germany's major markets in heavy industry play more to emerging markets, middle east, etc. Spain levered up and had a real estate "boom" (then kaboom) that at its peak was 18% of GDP. And the 1,000 Euro club (20 somethings who live at home and blow a grand over the weekend flying to Italy for pizza) is not exactly showing work ethic.

      Not that I am particularly fond of bankers who deserve their share of the blame.

  3. Impoverishment is coming. Not just for Greece and Spain, but for all of us.

    We can get mad at each other and point fingers at each other and start a big war, or join a side after war is started by others.

    We can wave our flags and send our young people to kill each other.

    We can watch the coffins come home.

    We can live with the consequences of the unspeakable pain of the thousands of returning war veterans who will experience PTSD.

    We can live in our impoverishment and the horrors of war while the War Machine makes a literal and figurative killing.

    Each side can allow itself to believe its impoverishment was caused by the war, when it was really caused by our collective rigged financial system.

    That is what the playbook says we should all do.

    But we can abandon the playbook.

    We can choose to not point fingers at each other. We can choose to not blame the Germans or the Chinese or the Socialists or the Right Wingers or Goldman Sachs or the Fed or the Rothschilds or George Soros or Dick Cheney.

    It is not their fault. It is the fault of the system. The game is rigged to create impoverishment.

    We can stop the rigged game.

    We can refuse to play. Once enough people stop playing, the game no longer benefits the remaining participants. Then everyone stops playing.

    Game over.

    K Smith

    1. Yes! I agree,and the name of the game is war in which the only one who loses is you and yours.The fallacy of economic growth as the be all to end all is the crux of the so called experts hypothesis and only benefits the debt distributors(the ones who want to own you body and soul)."Stop playing" as you say is the only way to handle this,but as the system machine marches on into countries which all want their turn at so called "prosperity"as has been presented to them by the worldly manipulators.Countries/nations who have become aware of the game are left by the wayside,to devolve from whence they came.

    2. stop paying taxes, stop using government money.

    3. Do not join the war you nore your family ,let them fight there war.
      They will only use your children and war to make more money !
      Any persone going to war is stupid .

  4. Is anything a safe store of value?

    If so, what do you think it is?

    1. Gold/silver, guns and ammo, learn to produce your own food. i.e. farming/livestock.

  5. Great article. Insightful. Could bring a whole new meaning to running with the bulls. I think I may skip this years fiesta. Standing by for next installment.


  6. Great reading, Gonzalo. If you posted more frequently, I guess the pleasure would be diminished. So don't.


    you have no IDEA what you are talking about, all your predictions were fucked. Where is the hyperinflation in the USA?
    How many times have you changed your mind until now?
    You will change your mind even more in the next time.
    One sees you have no clue re Europe when you say that Spain is nt seen like an European countr<. Where die you get that from?
    i deeply pity the people that pay to read your crap.

    Unfortunately the game will be longer and worse for more of the unprepared sheeple.

    1. I'm betting this rant sounds better in the original German.


    2. You act as if you you understand all of the motivations and machinations within the system. Unfortunately we are operating on incomplete information, and given the available information at the time, i think Gonzalo's assessments were solid an d backed up by data from a host of other intelligent and insightful economic analysts. Could you, Gonzalo, or anyone else predict With certainty exactly what government, business and power interests would do? Those in power have thrown out legalities, common sense, and morals and have acted with impunity across the entire globe. it is simple impossible to predict events exactly as they will unfold for these reasons...

      if i remember correctly, In the hyperinflation essays Gonzalo pointed out the specific signs that should be looked for as a forecasting mechanism for when hyperinflation would take hold...Rather than the event itself, look to the information as it becomes available. being off by a month, or a year or even five years means nothing in the grand scheme of things when you are talking about a paradigm shift of this magnitude... these are capital flows involving trillions of dollars across billions of people.... they take time, especially when those at the upper echelons of the control grid manipulate them for their own interests...

      it's clear the system is unsustainable and a collapse of our way of life is at this point inevitable, likely culminating in global conflict that will wipe out mass populations... those who left europe before the ethnic cleansing and war began were also berated for years before the shit went down, but it happened nonetheless.... the signs were all there, but could anyone except the insiders have predicted the very day and hour Hitler launched his blitzkrieg?



    3. Gonzalo's theory sounds reasonable to me. One can only go by what is and merely guess what will be. Bottom line: Eurozone IS going down, US is going down, evidence of that is mounting both financially and socially. And war is immenent. If not already begun.
      Anonymous J

    4. Hyperinflation is still to come, like in US like in the Eurozone. I don't believe Germany would allow Spain or any other country to exit the Euro an the only way to solve the puzzle is to quietly turn on the printing press and hyperinflate the currency in time. It's like pouring concrete on a failing nuclear reactor, you always need more and more.

    5. Hyperinflate the Euro? Yeah, the Germans aren't gonna be letting that happen. They've played that game before and it didn't end well for Germany (or the rest of Europe, for that matter). Letting the EU slackers go off to the far side of the playground and attempt to hyperinflate their problems away in their crappy currencies will keep the Euro very strong, und very German...makes sense to me.
      Or the Germans could leave the Euro and print Marks again--but either way, don't expect the Germans to be on board with hyperinflation.

  8. Hi,

    “De Guindos is a private sector nationalist. He is Spanish—not European.”

    What struck me most about GL's post is the above comment. “He's Spanish-not European.” If true, then we should all be happy, not just for Spain, but also for ourselves for it's about time that somebody in charge some where was actually something other than just another operative of the international banking system, IE Draghi, Bernanke, Geithner etc. Or just another cheap, opportunistic charlatan like Barry, Mitt, or Sarkozy. Let us hope that GL is correct about this.

    The gentleman may be a financial technocrat, but “he's Spanish”. Meaning, his love for Spain, it's culture, it's landscape, it's regions, it's people, will in the end override a purely “technocratic” view which for some reason always seems to favor the banks over Nations and Peoples. Is it actually possible for individuals at that level to love their own people anymore? To be motivated to take care for the welfare of...people? Anyway, we'll all soon see what this new Spanish government does for the Spanish people in the form of defaulting on unpayable Spanish debt. I'll admit, I'm skeptical, but we'll see.

    As an aside, I tend to believe that the 77 year old Greek man who shot himself didn't do it just to avoid poverty in his old age. He did it to send a message to his own people and to shame the Greek politicians in the eyes of the Greek people. The man knew who he was and where he came from and where his loyalties were. And maybe he was just old enough to make that kind of a sacrifice.

    As another aside – and not just to pick on Barry alone but to use him as an example – who is Barry anyway? Where does he come from? Who does he love? What does he love? What can you count on with him unless you're involved with him in some sort of direct economic or political exchange relationship?

    This is not asked in the “birther” sense, for I find it next to impossible to believe that any major political party would run someone for president who in fact is not a natural born citizen. Besides, the “birther” issue fails to reach the essence of the problem of Barry which is that he is paradigmatic of the flotsam and jetsam of the various scam artists who seem to populate the leadership of business, finance and politics of our age.

    My guess is that the American people can count on exactly nothing from Barry, for sure. And nothing from Mitt either. One of them to be president for the next four years. Good luck with that.

    So yes. Let us indeed hope that De Guindos is in fact “Spanish” the way GL describes. We'll all have something to gain if he is.



    1. You are wrong on Barry. Your opinion is based on false premises not on the facts. The minimum you should know is that Obama father was Kenyan and at that time Kenya was British colony. That means that at least from the father side he was British. This excludes Soetoro because in US constitution there is one important sentence that states that "president must be NATURAL BORN CITIZEN". In short, that means that BOTH parents must be American citizens at the time of birth. Also, there are serious doubts about legality of his birth certificate, social security and military card. Anyway, I believe that before anyone expresses their opinion on anything they should at least be knowledgeable to some degree about topic they attempt to discuss. Assumptions would not do, it is facts that count. Anyway, IF you want to research Barack legibility just start with "Obama sheriff Arapaio" google search. This should make you current on he truth related to this issue.
      I am not a "birther" per see, this is just side topic for me. The most important issue I see is political cronyism and unbridled corruption in the US. That, coupled with inherently low political IQ of US citizens spells unavoidable disaster for this country and possibly for the rest of the world.

    2. "I am not a 'birther' per see"... Then why even mention this. Stick to the facts "political cronysim". Does not matter who is elected. The elite control the government. The only way out is to re-build USA 2.0, after the collapse.

    3. Hi,

      My understanding of the law in the US is that a person is considered by the American government to be a natural born US citizen so long as that person is born within the US. Neither parent needs to be a US citizen.

      Thus, for example, you have the outrageous situation of the American government now persuing 30 and 40 year old Canadian citizens for tax penalties for failure to file a lifetime of tax returns (even though they never earned a penny in the US and never set foot in it after their birth) when all that happened is that the person's Canadian parents were South of the border for a few weeks when the person was born. I'm not kidding about this.

      So if Barry was born within the US, he's a native born American citizen. His father's citizenship does not matter. American citizenship: so easy to have happen to you, so hard to get rid of - at least so long as the American government thinks it can get money from you.

      But seriously, my point was that Barry, so typically of many of todays leaders, seems without any real identity. Grounded nowhere. Unaffected by the bonds of mutual affection to any particular place, political belief, religion, group, or people. He's simply making a career for himself in a very corrupt trans-national society. So he does what he has to do to advance his career.

      So as a person unconstrained by "affection", he appears a dangerously unpredictable politician, in my opinion at least, because his actions are limited only by the circumstances of his political environment and his sense of his own self interest within the possibilities of that environment.


    4. You are confusing "Natural Born" citizen with "Native Born" citizen. Thay are not the same thing.

      But that is not the real issue. The real issue is that Obama is a Marxist/Lenist. who will do and say anthing to gain political power.

      I am an American citizen who lives outside of the U.S. and I find the ignorance and stupidity of the American zombie sheeple disgusting.

    5. Birther crap. Exactly on the money: It just doesn't matter 3 years into his term. If Dear Leader was born in Hawaii, he is a citizen by the meaning of the Constitution. My elder son was born on Okinawa -- mother was a Japanese national. She became the damnedess American citizen you could run into -- unfortunately dead. He has a birth certificate which states "Report of Birth of an American Citizen Abroad", as I was one, and he could run for president as surely as I could. He also, if we had so chosen, could have been a Japanese.

      You have hit the real issue in one sentence: Paraphrasing, Dear Leader has no concept of free markets and little concept of freedom in general.

      Secondly, agree wholeheartedly concerning the ignorance and stupidity of the American people. We've done a great job of dumbing down the educational system. Moreover, most of them just don't give a damn.

    6. HI,

      "The real issue is that Obama is a Marxist/Lenist (sic)."

      Really? I think any self respecting Marxist-Leninist would regard Barry as a running dog capitalist pig, as they used to say in the bad old days.

      Geez, Anonymous, think!

      Socialists tax the rich and Wall Street types and use the money to fund social programs for the poor and the middle class. Barry does the opposite to fund bailouts for bankers on Wall Street and to increase military spending beyond the level of the Bush Administration, and then seeks a Grand Bargain with the Republicans to cut social spending. And you call him a socialist?

      He lets Bernanke expand the money supply so financial assets, which are mostly owned by the 1%, rise in value while causing inflation in food and energy for everyone else. And for you, the guy's a Socialist?

      Barry enacts Obama-Romneycare which was formulated by a right wing capitalist, "free" enterprise think tank - all as a way to head off Socialized Medicine. Oh, and force Americans to keep spending more than 17 percent and rising of GDP on health care when civilized countries pay 10 to 11 percent for better health care. And he's a socialist?

      Remember, Obama prevented Socialized Medicine from even being discussed. And you persist in calling this character a socialist, or Marxist Leninist!

      Anonymous, rest assured, there is help out there. The help is located in books which define political terms.

      Trust me, America could do a lot worse than having a good universal program of socialized medicine. But you'll never get it from that "socialist" Barry.

      Oh. Native born, natural born. Whatever. The fact is, if Barry was born within the US, he's eligible to run for president

      Anyway, who really cares? The alternative to Barry is only a few more months away and his name is Mitt - who has a history of baptizing dead people. It truly stagers the imagination to ponder which two clowns the .01% will dig up to run for president in 2016 - all for the sublime edification of the semi educated masses.


    7. I would vote for an orange juice can over Obama.

    8. Right on, Unna. "It truly staggers the imagination ..."

  9. Great article.
    "You can’t pull an all-nighter and save Spain like they did Greece. You want to save Greece, you better start now."
    I suspect that you meant Spain instead of the second mention of Greece.

    1. Corrected.

      Sorry for the boo-boo—and thanks for the heads-up.


  10. Gonzalo, it's 'Rajoy', not 'Fajoy'. And it's 'Partido Popular'.

  11. You may be right about Spain leaving the Monetary Union but where do you get the "devalue (the peseta) by 20% to 30% right off"?

    How do you know that the peseta will not trade at 20% of the Euro? How would this not be an absolute fucking disaster for your average Spaniard who no doubt the government expects will accept its scrip in payment of debt?

  12. I reckon Ireland will be the first to leave, maybe something to do with finding oil, settle all their debts and get the hell out,

    1. I have been hoping that Ireland would leave but I highly doubt it. The Irish people have been broken spiritually.

      When I last visited I was shocked at how depressed and down beaten everyone was. The spirit of the fighting Irish is dead. Every day a new tax is announced and the people keep paying it. The only people who are not paying are those who simply cannot afford to pay.

      As for the oil. It will be handed over by the politicians in a back room deal that benefits the politicians but not the people. It happened with the last natural gas find and it will happen again.

  13. This is crap. This is coming from a guy that left a destroyed Chile and a deppressed USA without saying a word to go to a battered France to repeat what the small Sarko DH is saying about Spain. The French have always hates Spain, and they will go to great lengths to deviate the public attention from their bankrupted banks....GL is just repeating what he read sin Le Figaro.
    Yes, Spain is in bad shape, but aren't we all? The truth is that the rest of the world is worse (see Japan or the US, etc) and this guy starts to talk as if he knew anything about Europe...
    I'd like to see you debating with Kunstler or Foss and getting your ass kicked

    1. Got to admit, this is amusingly nuts.


    2. I disagree with this comment. Spain is unfortunately in much worse shape than France. Frances suffers from not having strong medium size companies like Germany has but it does have some very large companies. Spain lacks both.

      Here are two aspects that the article fails to cover.

      - Spain's parallel economy (black market) which plays a very significant role. It allows the population to breath some but it certainly doesn't help solve the public deficit. It worsens it.

      - The lack of coordination and common vision among the Spanish automous regions. For years, the central government of Madrid has distributed resources without much concern about productivity of its investments. In fact just a week ago, the EU prevented the construction of another railway through the Pyrenees for duplicating existing projects/infrastructure. The high speed train Madrid-Sevilla built in the early 90s was also a political whim...

  14. No!
    Troika will try to push Spain into more austerity.
    But when Rajoy will really consider leaving the eurozone, the ECB will resign and print a new trilion for Spain.

  15. Interesting article, as usual, but you need to go deeper. What does being part of the EU mean to Spaniards? In the 1980's and 90's it meant everything, it was their escape out of the whole Franco shtick. Europeans looked at them as they do Brasilians now. But times have changed, sort of.. but I disagree that Spaniards have recouped enough self esteem and national identity to overcome the EU.

    Probably no country in Europe needs the EU in support of their own nationalism as Spain does. What do the Catalanes say about leaving Europe...?? Ha, that will be interesting, and the Basques? They might not mind as much... and when you cut off all the agriculture subsidies? Gonzalo, I think you have spent little time in the Spanish countryside. Spain is a fake country, with a fake economy, without Europe, they fall long and hard.. aint gonna happen...they will be the last to go...

    1. You can go even deeper than that. Catalonia will hardly leave Spain, because their main Market IS in Spain. If Catalonia splits out, they're gonna have to search for Markets to sell their production. And I also wish them good luck getting money from Europe with a 7 mill. population. They'll be "colonized" by France, Germany or both.

      The Bask Country is a whole different story. In the case that they sepparate from Spain, it would mean they could concentrate efforts on Gascoigne, (France). However, they'll have the same problems finding new markets.

      Regarding the agricultural subsidies, Spain got them by adpating their production to the EU Market (basically cutting agruculture, industrial production) and they can rebuild it again, which would be a nice engine to improve their economy after exiting the Euro.

      It's not as clear as you say, my friend. There are chances that it isn't such a bad move.

    2. Excellent comment re: the Spanish psyche. Actually I was looking forward to GL's analysis of it but he seems to have overlooked it entirely.
      IMHO the Spanish are afraid of themselves, the sinister secrets of their civil war unconciously haunt them still and are far from resolved and makes leaving the EZ a psychological matter as much as a economic one. The rich in Spain remind me of those in Asia, that is, an unbreachable sense of entitlement combined with a iron resolve to keep their position and power come what may. Buena suerte Espana!

    3. Thanks, pal :)

      Independence from Spain is a nasty can of worms, that I'm afraid no one wants to open.

      Catalonian independence doesn't stop in Catalonia. Valencia and Aragon (partially) and the Balearic Islands would be the next conflict zone.

      Same thing goes for the Bask country. Not only the before mentioned Gascoigne (good luck, France, dealing with that), but also Navarra would be at stake.

      Given these facts, Catalonia's and BC's independence wouldn't create any stability, since it wont stop there. Everybody in Spain know that.

      More consecuences to come: good bye Juan Carlos I and the Monarchy. But remember, he's the Commander in Chief of the Army, whose ultimate task (the Army's), according to the Constitution, is to protect the integrity of the Spanish territory. So yes, the ghost of the Civil War looms over this scenario and it's deep planted in the psyque of many Spaniards.

      Don't get me wrong, Civil War looms in the psyque but I sincerely do not think the people is going to grab a gun and start killing each other (on a significant scale), but one thing is for sure, the turmoil would be of biblical proportions for all sides (I say "all sides" because there's more than two and more than three, but that'd be too long to explain now).

    4. I forgot to say: I do not discard independence, oh no, but imo it's a long shot.

    5. I believe you are mixing different things here...

      Let's put it this way, Spain was always looked by the rest of Europe as the ass of Europe, or the Africa of Europe, well before Franco. Spanish most basic laws on ownership and business laws were light years behind the rest of the continent at the beginning of the 1900s.

      As for Catalonia and the Basque country and other regions expressing interest in leaving Spain or Europe...
      Let me put very clearly, it all boils down to the tax system. The Basque region enjoys a special tax status: they have tax autonomy. The rest of Spain's taxes is governed by Madrid. In other words, Spain's central government controls tax collection and decides the distribution of the fiscal revenues throughout the country except for the Basque. It is the fiscal imbalance between Spain and certain regions that is fuelling seperationist ambitions. It is estimated that the fiscal imbalance between some region of Spain, like Catalonia and Spain oscillates betwewen 7 and 10% of the region GDP. To put it simply, for every 100 euros of income created yearly in Catalonia, between 7.5 and ten never return. This is a highly abnormal situation when comparing Catalonia to similar regions in other E.U countries. You bet they would like to leave the Spanish ship.

      I am not sure I understand the argument about Catalonia high exports to Spain being an hindrance for leaving the country either?... you will have to clarify your argument here.

    6. @ AnonymousApr 10, 2012 02:07 PM

      Old saying in Spain, "Barcelona earns it and Madrid spends it."

    7. Good point. I will try to answer. Catalonia collects taxes from Corporations and Enterprises located in Catalonia, but those enterprises (or a good portion of them) sell their products in Spain.

      Same thing happens in Madrid. They do collect a lot of taxes too. Prolly more than Barcelona. Why? Because many big corporations have their headaquarters in Madrid and sell production all over Spain. So, in this case I guess we could also say that Madrid (the Authonomy), earns it and Extremadura, Asturias, Aragon, Andalusia, etc, spend it. And you'll never hear a complaint from Madrid in that regard. Having those headquaters in your community has lots of other benefits: jobs, for example. ;)

      The money flows from all parts of Spain and ends up mainly in Madrid and Barcelona. Therefore it has some logic to tax it and redistribute it into other, less favoured areas of the country.

      That's why, once in a long while, other areas of Spain threat to boycott Catalonian products to counterweight what they consider to be excesive, pure nationalistic demands from Catalonia.

      As a fact, you'll only hear that "old saying" in Catalonia.

  16. You are full of SHIT

    1. Why don't you go back to your sandbox or yahoo's message board.

  17. I am curious as to what will be the fallout if there is a mass migration from Spain. Checking wiktardia entries on population shows a net drop of around 5 % in census numbers.
    As things unravel will the more stable countries deploy military units to keep people out ?
    Or expel people ala the Roma from France ?. Economic refugee's will be a massive problem as things unravel. By the way America is full so kindly f**K right off , euros collectively sht in your nests and you can live in it ) Have a fun economic collapse .

  18. There is no German banks, French banks etc. There is only private international banks printing money. There is no Germany, France, etc. There is only corporations masquerading as nations owned by these banks. Taxes are debt payments to the elite. The headquarters of the banking elite is in London. The goal is extermination of 90% of the world's population. The taxes you pay finance your extermination.

    1. So true ,Governments,Police etc etc, easily checked, are all listed as corporations, im sure Conservative voters in the UK would be pissed-off to know that their conservative Government is actually a corporation with the elite as shareholders and with a sole purpose, profit

    2. The real center of power is Tel Aviv & the Red-Shield gang.
      It's time to tell these parasites that we are repudiating their paper.

    3. What is the point of exterminating the 90% where dispirited serfs have no drive,productivity and drive?
      Wrong lending to corrupt politicians projects and the real estate bubble are the main causes.
      False promises to get elected,got into power and borrow heavily so the new goverment solve the mess. Banks take the losses. Yet people blame them for charging interest. They are not loan sharks. People who cannot repay with interest should not borrow. If not, you lend to me for free and do charity like the way politicians make people lazy and dependent.
      Making them unwilling parasites where profit look like a sin but profit from corruption is not.
      Who control the army? The politician or the bankers. Banks' money are someone else money which the bank owe. Default and these who sacrifice and put aside enjoyable spending suffer.

  19. Appreciate your thoughts Mr. Lira. I don't agree with you however. I find it more likely that some sort of international/globalist save will be concocted. The E.U. is a template for a larger international order and I believe that the forces supporting this order WILL NOT allow for such a destabilizing event to occur prior to obama securing his second term. Once obama gets his second term, all hell will break out shortly thereafter.
    It's the plan.

    1. I agree with the first part. Yes the euro is a needed player in the game of top dog currency.
      The second part (about Obama), I don't know. Please explain.

  20. Another Gonzalo Lira prediction that will not come true -
    remember the last time Greece was supposed to disorderly default on 20th March?

    1. Stop criticizing, offer an alternative. Create something for a change. Move up the up the ladder of cognitive skills if you can.

  21. Wow, quite the array of messages your receiving GL. People expect you to be bang on with even the dates lol. This was an interesting article, i liked it.


  22. bravo, excellent article

    1. You are the first person to my knowledge to say in public the following basic concept>


  23. Really scary Gonzalo
    All these countries implementing Austerity should instead try to build their economy up and get people working and paying tax.

    Cutting back and back is no use.

  24. The financial legerdemain used to put together the Euro is mindboggling. When I had attended the Univ of Heidelberg as an Econ student in the late 80s, the one big problem, amongst many, with a unified currency was the labor arbitrage between European nations, Example, Airbus moved much of their manufacturing to Spain because of cheaper labor. (I guess that's what China is for, now).

    This currency union has been a disaster. It has hurt the common folks, while lining the pockets of the large investment banks which put this house of cards together, and who profited when they constructed it, and demand more when it all falls apart.

    Reminds me of a nursery rhyme, Humptey Dumpty

    1. BTW, good to have found your blog, Mr. Lira! I shall be a frequent visitor (thanks to Keiser linking to you).

  25. Good Article .But why does Mr. Gonazalo ignore the massive trillion dollar bond operation from the ECB ? Spanish banks were major buyers of that easy low interest offering. Even Germany can not directly lend a trillion dollars from its public sector savings . And even if it could that would still not be enough to cover even a third of Italy's debt alone ! So I believe that the ECB and the EU are engaged and working with Spain and vice versa. The approach is different from Greece for different reasons. The general European perception of Greece was enormous corruption so the other EU countries could not offer a 100% bailout because the optics of it were really bad. They had to make it look like the banks were suffering some losses. Notice Merkel has clearly stated that will not happen again when dealing with other EU states. To be honest I do not perceive this level of antagonism between Spain and the EU although i agree that a 20% unemployment rate is very serious.

  26. The cure is rope lots of rope and lamp posts as far as the eye can see...nice article GR

  27. The ECB will bail it all out, with 2 trilion distributed in relation to GDP. Just like IMF with SDR allocations.

  28. Gonzalo, I think we should rather wait for the next bond auction. Remember Germany? It was shock and awe when Germany had a failed one and later german yields got lower than even previous auctions, so I think your premises are a bit unsolid now until the next 2-3 auctions.

  29. I am not sure I understand how exiting Euro will be beneficial for Spain. If Spain exits Euro, will its currency inspire confidence, to be able to devalue with control. Wouldn't there be HI. Also in the event of exiting Euro, Spain will lose the Gold that has been kept with ECB. Will that be a good idea, assuming the Gold revaluation is just around the corner.

    I think Spain will be saved the same way Greece was saved. More money printed to save the banks from collapse, and Spain defaults within the Euro.

    I had a lot of faith in Spain causing the collapse, but after the way Greece was handled, I won't hold my breath.

    I think the collapse will be triggered by inflation and severe losses for traders.

  30. Ho-ho-ho. Yet another Gonzalo prediction. Just like all his previous ones (yep, I kid you not. Every single one.), this one won't come true, either.

    Here is my counter-prediction: Spain will NOT be the first country to leave the Euro zone. (Personally, I think that either nobody will leave, or they will all "leave" simultaneously, in the sense that the whole Euro zone will fall apart one beautiful Saturday morning.)

  31. Coupled to that the fact that, ever since Franco’s time, Spain has never been fully accepted as “European” by the rest of the continent.

    that's a very silly statement, how come Spain is not European? But it was very European 20 years ago?

  32. Nice write up GL.
    As far as the call on Spain leaving the Euro Zone "first"
    I am not so convinced notwithstanding your hard facts and strong case.
    As evident as Spain may seem to being at that point of no return (no hope) I am circumspect that TPTB will let it leave or let the Euro collapse. They have proven time and again that failure is not an option. Besides there are "other externals" that are capable of ensuring a continuing heartbeat. BUT Surely one would concede that an event of this magnitude would be devasting to the Euro concept. A contagion would ensue and that would imply the breaking up of the Euro Zone.
    So although on face value A Spain "Lehman" moment would be at unbackable odds the vested interests will act to ensure its avoidance. Whilst we are mired in a stagflationary environment the only remedy that the central planners have is still one that can go on until infinity.....unlimited liquidity.
    Lets face facts...aside the ones already provided.
    Its Deflation vs Inflation.....not an economics lesson.... pure and simple facts. Not simple by any means but it provides a basis on which to form an opinion.
    Then its no growth vs depressionary levels of economic activity. This is across the European landscape not just Spain AND extending into Nth America.
    No economic forecaster can precisely predict the future. Too many variables and distortion affecting all prices and values. So no one really has a true sense of where real value lies. In the same vein.....we can all get caught up in the ultimate "kicking the can until it can't be kicked" scenario and then Armageddon strikes and the financial system collapses.
    Does Spain win the trophy ??
    Who knows.
    Does it matter in the scheme of things the world faces over the next decade or two.
    Probably not. We still end up in the same place ultimately.

    No green shoots. An absolute mess everywhere you look. The greater world population living at or below the poverty line soon to become an even bigger number and bigger problem. It doesn't get any better in fact every day brings us closer to the end game. It sounds like a prediction but in reality it has to be but not necessarily in the literal sense. As sure as the sun rises and the tides move so too do financial systems. For humanity to survive a reversion to the dark ages, a new financial system will evolve.
    It is clear the existing one has passed its use by date.
    Concurrently the power and control that resides with the debt money interests will need to change if the world is to prosper again.
    I enjoy reading your blogs GL. They are refreshing and provide reality checks to the propaganda BS coming from the MSM. We share common ideals and thats what I like about your blogs. Your writing is precise and effective but I still retain a sense of perspective. Everything taken in context and balanced. One could easily be confused in this insane world driven by psychopathic egomaniacs.

  33. I've heard little talk of money from the ex-colonies taking over in post-euro Spain and Portugal. What do you think, are they interested? Is the Iberian side too proud?

  34. One of the people who responded said Spain was not Europe. If SPain is not Europe, where is it?

  35. Using vulgarity (e.g., "fuck-all" and "shit-storm") may feel good, but it detracts from a scholarly presentation.

    1. Yeah, but way more fun to read.

  36. Its worse than you think GL. The local governments in Spain are totally broke and are not paying for basic services. Here in the Providence of Cadiz, its the epicenter of a horrible economy.

    City governments not paying their trash bills, local police not paying their fuel bill, electric bill, private contractors not being paid, in some cases up to 4-5 years, city employees not being paid for months, local private businesses not paying their workers for months since they are not profitable, desperate people stealing power lines and anything made of metal, plenty of stray dogs since their owners throw them away for they can no longer afford their pets - I could go on!

    Leaving the EU is the only way Spain can get out of its debt burden, since jobs are leaving like water being flushed down the toilet.

    Austerity will only create more turmoil here too. - Piracy and theft is huge here, because the locals can not afford cable TV, internet, music, movies on cd, video games, computer programs, food, fuel - its all being stolen. Also, water, electricity, phone, and any other city service is stolen by the locals. Under austerity how can city governments pay for city services if a good portion of their utilities are being stolen?

    Spain's only option is to default.


    1. Default, default, default, that seems the only line of thought there is these days.

      What about thinking differently for once?

      Exceptional conditions call for exceptional measures?

      Why not have the 'ni ni' generation (20s and 30s young adults) who don't want to study nor work do something for once and broom the streets and clean dog shit? Do you think that if unemployed people in Spain were put to work(because there is plenty of shit to be done in Spain), Spain could get out of this mess?

      What about 'work' as an alternative to 'default'? Work for food and shelter like the army corp of engineers in the 30s.

      Instead of Big Brother, Spanish TV could shoot a reality show on young adults breaking down because they worked for the first time in their lives.

      C'mon if Spain can't do better than this, and if they can't then they deserve to be where they are.

      And who was the smart guy to think that by introdocing a common currency, all the sudden cheap money would flow and all problems would be gone? when there is not tax, nor accounting, nor fiscal, nor nothing harmonizing among all these countries.

    2. Someone who still thinks government can create solutions.

      Governments the world over should just hire everyone, then poof, no unemployment. it's so simple! /sarc

    3. at Anonymous Arp 11, 2012 10:24AM

      You misread me completely buddy.

      I am just saying that most Spanish don't do sh*t especially the younger generation. I believe in work, not subsidies.

  37. evolvingarts.netApril 9, 2012 at 7:49 PM

    Who cares about being "scholarly" anyway? We have enough "expert-scholars" in this world--dictating how we should live our lives (led by none other than Big Ben). Hell, the other day, I had five bicycles stolen from my garage. I guarantee you my language was far from scholarly.

    We can say what we will about who's going to do what, but it will come down to another 2008 Black Swan event--where suddenly the bottom drops out. As far as a new monetary system, it will not be new, but the same old reliable golden-oldie: GOLD.

    Of course, the US might be the real benefactors of all this, for after their dollar default, their coffers will be filled with allegedly the largest gold holdings in the world.

    1. Agreed evolvingarts.

      Their coffers are also filled with other soveriegns' gold in addition. What a bonus. Two for the price of one, and some.

      Repatriation of one's gold should be first and foremost. Some are ahead of the curve.

  38. Default may be in the best interest of the Spanish - but it's not in the best interests of the bondholders.

    Those whose best interests are in looking after the bondholders will fight tooth-and-nail to prevent default and a CDS tsunami that will sink many financial ships.

    What lengths will people who have billions - or trillions - on the line go to in order to protect that?


  39. Your analysis make sense. Its not going to happen, but it makes sense.

  40. Physics is the most exact science; physicists discover the laws of the universe and apply them to make predictions and build all kind of machines and technological wonders. But imagine if a group of criminals could break the laws or change them whenever they wished. No prediction of any kind would be possible in such a universe.

    That is what we have in the financial world: crooks can change the laws to steal people's money whenever they want; they can break the laws with impunity; they can even rewrite the laws backwards many years to avoid penalties for past crimes. No certain prediction is possible in such a corrupt criminal financial and political environment.

    Gonzalo has strong opinions and he is not afraid to publish them. Keep writing, Gonzalo: I find everything you write interesting. No sensible person will blame you if your predictions do not come true in our criminal crooked system.

  41. Gonzalo,

    how shall I trust your analysis if you get the facts wrong:

    The European monetary union never explicitly stated that all the eurozone nations would back up the sovereign debt of any of the member nations. This collective guarantee was tacitly assumed—but never explicitly agreed upon.

    Not true. The Treaty of Maastricht explicitly says that the European governments do not guarantee each others' debt. The bail outs in fact explicitly violated the contract. But in the original spirit of the contract eventually Greece defaulted on about 1/3 of its debt. Yes, that's right. Government debt is not risk-free and indeed occasionally defaults.

    Saving Greece was also supposed to scare away the bond vigilantes and anyone else who might think that the sovereign debt of any of the eurozone members was vulnerable to financial rape and pillage.

    That's the next statement that can easily be seen to be false. Although the ECB purchased some bonds outright, they never purchased enough in order to keep interest rates low. This is in fact the major difference between the ECB on one and the Federal Reserve and the Bank of England on the other hand. If you go 'all in' the bond market and keep interest rates low, you ultimately risk a currency collapse aka hyperinflation. Both the US and the UK know that this will be their ultimate fate.

    Not so the ECB. In the Euro zone, the interest rates on government debt were allowed to rise, the first country (Greece) just had a selective default, and the ECB monetizes some of the debt, but forces haircuts on some other part. The primary mandate of the ECB is to ensure price stability and, yes, they will print money in order to avert a deflationary collapse or a bank run chain reaction, but apart from this, they will let the market clear the bad debt. This way, they can almost certainly keep the Euro working and avoid a currency collapse.

    The next major difference is that one day, the Bank of England will have to defend the pound. They will sell dollars and perhaps gold in order to buy back pounds in order to support their currency. Eventually they will run out of reserves, and then it is game over.

    Not so the ECB. If they ever need to defend the Euro, they will first sell dollars and buy gold, and second sell Euros and buy gold. This will instantly stabilize the Euro.

    I am pretty sure, those in charge of the central bank of Spain know this, and this is why they will remain in the Euro zone, just as Greece did. Yes, Spain may eventually have to partially default as well, but who cares, the Euro is a perfectly viable currency to use.


    Victor The Cleaner

  42. The second reason why Spain will not leave the Euro zone is because they are not stupid. Think about what their options are.

    I agree that they will eventually default, at least partly, and restructure their debt. Then what? They have the option of staying in the Euro or leaving. What would you do.

    If your problem is that you have a lot of export oriented industry which is suffering because the exchange rate of the Euro is too high, yes, then it would be beneficial to leave.

    But this is not their problem. Their problem is that until 3 years ago, 20% of their employees worked in residential construction and are now, understandably, unemployed. But firstly, everyone already has a house. Secondly, everyone who though he could afford a holiday home, already has one. Thirdly, even every Englishman who thought he could afford a holiday home in Spain, already has one. Residential construction is not needed for at least two decades. This is called malinvestment of misallocation of capital.

    Now Spain could exit the Euro and just print money in order to pay their construction workers to continue building ghost town on the seaside. This is not a very good idea because it would just hyperinflate their Peseta 2.0. Quite understandably, this is not a good option. Since they are not stupid, I don't think they will try.

    In contrast, Spain has a strong incentive for staying in the Euro. Spain is a net importer of energy, and being in the (strong) Euro is their guarantee for access to reasonably cheap oil and gas. In addition, they might eventually (i.e. after their default) get some reconstruction help and subsidies from the other Euro zone countries (note: Germany is bathing in cash these days), something they would not be able to access outside the Euro.

    Sorry to say, but my agreement with you was basically zero.


  43. "Coupled to that the fact that, ever since Franco’s time, Spain has never been fully accepted as “European” by the rest of the continent. "

    Not being able to distinguish between opinions and facts is not a good thing for an analyst...

    1. Well, they are probably more accepted as 'Europeans' than are the Britts are..

      And the rest of Europe, northeners in particular are all too happy to tap into Spain's sunny climate and generous welfare system (that Spain cannot afford) especially the Brits who mind you never contributed to anything. Why don't they retire in the City that they cherish so much.

      I don't see the Norwegians more accepted as 'Europeans' with their fake economic miracle that relies heavily on natural resources, gas, no real miracle there. I will pass on unsustainable salmon farming and of course ... whaling.

    2. Why do you think well over half the estimated 300k Brits have left Spain since the 2008 collapse and the work dried up? There are virtually no benefits unless you've been in the system and claim back only what you've put in while you worked. Those left are wealthy/self sufficient enough to remain retired etc. there and choose to pay into the Spanish economy while they're living there. Even if you could claim, the statement 'brits...mind you never contributed to anything' is absurd. Are you not aware the UK is second in EU contributions, only to Germany (yes, even more than France! and it's not even in the eurozone!). A very tasty percentage of tax payed while working in the UK goes into the coffers, so it could be argued that you actually had a right to claim that back wherever you lived in europe. That was the whole point in creating the 'borderless block' project in the first place.

  44. Interesting conclusions. Some rather personal replies between people. Europe has enjoyed high taxes and many socail services for a long time. However, history has not been read or learned by many. Look at Greece and Rome in the abcient times to see what happened to societies that had high taxes. They did not have a tax base large enough to support to great social services (promises) crooked politicians promised to get elected. The politicians have enslaved thier nations not just Spain but others now we have to pay the price. It is sad. Solutions there are a few but no one wants to take that bitter pill and swallow it

    1. Hi,

      Rome went broke paying for an expensive, bloated military empire which benefited only its upper classes - for a while at least. They taxed their middle class into ruin and their "working classes" into serfdom. When direct taxation wasn't enough, they resorted to debasing their currency (inflation) to help pay for the military and an internal security service which never stopped growing until the very end.

      Oh, and near the end, they increasingly exempted the very wealthy from paying any taxes at all, and indulged in a rush of "privatizations" of local governmental functions like maintaining roads and bridges, and running security services and courts which were "purchased" by the 1% in lieu of paying taxes.

      Handing out an amount of grain to the urban poor of Rome to keep them minimally alive, but not very healthy, did not financially destroy Rome.

      The Senatorial Class (Rome's 1%) drove the fore bearers of those urban poor off their small farms in Italy during the 2nd Century BCE by (1) ruining them by reducing the price of grain through the use of massive slave labour on large farms and later by importing large amounts of grain from Egypt and North Africa, (2) thereby forcing them into debt and foreclosure, (3) confiscating the foreclosed land.

      Politicians who sought to reverse this process, like the Gracci, were murdered by thugs hired by the Senatorial party. Rome essentially lost its political freedom under the conservative dictatorship of Sulla, the generation before Caesar, which generally reversed all reforms to that time which might have benefited the 99%. When conservative orators like Cicero spoke of "liberty" they meant the liberty to keep most of the wealth for themselves unencumbered by any laws which might have benefited the population generally.

      These now landless poor people, Roman citizens, flooded into then slums of Rome creating the political crisis of the Late Republic.

      Pardon the short course, pained with a very broad brush, on the decline of Rome, but the road to serfdom in Rome lay not in the "welfare state", but rather in an out of control 1% along with out of control military spending which crashed the real economy of the empire.


  45. Although Germany appears to be financially disciplined and strong economically, is it ? what happens to german industry when all these countries can't buy German made products. More to the point - add up all Germany's off balance sheet items and Greece may well come out the more financially disciplined economy!
    There is a clue in the events around the re-unification of Germany and how it was financed.

  46. To Gonzalo Lira : As a Flemish Belgian I would like to know the nationality of the people who reply and comment on this blog. This would help us all to more or less assess their background and credibility. It would also help to eliminate or skip certain less interesting replies. Please provide a kind of mandatory button to that purpose. Thank you.

  47. Dear Gonzalo,

    I am not sure about your knowledge in Spanish economy and regions, it seams such good but you do not distinguish between regions and historical "countries" like Basque Country or Catalonia. Catalonia is around a 10% of fiscal deficit in front of Spanish taxes and culture is dramatically different fromBull culture from the other regions where the stereotypes are based.

    From one side Catalonia prefers a rescues rather than a Rajoy's national policy that defends investments based on one only country more than economic common sense investment in Barcelona Harbor. In that case, no ideological based on Spanish history resentment will manage the regions independently and with no more solidarity against ourselves culture.

    From the other side, I cannot see the feasible effect of Spain to exit Euro. Spain for sure needs a currency valuation, but turning to the peseta, what's happening with the Spanish debt? Will then the people keep current debt in € with a peseta salary, will the Savings in € became pesetas?

    In the worse case, would be possible for Spanish people to keep the debt in € and see how the savings becomes pesetas?...

    Whatever, I am such young but this is not the first time a country or part of it needs to be rebuild, this is a life cycle in economy.

    My misunderstood Gonzalo, and sharing some comments from KSmith, is the fact of making use of the economical excuses to step backwards in culture tolerances and right in the still European Union.

    I feel like it is allowed to rape Identity and Punish the people and governments of regions that did all home works with a never enough solidarity for some other regions. And for all the world we are still Spanish going to bullfighters and doing siesta every day...

    Europe does not only have the topic on the Currency, it is hidden under a democracy sheet but it is also missing the common sense and the effort of more than 7 million people that are not supported by Rajoy's or Madrid's government policy.

    Honestly, We still join our small and beautiful country but would not be bad to keep working hard the hope that one day our effort will return to our kids.

    At the end, I do not aspire to became president but the best to reduce unemployment is avoid taxes for any single young person that decides start up a business with a good idea until, this is earning money...

    I wish you the best.

  48. Gonzalo,

    i would like to challenge you prediction that Spain will exit the Eurozone in the course of 2012. How about a good bottle of Chilean wine like Seña or Almaviva?


  49. you are so wrong! Rajoy and de Guindos *ARE* stupid. I enjoyed your article v. much. Best regards

  50. Spain needs to, so does Ireland. These two countries did the right thing by attempting to nationalize the fallout of property bubbles and then Germany hamstrung them by denying them the fiscal and monetary means of recovering. The only way they can survive is to leave the German S&M club.

    If German doesn't budge this weekend at Camp David, they should make the move before June 17.

  51. Miu Miu — Marc Jacobs, more than anyone, knows that it's not what you say but how you say it. The Louis Vuitton showman thus capped an incredibly strong Paris fashion week — with help from artist Daniel Buren Miu Miu Sandals by building a life-size shopping mall inside the Louvre.

  52. The problem is that Spain is more European than the other nations. Spains kingdom during the golden age included Austria, Germany, Italy, Holland, etc. Spain will do all it can to keep the Euro strong. The rich and powerful politicians in Germany, France and Spain will take Europe back to what it was during the dark ages. The middle class will vanish and the majority of europeans will leave in poverty, this will happen in the next 10 years. Then I see a world war 3 in the next 10 to 20 years. Banks and politicians will ruin the world. The middle class in the USA is already vanishing, families are becoming broke already. bye.

  53. You're a smart enough dude, but you have a premature ejaculation problem when it comes to predictions.

  54. Looks beautifully delicious and good for you!
    Hope to see more posting related to

    § Property in Spain


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