Can Spain and Italy export their way out of trouble?
What about Spain and Italy? By Voxeu.
Anxiety about Spain and Italy’s bond spreads has returned with a vengeance. In this dangerous race to the bottom, Italy was in lead position back in November but Spain has now overtaken and is once again at the epicentre of the crisis. Spain’s macroeconomic imbalances are much larger than Italy’s, but, to grow again, both countries confront an enormous challenge in reorienting their economies towards export- and import-competing sectors.
There is no lack of ideas about what a growth policy for Spain, Italy, and other troubled countries in the European periphery would look like (see for instanceAlcidi and Gros 2012 on Spain). But most of these ideas misdiagnose the cause of the crisis as one of shortage of credit or of excessive austerity. The Eurozone crisis is at its root not a fiscal or banking crisis, but a crisis of competitiveness hatched over about 15 years, and reflected in large differences in labour cost, export performance, and balance of payments between the periphery and the core, notably Germany (Dadush et al. 2010). Accordingly, fiscal and banking remedies, while badly needed, will not – by themselves – durably resolve the crisis.
Greece’s history – The Biggest Burden?
The Trader has witten about the Spanish mentality mainly. Here is some great insight on how things are “run” in Greece. Did the Greek mentality cause the implosion of the Med countries? From Spiegel.
Thirty-seven years ago, Nikos Dimou, who is now 76, wrote a book of aphorisms titled “The Misery of Being Greek,” which was published in 1975. In the book, he wrote that a Greek does “everything he can to widen the divide between desire and reality.”
For this interview, he invited SPIEGEL to his apartment in Athens’ leafy embassy district. The air smelled of jasmine, a sprinkler watered the lawn outside and Dimou’s three-legged cat, Azurro, was asleep on the sofa. Dimou, who studied in Munich, served the reporters coffee and cake, despite his recent frustration with SPIEGEL. Like many people in Greece, he was hurt by the magazine’s recent cover about the Greek crisis, which bore the headline “Acropolis Adieu!”
Spain is crying
The rating agencies are slowly realizing the health of the Spanish economy. The Trader has been arguing for more than a year, Spain is in trouble, and these cuts should have come much earlier. The deeply rooted problems will now go into the second phase. If the Spaniards start feeling “abandoned” by Merkel & Co, and no credible solution are presented shortly, the Iberian Peninsula will be on fire. “People will stop complaining and start protesting for real”. Look for a hot and dry Spanish summer. Must read by BBC.
One in four adults is unemployed. Half of all young people are jobless. Consumer spending is in freefall and the country has just learned that to save a single, relatively minor bank, will add a third to its already sky-high national debt. Meanwhile its top 30 listed companies have lost 40% of their market value in a year.
Spain is in trouble, on the face of it, because its small banks – known as cajas – fuelled an insane property boom that went bust. They didn’t do complex structured finance deals like Lehman Brothers; indeed they were the opposite of “Anglo-Saxon” capitalism – being small and locally owned.
But behind the pure economic story is a more complex political-economic crisis that could, even now, send Spain the same way as Greece, shattering the eurozone in the process and placing the whole European project in grave doubt.
You can see how badly the crisis has hit people at the “Utopia” apartment block in Seville. It’s a modern, newly-built, five-storey complex next to a busy road. The flats are small: perfect for young professionals with their taste for minimalist furniture. But the company that built the flats went bust and now the whole place has been squatted by families turfed out of their own homes due to repossession.
Italy industrial production faaaals
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Chart Scott Barber.
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Wsj.com
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