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.
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!”
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.
Asian markets fell Friday following a surprise rate cut in China, as investors were disappointed by the Federal Reserve’s failure to commit to further easing. China surprised markets late Thursday by cutting interest rates for the first time since December 2008. The 0.25-percentage-point reduction brings the benchmark lending rate to 6.31% and the benchmark deposit rate to 3.25%. There was also an element of liberalization, as Chinese banks are now allowed to lend at a discount of up to 20% below the benchmark, compared with a previous floor of 10%. Hong Kong’s Hang Seng Index was down 0.7%, the China Shanghai Composite dropped 0.3%, and Australia’s S&P ASX 200 dropped 1.2%. South Korea’s Kospi fell 0.5% and Singapore’s Straits Times Index was 0.6% lower.http://online.wsj.com/article/SB10001424052702303753904577453254045135484.html?mod=WSJEUROPE_hpp_LEFTTopWhatNews
Private-equity firms operating in India are facing headwinds. In heady years like 2005 and 2010, investors such as Warburg Pincus and Citi Venture Capital International generated high returns in India, benefiting from the country’s economic growth of more than 8% and its frothy stock market. But many of the private-equity funds that hoped to duplicate those successes are now struggling to raise fresh capital as India faces concerns about its fiscal and current-account deficits, slowing growth and a clouded outlook for stocks. Returns in the sector have been disappointing in recent years, many analysts and investors say, as stock-market http://online.wsj.com/article/SB10001424052702303640104577436363441530998.html?mod=WSJEUROPE_hpp_LEFTTopWhatNews
The head of China’s giant sovereign-wealth fund sees mounting risks of a breakup of the euro zone, and says the fund has scaled back its holdings of stocks and bonds across the continent. The comments by Lou Jiwei, chairman of China Investment Corp., are among the most bearish pronouncements yet on Europe by a senior Chinese official. They reflect growing dismay in Beijing at how European leaders are handling the escalating crisis in China’s largest export market, and anxiety over the potential for global contagionhttp://online.wsj.com/article/SB10001424052702303665904577451750426696454.html?mod=WSJASIA_hpp_LEFTTopWhatNews