Economic War On Spain

by Philip Kraske

I don't know what it is about history, but it always seems to get made without me.

I was just a boy during May 1968, though I remember it vividly: riots, hippies, protest marches, National Guardsmen with bayonets, Robert Macnamara on top of a car shouting at demonstrators, students burning draft cards. All very dramatic and exciting and scary -- and great TV. But the street outside my house in Kettering, Ohio? Calm as corn flakes. Hank the mailman did his daily rounds. Dad caught the bus into Dayton in the morning and the bus back in the afternoon. A skinned knee in a bike wreck was a far greater tragedy than Vietnam or segregation.


And things haven't changed. Here I am, forty years later, living in Spain at the epicenter of what I am assured is the greatest crisis since the foundation of the European Community after World War Two. And I don't see it. Anywhere.

I dutifully buy my International Herald Tribune, the international edition of The New York Times, which quotes a leading economist, Charles Wyplosz, as saying, "Spain is going down the drain." Spain's default on its debt is inevitable, it tells me. The euro is history, and Spanish banks are wobbling. "There is concern on whether there will be a bank run in Spain that could have repercussions beyond the euro zone," James Saft quotes "an anonymous G-7 source" as saying in today's paper.

This possibility is mentioned in the Herald Trib every day, and I always read it with astonishment. A bank run? In Spain? Where on earth do they get that? There's no sense of panic here. None. Sure, a few worry-warts have pulled out their deposits, and of course the rich, who can move their money with a few clicks of the mouse, have shuffled their cash off to Buffalo -- or Munich. What difference does it make to them? But an actual corralito -- a bank run? Nobody -- nobody -- talks about that here.

Nor does anyone talk of leaving the euro. Just yesterday, the Finance Minister, Cristobal Montoro said, "The way out of our problems is through Europe and the euro." Leaving the euro would invite chaos; the resulting inflation would be brutal. And everyone knows it.

Nor does anyone talk about the government defaulting on its debt. Spanish debt, even after all its borrowing over the past few years, is still under 70 percent of GDP. Indeed, an interesting historical fact of Spain is that the central government has always been fiscally conservative; for much of the twentieth century, it made a point of running small annual surpluses.

Yes, the savings banks are in trouble -- though not the major private banks, like Banco Santander and BBVA, deeply invested in more profitable parts of the planet, like Latin America. Yet the widespread belief here is that, one way or another, the Spanish government, the European Central Bank, and the European Commission will eventually work out a way to recapitalize troubled banks. I give English classes all day to businesspeople and top managers, and I don't know a single person who seriously doubts that.

Experts say that in a few years Spain will have reduced its bloated banking sector from more than a hundred institutions to about a dozen private banks. This is all to the good. The savings banks are semi-public institutions controlled largely by politicians, and they're what has messed up the banking industry.

No, what's really happening is that the American political elite, who lunches with the financial elite, who plays evening paddle-tennis with the media elite, is worried about the euro taking the place of the dollar as the world currency. The Greek crisis wasn't enough to rock the boat, but Spain's could, and this might be the last chance the Yankees have of destroying the euro. So the media is pulling out all the stops.

What we're really seeing, in short, is economic warfare.

And it's working. Spanish bond interest rates are now at a delicious 7 percent, when that kind of return on any investment is pretty scarce. Unmentioned in the American media is that the 7 percent is a solid value. Spain isn't Greece. Investors are going to get their money back.

Nor do the media savants mention an essential difference between American and European approaches to financial problems: to cover its debts, America prints the money; to cover its own, Europeans cut and borrow. Ask Germans who lived through the Weimar Republic which is smarter.

So don't worry about Spain. People aren't running in the streets, nobody's burning cars, there are no lines of businessmen waiting to jump off the bridges. There's nothing but a lot of hard-eyed folks making an easy buck at Spanish expense, and one ex-pat American still waiting to see a little history happen. leave comment here