Spain’s Collapse Is No Little Thing
Friday, April 27, 2012
S&P cuts Spain’s credit rating by two notches to BBB+ … Standard & Poor’s cut Spain’s sovereign debt rating Thursday by two notches, warning that the government’s budget situation is worsening and that is likely to have to prop up its banks. S&P cut the country’s rating to BBB-plus and added a negative outlook, saying it expected the Spanish economy to shrink both this year and next, raising more challenges for the government. Esther Barranco, a spokeswoman for the Economy Ministry, told Reuters: “They haven’t taken into consideration the reforms put forward by the Spanish government, which will have a strong impact on Spain’s economic situation.” S&P also said that eurozone-wide polices were failing to boost confidence and stabilize capital flows, and that the region needed to find ways to directly support banks so that governments were not forced to take on those burdens themselves.” – UK Telegraph
Dominant Social Theme: It’s just a downgrade. Spain will bounce back.
Free-Market Analysis: Is Spain beginning to collapse and, perhaps, the EU
For well over a thousand years, Spain has been at the epicenter of Europe and its fate has provided a bellwether for Europe’s larger situation. And whither Europe goes, so goes the West.
The S&P downgrade on its face is just further confirmation of what is taking place in Spain. Of itself, it has little impact on the larger picture except to make borrowing a bit harder.
But Spain’s problems go well beyond bank borrowing, which is probably an increasingly unlikely scenario in size anyway. The problems in Spain are both deep and pernicious – as are the difficulties the rest of the PIGS in Southern Europe are subject to.
There are three factors involved in Spain’s meltdown. First, there is the “austerity” being imposed by the right-wing Popular Party (PP) government led by Mariano Rajoy. Only 100 days into Rajoy’s reign, this yielded a general strike on March 29. The government claimed “only” 800,000 workers took part in over 100 demonstrations nationally but according to the unions, millions marched. There was violence as well.
Second, young people are leaving Spain. With almost 50 percent unemployment among youngsters, the situation is easier for those who are NOT situated. They leave. They go to many places but especially to South America, including Argentina and Chile. It helps that with the exception of Brazil, Latin America is a Spanish-speaking continent.
Third is the increasing unhappiness of autonomous regions and cultures. Because of Spain’s incredible history at the epicenter of major European movements, there are all sorts of ethnic subcultures inhabiting Spain. Spain is a kind of tribal patchwork and as the “sovereign crisis” rolls on, this patchwork is becoming unglued.
Catalonia, the Basque Country, Galicia and Andalusia are all self-governing and the Basques especially – but all the regional peoples – are growing increasingly restless. Madrid sucks in revenue like a black hole but not enough of it reappears.