Temptations of a Peseta default in Spain
By Ambrose Evans-Pritchard
July 30th, 2012
Defying charges of heresy, Spanish economist Lorenzo Bernaldo de Quiros has penned a piece in El Mundo that more or less calls for Spanish withdrawal from the euro – unless Mario Draghi conjurs up real magic at the ECB.
My rough summary/translation:
Spain is heading for insolvency as big chunks of debt come due later this year. Events are moving fast. The relevant issue is no longer whether this will happen, but whether it is better for Spain to restructure its debt “inside or outside” EMU.
“Inside the euro and without financial resources, a debt reduction is pointless. The Spanish economy would have to go into deepening internal deflation, with cuts in prices and salaries, to restore competititeness. This is impossible, or at least improbable.”
The process would take too long. Capital flight would continue. It would lead to another debt resturturing in short order (as in Greece). “The snake would bite its own tail in a diabolic spiral,” he said.
Mr Bernaldo de Quiros — who heads Freemarket Corporate Intelligence — seems to assume that there will not fact be a eurozone rescue (or that the Rajoy government will refuse to accept Troaika terms).
He contemptuously rebuts the “apocalypic casuistry” of those who claim that the banking system would necessarily collapse, or that real interest rates would surge, or that Spain would succumb to hyperinflation.