While Spanish prime minister Zapatero has been kneeling in prayer in Washington, it seems that his country is undergoing what could be called a Soros moment. This is in memory of the infamous speculative attack launched years ago on the UK pound by the financier George Soros. Obviously there is a key difference, Spain doesn't have a currency of its own to be attacked, but the pressures from the international financial markets are definitely there. It's clear in this case given the statements coming out of Brussels and other international bodies that the target is not just the now infamous "structural reforms" to the labour market, it's public welfare services. Greece has been given the full list for wielding the axe, which doesn't just include pensions, health services are also there.
In the case of Spain the government's proposal to cut back pensions has already received warm approval from these bodies, even though the issue has little or nothing to do with the crisis - I shall return to this in more detail in another post. It's beginning to look like the wave will go from country to country and the solutions being offered in all cases will be massive cutbacks in public services. Welcome to the crisis double whammy, countries go deep into debt because of a crisis largely provoked by the financial markets. The price of rescuing financial institutions is to have them come chasing after each country in turn to pay the bill. We'd already got used to the idea that there was going to be no word of thanks for such massive assistance, I think next time around the case for taking the toys out of the hands of the boys who don't know how to use them responsibly is going to be unanswerable.
10 comments:
Yes, at last the banks can come after the countries they took most from, creating new future business for themselves.
I would never say that the Great Depression was a good thing... but at least it gave birth to the New Deal (which wasn't perfect but was better than what had come before).
This crisis, averted it seems, looks likely to usher in nothing other than more power to the banks, less protection for people and a huge debt laid on us all.
Sadly, it seems that the Socialist government is completely unable (and mostly unwilling) to do anything about it. And just like in the UK, no matter how ridiculous the conservatives are, they'll probably win the next election. God, it's depressing.
Sorry.
By comparison with the EU Obama seems more like Roosevelt every day. Europe, which has the power to change things, has voluntarily decided it will not try to do so. Stil, it's not all bad news, the Banco Santander announced record profits in the depths of the crisis. No wonder the banks are looking forward to the next one.
@Grame,
As you know we disagree on the necessity - or not - to do structural reforms (in Spain). However, this doesn't mean I like the traders, the bond dealers and financiers, who I have always considered not better than a bunch of parasytes. Perhaps, some of the functions performed by the City and WallS are necessary, but I'd like them regulated (tightly). I am just curious, what is your position on the Euro? I don't recall you ever much mentioning it.
The problem with the parasites is that they are calling the tune. It's what I would really call a structural reform which is needed to turn them into a minor irritant. My position on the euro is that I would like to have more of them.
Naomi Klein becomes more of a prophet everyday as governments, and the 'demands' being asked of them seem to march to the tune of her newest book.
Well, as a second-level parasite I hope Graeme does not mind adding my two pence worth. I am aware my last comment on matters financial was far too long (really sorry), so I will try to be more concise.
First, I don’t think Spain is under a Soros-like attach. This time there is a consensus about how fucked-up are Spain’s public finances whereas Soros was part of very small group of contrarians.
The rumour earlier in the week in the markets was that one of the credit rating agencies was going to downgrade Spanish sovereign debt two notches. Another rumour came out along the lines that the Spanish government had contacted one of the top senior analysts (a Spanish national) at the suspected agency and “encouraged” him/her to “consider very carefully” such a decision.
Whether the above is true or an urban myth, the big funds and the proprietary desks are selling anything Spain-related. In fact, they are selling anything PIGS (that awful, racist acronym) related. Spain is certainly not alone and as you say this is going to be a merry round: Greece, Spain, Portugal and to a lesser extent Italy are in the firing line. Once “Club-Med” has been dealt with, then the UK, Ireland and the Netherlands will probably be next.
We can speculate and write endlessly about the global re-adjustment of money flows, how the Swiss Central Bank bought Euros last week in the Asian markets, and how the Chinese are propping up Greece and keeping the Euro artificially high and their own currency low. The flight to the USD is just starting and the problem for Euroland is that political dithering will result in the Euro being artificially high whilst the US, the UK and the Swiss (not to mention the Chinese) are just too happy to see Euroland suffer the impact of an over valued currency. In the end all of this is empty rhetorical speculation.
What really matters is that neither in the US nor in the EU, nobody in power is willing to stand up to the finance “industry” and tell them (‘us’) to get stuffed.
If I was a teacher, policeman or a NHS worker, I would be incandescent with rage that public services are to be cut to pay for the financial sector bail-out because of pressure from the financial sector. And still we have the moral hazard of “too big to fail” but worse: at least Bearn and Lehman failed, whereas no state is going to get any of their banks to go under. Look at Iceland and the way they are being criminalised and persecuted by the UK, Netherlands and the IMF for allowing their banks to go bankrupt.
The bottom line is that nothing will change until politicians have the balls to stand up to the “markets”. Nothing will change until banks, just like any other business, are allowed to go bankrupt and leave creditors with losses. In the meantime, excess pay deals continue unabated and short-termism rules the industry. If anything it is getting worse.
As Tom says, the situation in the UK is beyond a joke: Labour actively encouraged this state of affairs being a cheerleader for the City and Canary Wharf. The Tories will be only too happy to cut public services and taxes for the wealthy.
In Spain, things are no better. Another rumour: after the introduction of the 50% tax for incomes over £150k and the bonus tax, officials from the Spanish and Madrid regional government allegedly contacted two investment banks in London offering concessions if they moved their trading & sales desks to Madrid. Officials in the ECB in Frankfurt found out and they said to the Spanish government that if they pursue such a policy, they will change the liquidity operations of the ECB to disallow covered bonds (cédulas) to be exchanged for sovereign collateral. This would cripple Spanish banks as they would have no liquidity in the money markets.
There is just too much money in this business, and not enough in scientific research, farming or engineering. Until this also changes, the lobbying power of the markets will always outweigh feeble and spineless politicians.
It is depressing and I see no solution in sight.
Thanks Rab, you've put your finger on the key issue; the unwillingness of the powerful nations to stand up to financial institutions. I think what you say also highlights the extent to which rumours end up driving so much of what happens. I read a nice comment today from Stieglitz saying something along the lies of when the banks learn to run themselves without massive public financial assistance then they might be in a position to give others lessons on deficits. I also read something last week suggesting that the Spanish government was collaborating with the UK to stop proposed tighter regulations on hedge funds. I always had the feeling that it would take another crisis of this kind to force any real action and now that the banks and friends think they will be bailed out whatever happens the stage is set for a bigger one.
This is what senior officials from the Spanish government have been showing to international investors in London.
http://estaticos.elmundo.es/documentos/2010/02/08/tesoro.pdf
Apologies for linking to El Mundo...
Yes, the hedge funds may be at it, but we should not underestimate the ability of politicians to screw up things up and make things even worse. This powerpoint is a very bad idea. Just wait until it is tore apart by the analyst community. For Spain, I am afraid that "things can only get worse".
"Apologies for linking to El Mundo..."
No problem, it's nice to see a link there that actually leads to factual information.
What I seem to have missed is this moment when it became normal for governments to be presenting their plans to a bunch of private investors before they even present them to their own citizens. I guess its all to do with old fashioned notions I have about democracy and all that stuff. I don't think the government can sustain much longer this strategy of accusing the speculators for domestic consumption whilst promising those same investors that they'll cut whatever they want.
I notice that El Mundo is still referred to as a liberal newspaper in the latest edition of the Rough Guide....
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