Wednesday, May 12, 2010

Then For Dessert We'll Have....Spain

That the Spanish government has been under heavy pressure in the wake of the "rescue" operation launched at the weekend by the EU can be in little doubt after the cuts in public spending announced this morning by Zapatero. It's now clear that instead of just being thrown directly off the cliff, we get offered the chance to see whether we can climb down it ourselves or be tossed over the edge in a slightly more selective fashion. Don't be ungrateful.

The cuts package, already dubbed the "tijeretazo", just helps to confirm something we already knew; that Europe's leaders continue to feel much more at home with the bankers than with their voters. The idea that sharp cuts have to be made now is nothing to do with sound economics, it's entirely down to short term market pressures and the refusal of the political leaders to live up to their promises of reform. The old maxim about what's good for GM being good for America was never true, and neither is its more recent cousin. What's good for the markets most definitely isn't good for the rest of us.

The bulk of the sacrifices will be borne by public employees and pensioners, with public investment also being slashed. They say the party is over, but the problem is that the consequences are being felt mostly by those who were never invited in the first place. Meanwhile the fiesta continues with an ever more exclusive guest list. The cheque-bebé for new parents may have been an unnecessary electoral gift, but then so was the abolition of the wealth tax. We've lost the cheque, but we won't be getting a tax back that would have helped in some way to redress the regressive nature of so many measures being taken. Of course, you can't imagine that the markets would react in the same way to deficit cuts achieved through butchering public services as they do to deficits which get narrowed by, say, taxing their activities.

This isn't so much voodoo economics, it's more slash and burn. It's a big mistake to call these anti-crisis measures, the most likely effect of them will be to return Spain to negative growth in the next few months. Nor is it any use asking what happens if the policy fails, as I've commented before the proponents of these kind of measures apply no failure threshold to their recipes and any subsequent lack of success in the economy will simply be attributed to the fact that there is still a doctor somewhere treating his patients for free. Or will it be because the, now imminent, McJobs labour market reform doesn't go far enough?

Meanwhile those who did best out of the boom years, and those who live on the profits of economic fraud, are allowed to continue their lives completely untouched by the cold winds of austerity. Over on Planet PP, the Partido Popular continues to play its ever more surreal game of opposing every measure the government introduces at the same time as they claim they can fund massive tax cuts by abolishing the Ministry of Equality! As those who have done very well out of other people's misery continue to do very very well, it seems only fair that the final word should go to the hungry. Let me offer this article from the Wall Street Journal as an antidote for those tales of market traders just doing their best to protect the savings of poor widows. A few people get together for dinner and decide to have Greece as one of the courses in between the lemon-roasted chicken and the filet mignon. For those who don't want to read the whole article the key phrase comes from Hans Hufschmid of GlobeOp Financial Services. "This is an make a lot of money".

Erlich, in El País.


lost said...

I was never a big fan of the wealth tax, since it tended to be somewhat regressive due to the relatively ease for the wealthy to structure their assets to avoid it. The only people that paid it were the ones who couldn't afford a good tax lawyer.

A luxury real-estate tax on the other hand could work pretty well. Harder to hide, easier to value, easy to take away if the taxes aren't paid. Get the Duchess of Alba to chip in a bit...

Graeme said...

I don't think we should be too rigid about these things either. I'm sure there are many ways in which the Duchess and friends can make sacrifices for the common good.