It has become fashionable since Spain's economy began to decline to make comparisons to Germany, which is rebounding strongly. The idea is that the Germans went through their restructuring, got organised labour under control, and thereby made their economy more competitive. According to this narrative, this is the key to their economic success – so Spain should do the same, if the Spanish economy is to recover.
This fits well with various stereotypes of Germans as disciplined and hardworking, willing to do what is necessary to be competitive in the global economy, while their counterparts in Europe's periphery are seen as undisciplined and indulgent. But the story does not fit the economic facts very well.
Spain's problems are mostly associated with the euro, combined with some bad economic policy decisions that have nothing to do with "labour inflexibility", the strength of unions or government spending. And its recovery is being delayed as a result of decisions made by the European authorities: the European Commission, the European Central Bank and the International Monetary Fund (IMF).
When Spain joined the euro in 1999, its level of productivity in manufacturing was about 63.6% of Germany's. Over the next 10 years, productivity grew at about the same rate in both countries, so that by 2009, the ratio was about the same: 63%. Hourly wages in manufacturing also increased by about the same amount in both countries, so Germany kept its large, productivity-based cost advantage over Spain. Of course, this arrangement has worked out much better for Germany – during the upswing from 2002-2007, more than 120% of Germany's growth was due to exports – with most of these exports going to other eurozone countries.
This is the basic problem when a country decides to adopt a common currency with other countries that have much higher levels of productivity. They can't really be competitive in tradable goods – which includes not only exports, but also industries that compete with imports. If Spain had its own currency, it could let the value of its currency fall to a level that would make the country's tradable goods sectors competitive. In a situation where the economy is in recession or is weak – Spain's economy shrank by 0.2% in 2010 – the increased exports and reduced imports from such a devaluation would also help get the economy growing again.
Instead, the European authorities have prescribed what is called an "internal devaluation" – shrink the economy and raise unemployment enough so that the country can become competitive, through lower prices and wages, without changing the exchange rate (that is, keeping the euro). Unemployment in Spain is now 20%, and although exports have picked up some over the last year or so, it is not nearly enough to pull the economy out of its slump. Spain needs expansionary fiscal and monetary policy to boost the economy. But monetary policy is controlled by the European Central Bank – which, just last week, announced that it may raise interest rates, despite Europe's anemic recovery and crushing unemployment in the eurozone's weakest economies (Spain, Ireland, Portugal).
Expansionary fiscal policy is prohibited by pressure from the European authorities – which are actually pushing Spain to do the opposite; in other words, cut spending and raise taxes – and the fact that, not having its own monetary policy, Spain cannot engage in "quantitative easing", as the US has done recently, or Japan has done for decades, to finance government spending without adding to the country's net debt burden.
Now back to Spain's decade of experience with the euro. The adoption of the euro opened up a period of bubble growth, with big capital inflows from other European countries, and the country experienced a vast runup in the stock market and a huge housing bubble. Spain's economy grew by a third between 1999 and 2007, and its net debt fell to just 26.5% of GDP in 2007. But this was bubble-driven growth: the stock market peaked at 125% of GDP in November 2007 and dropped to 54% of GDP a year later. A housing bubble increased construction from 7.5% to 10.8% of GDP (2000-2006), and housing starts dropped by 87% once the bubble burst.
It was the bursting of these bubbles, and not any lax spending policies by the government, that crashed Spain's economy and caused its budget troubles. And it is Spain's subordination to the European authorities that prohibits it from using any of the three most important macroeconomic policies – fiscal, monetary and exchange rate – to get out of its slump. Furthermore, although it was theoretically possible for Spain to have narrowed the productivity gap with Germany (since it was starting out at a much lower level of productivity), the bubble-driven growth of the last decade, spurred by the adoption of the euro and large capital inflows, is not the kind of growth that drives up manufacturing productivity.
So, the neoliberals have it backwards: it is the neoliberal macroeconomic policies, locked in with the euro, that are the source of both its recession and continuing troubles. Spain should refuse to accept any policies that prolong its slump and prevent it from reducing unemployment. If that means restructuring its debt or even leaving the euro, then these options should be on the table in any negotiations with the European authorities. These choices would better than suffering through many more years of sluggish growth and high unemployment.
Comments in chronological order (Total 146 comments)
29 January 2011 3:20PM
So let me get this straight after reading your article, you are saying that it is everyone else's fault that Spain is where it is;
Despite Spain being less productive,
Despite Spain making bad economic decisions,
Despite Spain Hitching almost it's entire economy on a ludicrous housing bubble?
Really?
What exactly is this magical socialist solution that everyone in CIF alludes to yet always fails to define.
I'm still waiting on enlightenment and the location of the Socialist money growing tree.....
29 January 2011 3:29PM
The whole European debt crisis has thrown up examples why the euro is an idiotic folly.
"Keep the pound" was William Hague's cry when he was leaders of the Torys. He was ridiculed - but the boy Willy was right.
Leftists portrayed people vehemently oppositing the single currency as "little englanders", hinting that their opposition was based purely on xenophobia. Well, the right wing anti-euro "fanatics" have been proved to be the ones who really knew what was right.
Right is, in this and many other case, right.
How many Guardianistas will agree?
29 January 2011 3:29PM
And yet all the countries that are suffering under Euro don't seem to be willing to leave it. Could it be that the populations of PIGS would rather have Euro (aka the new Dmark) instead of their old useless currencies. Even when PIGS had their own currency they could not compete against Germany/North Europe. So their solutions was always to devalue (think of Italy and lira), and the necessary tough reforms were never made. You can deal with the crisis in two ways, the German/right way of painful reforms or you can go back to the old habits of devalutions.....may be the pain would be too much for the PIGS and in the end the people decide that they want to go back to their own national currencies, or may be they will make the painful reforms and .......................
29 January 2011 3:29PM
They're called printing presses or in todays terms quantatative treesing...
Oh god that was bad...
I feel soiled....
29 January 2011 3:33PM
The Spaniards have only themselves to blame: they spent like there's no tomorrow on public and private consumption; have low productivity; and, an exploded housing bubble.
Yet they are tied, by the Euro, to the financially-conservative, thrifty and industrious Germans.
The PIGS will not break free of this self-destructive spiral until they exit the Eurozone.
However, being that the Euro is a totally political project, it is unlikely that PIGS politicians will have the welfare of their own citizens at heart.
29 January 2011 3:36PM
It's funny that most articles in this paper about Ireland seem to claim the problems there are nothing to do with the euro. I'm confused!
29 January 2011 3:38PM
@ swcentral
How many time has UK devalued its currency since the end of WWII ?
Is nice to have your own currency if you are say, Germany or Switzerland. UK has a history of using devaluations to become competitive. Remember the "pound in your pocket speech". Let just say i would rather have the Bundesbank watching over the value of euro in my pocket than Bank of England...but then i want a strong currency,
29 January 2011 3:39PM
yeah..keep the pound...you´re so muuch better off then those stupid eurozoners..
your economy is thriving and inflation is no problem!!!!
spain has no euro problem but made wrong economic decisions...btw. spain is growing again..things will get better.
but keep on dreaming...
29 January 2011 3:44PM
@swcentral
I'd certainly agree about the euro, which is not only nonsense but nonsense on stilts.
If Spain, Greece, Ireland and Portugal have any sense they'll leave the euro and let the European Central Bank deflate other countries' economies.
29 January 2011 3:46PM
Beacuse the pound is a free floating currency we have been able to devalue. Against the dollar, the word's reserve currency, the pound has fallen by about 25pc in the last two years.
This makes our exports more competitive - creating REAL jobs in the private sector. these are proper jobs, not a government funded gravy train like diversity officesr and chage officers. Proper, sustainable jobs.
Of course, things are bad here but - if we'd been in the euro - they'd have been much, much worse.
29 January 2011 3:51PM
dammit ... after months of euro-bashing those stupid economists seem to have trust in the eurozone again...what went wrong?
in march the eurozone will deepen their political and economical ties....and theres nothing the uk can do to prevent it...the eu will not matter anymore the eurozone is the new core and everyone but britain will join....
the euro is dead? muhaha..the euro will thrive as will the piigs...
29 January 2011 3:56PM
@swcentral
the effect of devaluation is overrated ...or why did the economy shrink ?
but you´re going to have one massive problem and that is inflation.
thanks to the euro our infltion was below 2 %
in uk it was over 3.5 %.....
that will lead to grave poverty of already poor brits...not tomorrow but...
29 January 2011 3:58PM
"shrink the economy and raise unemployment enough so that the economy can become competitive through lower wages and prices"
This is actually insane. First of all, Spanish unemployment is already over 20%. No modern economy can survive for long with unemployment at that level. The money that has to be siphoned off to support the unemployed will be a huge drag on the economy, increasing the debts that they already cannot pay. Failing that, the social order will break down, not just through crime but through despair and drug and alcohol use. Look what happened in Russia after the USSR broke up.
We cannot have our civilization run by academically over-qualified morons who don't have an ounce of common sense. But those are the people in charge now.
29 January 2011 4:03PM
The euro and it's low interest rates were what fueled the bubble in Ireland and Spain. Without it, the bad economic decisions would not have been possible.
It was when the bubble flooded Govt coffers with cash that the pressure to spend and inflate ever more became irresistible.
And when we needed a very quick devaluation in the Autumn of 2008 - we were stuck. In the euro. And I'm not sure how long we (or the Spaniards) will be prepared to stay stuck in it.
Unless we get a whizz bang recovery in 2011 (no sign of it) the debt crush will necessitate defaulting on bailing out the German/French (and British) banks.
And that would be the ideal time to pull out of the euro.
Start again and let's get it right next time. Muhaha.... Indeed!
29 January 2011 4:11PM
@ Xceptional
unfortunately your debt will still be euro-bound...you will need to work very very hard to pay it back with your new monopoly-money...
i would guess after the first year: 1 euro= 100 mm
second year: 1 euro= 1000mm and so on
no way you want that scenario..get real
29 January 2011 4:15PM
It may have been more apposite had you started the article: whilst the Kleptocrats assembled at Davos force Europe to undergo the 'internal devaluation' of austerity, its economic recovery will stay stalled?
29 January 2011 4:21PM
The parts of this article I understand are so contrived I have very little confidence in the relevance or accuracy of the rest.
For example, while you're critisising Spains productivity, check where all the Fords, Renaults and Vauxhalls around you were built.
For example GB had a housing bubble worse than Spain's, and it's not in the Euro. In fact Spanish banks have bought the British ones.
For example, how good is GB's recovery outside the Euro, compared to those inside? Doesn't fare favorably.
You seem to have desperately contrived some argument to slag off the Euro and attract the usual anti-Euro trolls.
Britain's economics are not working. At least have the decency to let Spain have a go at its own thing.
29 January 2011 4:23PM
, I don't get this, is it an error:
"more than 120% of Germany's growth was due to exports"
Then you say, I think:
Being in the Eurozone stops spain devaluing to become competitive, stops the government increasing it's spending to boost public spending to boost the economy etc., etc., and finally stops it adjusting (reducing) it's tax rates.
Although this is all perfectly fair, isn't it just more of the same-old, same-old ?
What I am missing here is any new angle on the debate that's been rumbling tiredly on ever since the Eurozone was created.
What I'm also missing is an objective description of the advantages of being in the Eurozone, for a weak-ish nation: Advantges with respects to the balance of payments, with regards to imports in particular.
Now I don't know what the Spanish balance is:
It exports a fair bit of fruit and veg., and effectively exports a huge amount "holiday". So the Euro won't help it much, one might think.
But it imports a all ebergy and raw materials, and the Euro will help it there.
Finally: The main export partners being fellow Europeans - The Euro, in that case, is unequivocally a Good Thing: Stability, and zero impact from global shocks.
So all in all: I may have some things wrong, but from what I can tell - I'd have said the Euro is if anything to Spain's advantage, right now.
Still: I may be wrong. But in any case - a wider treatment might be better.
29 January 2011 4:31PM
p.s. I'm curious about the "anti-neoliberal" slant to Mark W.'s points against the Euro and for Spain, but can't quite work them out.
In what way is the Euro a neo-liberal tool ?
There is, I suppose, the charge "Spain reduce your spending and increase your unemployment so's labour costs go down and you out-compete Germany"
What what I DO know is that's not what "Europe" says: There's a big fat layer of interpretation there over the rules guiding membership of, first, the European union, and second, the euro-zone.
Nothing to do with any bureaucrat in Brussels dictating policy - it's a question of sticking to the agreements that Spain signed up to, along with everyone else.
4danglier, thanks for the reminder, I have to say I was being a little stereotypical and thinking Spain is nearly only about fruit and veg. and holidays in the sun.
They have a fairly good semiconductor base too, though it's been in trouble (what hasn't).
29 January 2011 4:42PM
Spain was poor, really really poor, then ago so was Ireland and Portugal and Greece. Money flooded in and for a while all of the countries experienced a boom not paid for by restructuring or hard work but due to the largesse of the Euro and hot money.
They are now going to go back to being poor because with the exception of a few infrastructure projects all they have left after this boom is a lot of luxury homes that no one can sell. I am not sure what politics has to do with it.
29 January 2011 4:42PM
Daveinireland, don't be confused !
ireland's problems have little to do with the Euro in the same way that iceland's have nothing to do with the Euro.
ireland is a little nation exemplifying the cause of the last credit crisis, and of living far beyond your means. and just like Spain, a lot of that "living beyond your means" was investing a lot of debt in construction that ended up not-being-wanted when the pack of cards came tumbling down.
The underlying reason is the amazing expansion sparked by by the EU that lead to a feeling of "I am indestructible !".
The Euro isn't a big factor here - though to be sure is keeps salaries slightly higher.
The proof that the troubles lie elsewhere ? Look at the neighbours outside the Euro.
29 January 2011 4:44PM
If Spain's industries are less productive than Germany's then logic suggests that the workers and shareholders in those industries should have lower wages and lower returns. With less to spend that should have a knock on effect on prices in the shops. It shouldn't make a difference whether Spain is in the euro or had kept the peseta, that is a pretty inflexible rule of economics. However if a country can devalue its currency - or has the markets do that for them - then those who are productive and competitive take a hit along with those who aren't. Those who have been prudent and kept some reserves back for hard times are penalised, those who have run up debts are rewarded. And some months further on the chances are that the underlying problems are still there, unaddressed.
Devaluation is a politician's quick fix.
29 January 2011 4:44PM
That is unbelievably kind on the government. Ignoring for a bit the utter failure of success Spanish authorities to adequately evolve their economy and close the productivity gap against competitors (for example, the public educational system in Spain repeatedly comes as one of the poorest performing out the traditional developed nations and has done so for years now), the dangers potentially ahead were known to those at the top.
The inability to use monetary policy is a bit of a cop-out in my view, as there are other instruments and methods at a government's disposal. Fiscal and legislative means could have been constructed to cool the housing bubble and redirect resources to more productive sectors. For example, a windfall tax on propriety, or more general taxation on housing, could have been imposed. Similarly, financial service authorities could have enacted regulation which would have imposed together conditions on the provision of mortgages to individuals and businesses. At the same time, an aggressive approach to attract and promote, say, high-tech organisations to the country could have been established (e.g. tax cuts for certain businesses, grants, increased gov. r&d, etc).
Yes, this would likely have led to lower growth in the short time, but the mess Spain is in now would have been avoided if their economy was more diversified and productive, something Weisbrot has glossed over IMO. The point is, it is simply wrong to say that the government had their hands tied due to giving up their own currency. They knew the potential dangers of their bubble economy and they knew that being in the Euro would have meant they couldn't have used the old ways of getting out of trouble. Yet, they did very little.
29 January 2011 4:50PM
And everyone - except for those smart enough to salt their money away overseas and get themselves paid in dollars, has effectively taken a 25% pay cut.
It would have been better to have those "real" jobs paid at a competitive rate without dragging everyone else down as well.
29 January 2011 4:53PM
So then the responsible guys from the Eurozone are the bad guys?
Spain borrowed, and borrowed, and borrowed, without improving its productivity. Growth being sustained primarily on a property bubble. Now those like Germany who actually increased their productivity and did painful reforms (rather than live of debt) are the evil guys from demanding that Club Med do the same?
Are you saying that the Germans must subsidise the lifestyle of those who live above their means?
29 January 2011 4:55PM
Spain and Ireland were really poor around the time I was born in the mid-80s. By the end of the 90s Ireland had booming for almost 10 years and had caught up with Britain. Portugal's last boom was also before the euro (it had mostly low growth during the last decade), so your argument doesn't quite stack up.
The failure exists with governments' more concerned with short-time growth to help with electoral success rather than the long-term health of their economies.
29 January 2011 5:00PM
I know that one shouldn't comment on typos, especially when the site still has no edit function, but
really did give me some interesting images.
29 January 2011 5:03PM
@ InvisibleDirigible
Actually Invisible it was quite good, and I will regularly quote you. Patiently
awaiting your return from the louvre, I must reply whilst you tidy up.
We have to also point out the obvious attack on the Euro by the hedge fund
Austrians, finding it harder all the time to bet against recovery of a regional
economy they themselves are responsible for ruining... i.e. RBS and others.
It's in nobody's interests to visibly attack an economy, because eventually
you're squeezing productivity out of a turnip pulled out of the ground.
In a clarification of the metaphor, Margaret Thatcher was more right than
most of us at the time when she remarked on socialism; it's just there was
more productivity around than hot money to cover the losses at the casino.
One may suppose in high tides the majority were not assuming the later
inevitable pinch coming, just another scripted cycle of financial looting.
I still find it stunning that the only countries the UN Security Council
are calling 'rogue states' are coincidentally the only principalities that have
refused the IMF the luxury of toying with the value of their currency. I can't with
pragmatic Midwestern conscience call my savior the same who ran me through.
Communism at the bottom, fascism at the top: a cool Ponsi pyramid for the
toppers, but destined to eventually implode. Had enough yet, amigo?
29 January 2011 5:05PM
The west needs inflation to inflate away its debts. There's no alternative. It will be very painful, but necessary.
It will have the added advantage that people will get more and more annoyed by state spending. The state will therefore be shrunk and government will be smaller.
As Steve Coogan once said as Paul Calf: "In every bag of shite there's a sparkle of gold."
29 January 2011 5:06PM
The euro needs to split in two - a hard currency for the North European mercantilists of Germany, Austria, Holland and Finland and a soft currency for the Club Med and Ireland.
That is the only way the PIGS can devalue and thereby avoid a debt deflation spiral.
It's not clear where France fits into this.
But it wont happen because the Euro elites would rather consign their citizens to debt slavery to Germany than admit the European political project is deeply and horribly flawed (not least because that would bring their own gravy train to a juddering halt).
29 January 2011 5:09PM
swcentral that's interesting: But to be blunt, what you write reads like propaganda, or like self delusion.
Which one is it ?
Britain is not in the Eurozone. And Britain is the weakest of the Euro top three.
As far as I'm aware: I can't find figures, only reports questioning Britain's credit-worthiness, in particular, after mentioning Portugal, Greece, and Spain.
Look up "RUPIIGS" it's entertaining, for example here at the Economist.
(Though slightly rude, that acronym).
Still: shows you which nations are associated with which - and that doesn't show the UK doing great, outside the Euro and all, does it now !
In fact. the poor old manufacturing base is taking a hammering. Again. And that, before the whole economy is ConDem-ed right and proper by Boy Dave and pals.
29 January 2011 5:17PM
"I'm still waiting on enlightenment and the location of the Socialist money growing tree..."
Yes, Money does grow on the Tree-of-Cash, it appears by magick from the printing presses of the Central Banks. It's the Socialist delusion that Taxes and throwing Cash at social, economic problems will cure all!!
Poor deluded creatures. Somebody's got to make that cash by WORK!! The Lefty Luvvies really must stop reading comics like the 'Socialist Worker', the 'Sun' and the 'Daily Mirror'. Maybe the 'EUrine' as a currency should be allowed to wither, and the EU states reinstate their own currencies and control their own interest rates.
The lessons of what has happened in Zimbabwe under an alleged socialistic-Marxist dictatorship Muppet like Uncle Bob, and the treatment of that country's economy, should be a lesson in what not to do.
29 January 2011 5:27PM
Ha, unintended consequences eh?!
29 January 2011 5:31PM
I never said we were doing well, dear boy. I said it would have been much worse if were in the euro. It's a relative thing. Read what I said.
The real problem we have with our manufacturing base is that red tape make its very difficult to employ people. It was supposed to be about "protecting workers" but all it means is that we do not create jobs because it is too expensive for employers.
Read the excellent Camilla Cavendish's latest piece in the Times, if you have a login to get past the paywall. It talks of the nightmare for small businesses that stupid rules have created.
That said, specialist engineers have been doing well. FTSE 250 groups like Weir Group, GKN and Melrose have seen a sharp recovery - one that would not happen if we didn't devalue. It's all about skills.
Unfortunately, our education system has been socialised and dumbed down and turns out too many illiterate and innumerate morons with an entitlement complex. Manufacturing jobs for the masses don't exist because labour is cheaper in China and Vietnam. That's why people need to be educated properly. That's why it is a crime that they are not.
It's not propaganda or self delusion. I am perfectly aware that this country is fckd. I'm considering moving to Canada, but I may be too old.
If any young people are reading this - my advice is to emigrate. If we do get back on our feet and you get a decent job, they'll take all your money off you and give it to some inadequate to breed lots more little burdens on society.
29 January 2011 5:33PM
You what, you're trying to blame 'neoliberals' for the euro? ??????????????????????????? !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
Will Hutton - UK must join the euro
29 January 2011 5:35PM
i ever wondered why germany, france and skandinavia are doing so well?
aren´t they socialistic by angloamerican standards?
29 January 2011 5:39PM
‘Britain in the Euro?’: British newspaper editorial coverage
See table 1.
29 January 2011 5:44PM
@ swcentral,
If UK would be in Euro there would be no QE, and inflation would be lower. It means that Bundesbank would be watching over the value of Euro in your pocket and not Bank of England. Bonus point if UK was in Euro, it could blame the Germans. First GBrown and then DCam could go and blame the Germans for all the economic troubles of UK....as Homer Simpson says in one episode, "we could blame ourselves, but it is easier to blame Apu"
There has been plenty of literature about the decline of British Manufacturing, by historian and economist, and the 3 main reasons have been (in no specific order), 1) lack of technical education, 2) militant unions, 3) bad management. Also bad goverment policies in infrastructure, but that is whole other point
There are plenty of rules and regulations in Germany, and yet Germany does fine. And we know that Germans obey the rules....
29 January 2011 5:44PM
Even if Spain leaves the euro, its existing debts will still be payable in euros.
Default then, Russian style? (Minus the hydrcarbons obviously)
But the euro always was a political project, like the Single European Fish, the economic rationale was bolted on afterwards - one size fits all.
29 January 2011 5:45PM
Guardian Politics - Failing to join the euro has come at a price for UK
hahahahahahahahahahahaha. Really hilarious.
29 January 2011 5:58PM
The above picture has been edited to add the red stuff. It's not even a very good job. Looks like some half-hearted effort by a Guardian trainee.
The question is: Why?
29 January 2011 6:09PM
Really good and accurate analysis of the causes of Spain's economic woes and the reasons why they are not allowed to do the obvious things that could aid their recovery and instead are forced to take measures which will make matters much worse.
Most of the btl comments seem not to have read the article or skim read it at best. Either that or they are wilfully misunderstanding the points made.
29 January 2011 6:32PM
During economic growth incomes went up . Now in the period of down turn there is a need of revaluation or pay cut . This is very protracted and nasty affair . This thing can be easily achieved through monetary devaluation.But undoing something is not as easy as adopting something . When Euro was taken as the desired currency, peseta became equivalent of Euro and over the years it has been phased out . Now reconversion back to peseta is difficult .
29 January 2011 6:35PM
The whole point of the euro was that it was a one-way street. No exit possible.
29 January 2011 6:38PM
I fully expect the Uk to adopt the Euro before the end of the current government, ie 2015.
The Euro rescue fund set up to protect the Eurozone countries combined with the political will not to see it fail have both stood up well to everything the economic gangsters on the money markets have been able to throw them and have come through almost unscathed. Soon it wil be the turn of the UK to try and defend the pound on the money markets and we are as vunerable as a lady of the night bent over offering to take on allcomers for a quid each on Saturday night down the docks.
We will be begging to be let in, I just hope it's not another non, non, non we hear back from the other Eurozone members when we do.
Being in the Euro will be much better for the UK and it will hopefully mean we will have to start paying our full membership dues at long last and stop getting opt outs on issues we should be embracing as a country.
29 January 2011 6:41PM
.
.
How many times do we hear that trotted out by the left? The way to go is to spend more, borrow more, print more money and the tear shall be wiped from every eye. But those wicked Germans won't ante up all their hard earned money to let it happen. Boooo.
It is a really simple story. If you borrow a lot of money you have to pay it back. In the past the paying back was done by governments by way of inflation - they paid back the nominal sums but in devalued money. Or if it was mainly external debt they devalued their currency against others. In the Eurozone neither of these options are possible unless the Germans agtree and they are not going to do so. Therefore the options are; 1) leave the eurozone or 2) impose austerity measures. Neither option is anything but painful.
29 January 2011 6:48PM
@Billy2heads
you are probably right that there a problems ahead for britain.
though i cannot see the british people would be willing to join because they are brainwashed by their master murdoch.
another thing is that britain wasn´t helping the eurozone in times of trouble...
.. what will they do vice versa ?
29 January 2011 7:08PM
Puzzled to how Spain could join the euro in 1999 as the currency wasn't in existence then.
29 January 2011 7:11PM
though i cannot see the british people would be willing to join because they are brainwashed by their master murdoch.
Bollox.
29 January 2011 7:12PM
Long term I feel that Spain will recover.
It's property bubble was driven by external forces from northern Europe buying second homes and funded mainly by banks from the same Countries.
As wealth returns to these countries it will filter back into Spain, albeit slowly.
Before anyone comments my modest rural home in Spain is my only property and not a second home.
Most Spanish people haven't had decades of the good times as for most of its population its hardly been one decade so they don’t have a huge percentage of the population who can only remember the good times unlike many northern European countries which include the UK.
Spanish infrastructure is very good. Its AVE train system is a leader and its growing renewable energy of sun and wind power sets it up well as oil availability declines. It’s a physically large country for its population and perfectly capable of feeding itself.
The concept that the UK is in a better position long term as it can devalue its currency is a fallacy. It is now a large importer of oil and gas and more importantly food. Prices of these will inevitably rise due to demand from the China and all devaluation will do is make these necessities more expensive.
What’s more the sun shines a lot, you can sit outside the bars and have a glass of wine and chat even on most winter days. Life isn't all about going to bed at 9pm and getting up at 6 am to go and make Volkswagens.