Wednesday, February 4, 2009

Spain's government fracturing

A deep economic downturn and very few options is causing political upheaval throughout Europe. Watch Spain, Greece and Italy, all members of the Eurozone and users of the single currency.

Feb. 4 (Bloomberg) -- The government that Spanish Prime Minister Jose Luis Rodriguez Zapatero put together with cash is coming unglued.

The Socialist’s parliamentary alliances are breaking down as the worst recession in half a century makes handouts to regional allies unaffordable. The Catalans have already bolted his coalition; the Basques are threatening to do the same.

Finance Minister Pedro Solbes, embroiled in talks with regions that want to increase their share of the budget, said Jan. 18 he can’t spare more cash after pledging 240 billion euros in stimulus measures to counter the recession.

Spain's budget deficit is 5.8% of GDP--far above the EU limit. (And well above the U.S. deficit, too!)

The economic deterioration in Europe and its impact on the euro may be THE story of 2009.

Read full story here.


Unknown said...

Is there any way you can see for Spain to get out of this given deficit constraints by EU?

mike norman said...

They can get out of it if the European economy improves. But that's gotta happen before they go bust.

They can get out of it if they go back to being a sovereign currency issuer. (Abandon the euro; reissue the peseta.) However, that is almost unthinkable now. The pain will have to get a lot worse.

Or, we Americans (the Fed), can keep bailing them out. This is the greater likelihood.

STF said...
This comment has been removed by the author.
STF said...

Mike . . . can you post an audio of Walker admitting on your show that there's no threat of insolvency?

Scott Fullwiler

mike norman said...


You read my mind. I was thinking about that yesterday. I just have to find it. They don't label my segments with anything other than a number. I'll see if I can dig it up.