Is Spain Going the Way of Greece?

In the “great minds work alike” category, both some readers (Hugh and LaMarchaNegra) and some of my investor e-mail correspondents (Scott, Ed Harrison, Marshall Auerback) took notice of how things are looking bad on the way to worse. Despite an unemployment rate of 25% and rising social unrest, the government just increased sales taxes to 21%. Ed Harrison sent a note to his Credit Writedowns Pro customers describing how Spain’s problem isn’t its government debt levels per se, but its deficits and the way it is soon to be saddled by regional debts and bank bailout costs. And because some of the creditor nations are dead set against debt mutualization, Spain will need to find a way to deal with its banking system losses.

The logical path, and the one the Troika is pushing, would be to wipe out equity and haircut sub debt and if need be, the next senior layer of bondholders. But depositors were pressured into buying preference shares and subordinated debt. Reuters reported that62% of bank subordinated debt investors are depositors at the same institution. Hurting small savers will not only be a political disaster, it will generate lawsuits against the banks and will further crimp the economy.

Spain is looking more like its contraction is accelerating, along with its social stresses. How close is it to a Greek style death spiral?

Delusional Economics is worrying along the same lines, with his argument amplified by charts accompanying his current post. As he notes:

Along the way I have warned that Spain suffered from significant macroeconomic challenges that, at the time, appeared unrecognised by the markets. I also provided some analysis that the country’s problems were far greater in magnitude than something than could be fixed by simply lowering government sector deficits:

The private sector accumulated large debts on the back foreign capital inflows leading to a housing bubble. This bubble has since collapsed leaving the private sector in a position of significant wealth loss and indebtedness, the banking system holding significant and growing levels of bad debts and the economy structured around the delivery of a failed industry.

The growing unemployment is leading to a slowing of industrial production, which means that even though the country is importing less it also appears to be exporting less. Combine this with the interest payments on borrowings from the rest of the world and at this point Spain continues to run a current account deficit which, in the most basic terms, means Spain is still paying others more than it is being paid back. That is, the external sector is still in deficit.

So with the external sector in this state and the private sector unable and/or unwilling to take on additional debt as it attempt to mend its balance sheet after an ‘asset shock’, the only sector left to provide for the short fall in national income is the government sector. If it fails to do so then the economy will continue to shrink until a new balance is found between the sectors at some lower national income, and therefore GDP.

It may appear logical to you that this must occur, and I don’t totally disagree, but that doesn’t change the fact that under these circumstances there is simply no way that the private sector will be able to continue to make payments on the debts it has accumulated during the period of significantly higher income. This is a major unaddressed issue.

And this is the monetary trap much of the European periphery now find themselves in. Structural issues within their economies together with their pseudo non-floating currency means they are neither able to shrink nor grow out of their debts. Without significant debt restructuring they are left to flounder in a viscous spiral downwards.

To add to the list of Spanish tsuris, home prices are down over 30% from their peak, industrial production is contracting sharply, and the current account is still in deficit. There’s no signs of vitality here, yet the alchemists continue to bleed the patient. To change metaphors, Spain is too large for it to be broken on the rack like Greece and not have the rest of Europe suffer along with it, but that seems to be the plan

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  1. mmckinl

    The basic circumstances in the EU have not changed. They are insolvent. How many times does one have to hear: “More debt does not solve a debt crisis”, before it finally sinks in that huge write downs need be taken.

    Over and over again we see the same tired circular thinking that some how there will be a “deux ex machina” somewhere down the road. The only result has been the impoverishment of governments and citizens to make banksters and their creditors whole.

    What needs to happen is the nationalization of all banks whereby bad debts are written off so that new credit can be initiated … It’s time for sovereign money and credit and the only way would be to break the EU up … which is going to happen in some way shape or form …

    1. mmckinl

      OBTW: What we are seeing is called the “Long Emergency” ie the peak oil scenario being played out before our eyes.

      Despite all the lies you have been told about “more oil than ever” conventional oil production has been on a plateau since 2005.

      They talk about liquid fuels but only 25% of nat gas liquids are used in refining and the oil we are refining is increasingly heavy and sour and hard to pull out of the ground.

      In real net energy terms we are losing ground as corn ethanol, shale oil and tar sands have much lower net energy production.

      We are on the cusp of a full scale economic meltdown due to peal oil and a Ponzi Scheme financial system based on debt promises that can never be repaid …

      Sovereign money and credit will at least ease the transition to a de-growth economy … Sticking to private bank fractional reserve banking guarantees a financial catastrophe …

    2. billwilson

      One could change one word and have a similar and equally accurate statement

      The basic circumstances in the USA have not changed. They are insolvent.

      Just because all eyes are on Europe does not mean the US does not have massive and intractable problems (and a dysfunctional political system to boot). The two big things the US could do to improve its situation (reduce health care costs and the size of the military) are politically unacceptable to more than half the country. No change (or improvement) until the next crisis – which for now seems a long way away with all eyes on Europe.

      1. They didn't leave me a choice

        USA is at least sovreign in its own money, something that the euro member states do NOT have. That means that USA can only default because they /choose/ to default. Not that it’s much of a guarantee, given the second part of what you said about washington being paralysed, but still at least they have that technical escape hatch IF AND ONLY IF they can unfuck their internal politics enough to use it.

          1. p78

            Yes, but the world trade/financial system was rigged from the beginning in US’s favor, as Prof.Michael Hidson’s book has shown.

  2. Richard Kline

    Spain’s banking sector is dead, and has been since the hour the collapse began in 2007. The judgment of Nero now is that Spain’s middle class and poor will grovel before those mummified zombies for the rest of their lives. The public sector ‘adjustments’ are entirely regressive, both in VATs and consumption taxes on items bought domesticly by those of moderate or small means. Bear in mind that those ‘adjustments’ aren’t even being made to close and pay wind up the dead banks but to siphon of a payment stream of public monies to go to other parties in Europe for short-term loans to prop up bond and share prices of the dead banks. Such props will have to be renewed again and again because the dead banks aren’t capable of growing enough to escape the colossal volume of their bad loans. And don’t think that the putatively better off part of Spain’s middle class has any will to do better or different as they are surely all holding property bought at the top which is now far underwater where it will remain for the rest of the lives of the mortgage holders; seriously, as they can’t shed the debt, and vast overbuilding insures there will be no price recovery for decades.

    Whatever Spain requires to extricate itself from this layered disaster, the present plan is exactly _NOT_ such a solution. Rather, the rent-a-prop over the bodies of the poor is the ultimate kick the can down the road scenario. Spain’s bubble is fundamentally domestic and much larger (on the private side) than anything incurred on the public side in Portugal. Yes, believe it or not, Portugal will start ‘growing again’ long before Spain given the present matrix of woe. I don’t know that I’d go so far as saying that Spain’s political class is behaving with ill will toward the citizenry, since there is no easy path from this forest of thorns. But I do know that the present acts are in no way a ‘solution’ so everything done now will have to be redone later. Political will is simply nonexistent in Spain, Europe, the USA, and Japan for that matter to engage with the perverse socio-economy which master class capitalism has now wraught.

    . . . Maybe global warming _will_ be a saviour—the only one—but changing the rule-set of our context enough we can stop playing fool’s mate chess with the kings of green cocaine . . . .

  3. Joe

    Indeed, and when the mechanisms for reform are broken, (aka. politics is corrupt) and reform is needed, it gets messy.

    Years ago, people used to say that you can do business in the US because of the rule of law and justice, etc. does anyone really still believe that?

    The problem is that a significant portion of the people making the decisions still don’t get it. They think it’s still just about managing a situation.

    Everyone’s waiting to see what happens after the US elections.

    1. carol

      “Everyone’s waiting to see what happens after the US elections.”


      Why should anyone wait?

      It is already known what will happen after the US election: the same as after the previous elections.
      I.e. at best the status quo, probably worse: more manipulation and theft by the banksters & Co., otherwise known as the 1%.

      Surely Joe you have seen the photographs of Robamney?

      1. Ruben

        There might be one big difference: the willingness to start a new aventure militaire this time with I*n. On that account O*a might be more dangerous as he seems to depend more on J*h support. He might also start the aventure militaire before the elections rendering the point moot.

        1. Bill Clay

          I’ve been real slow getting to it, but sitting in Italy, it seems more topical than ever: Naomi Klein’s Shock Doctrine. Looks credible to me, but darned if I can see any leader on either side of the Atlantic who, in response to the manifest failure of the global economy to foster creation of stable well-being by and for the masses of citizens, is ready to push back with a new economic paradigm.

          Instead, every leader I can see from here to the horizon — labor or business; left, right, or center — is hopelessly besmirched by a long-standing embrace of neoliberalism. I see no prospect of improvement unless the sheeple of at least one Western nation realize “There Is No Alternative” is false — and do whatever it takes to implement an alternative. (MMT, anyone?)

          For an Italian resident, there’s a real howler in all this: there IS one Italian (sorta) leader who has publicly mentioned alternatives like a parallel currency: Silvio Berlusconi. When Berlusconi is the only widely-recognized figure on the whole Continent who seems to make even a little economic sense, then you know you’re either living in an insane asylum or ought to be committed to one, STAT.

          If I could only figure out which it is …

          1. Susan the other

            I heard a fragment on Berlusconi and the Lira a few days ago. But no follow up. The way he was shoved out by Monti seemed like the end of Silvio. I now wonder if he wasn’t too independent all along. Remember how he was dealing with Gaddafi a year before Gaddafi was killed. Makes me think that the real agenda here is to make southern Europe fiscally and politically united to northern Europe. And the big smokescreen is that it is budget thing and Germany is the powerhouse. So then I wonder, well what did Greece do that was too politically independent?

      2. Joe

        That’s right Carol. I think that a financial meltdown (as in crisis -> meltdown) is unavoidable and it will happen after the next election.

    2. Nathanael

      Actually, people are waiting for the GERMAN elections. If they throw out Frau Merkel that might change things massively. Or it might not.

  4. Max424

    I wrote this in November of ’09, on the old Yglesias blog. The thread was about Greece, and the threat it posed to the stability of Europe.

    To hell with tiny, inconsequential Greece (let them rot, they don’t pay their taxes!). But what of mighty España? We all love Spain, and we are all going to miss her. Oh Spain! You gave it valiant effort, but you are going to come up way short, of the short end of the stick.

    You see, Spain tried to get off the oil, and the coal. They really did. They tried to become energy independent. They tried to make rational, national decisions. They foolishly took sovereignty out for a test drive!


    On a per capita basis, Spain led the world in solar power, wind power, and high speed rail.

    Sun Power: Spain has 6 of the world’s 8 largest Photovoltaic Power Plants.

    Wind Power: On a recent day in last month, Spain achieved are remarkable feat: more than half (53%) of the country’s total electrical energy needs were met by wind power.

    Train Power: Spain’s high speed rail network, relative to size, is largest in the world, larger even, than China’s (Take that and like it, China!).

    But the international banks got ya Spain, didn’t they? First, they created a giant bubble in your country, then, they blew it up. As a result, you’re broke (or so the banks make you think), and now the banks are going to destroy you.

    Oh Spain! Due to your presumptuous “transgressions,” only centuries of destitution lie ahead (if you’re lucky). Good-bye, modern Spain. We hardly knew ye.

    At the time, a lot of people thought I was talking crazy, but if you see shit in the context of peak oil, and neo-liberalism, all the pieces of the puzzle join together nicely. Even the future pieces.

    Italy is next. Italy will be easy, they are ripe for the picking (yes, there will be endless violent rioting, from one end of the boot to the other, but who cares? Certainly not Mr. Market!) Then comes France, the key. Break France, and you severe the linchpin of –the sad remains– of Europe’s great labor and social contracts, what made them worthy of the word, civilization.

    After that, you start applying the global, slave-state concept. The beginning of the neo-liberal end game, in other words.

    Note: America? How do we fit in? We’re gone. Long gone. And they’ll be no rioting here. The neo-liberal dogs will herd us toward our pathetic destiny, like the docile sheep we are.

    1. billwilson

      I have been watching some Spanish documentaries on the crisis (the program Salvados is really good) and they had a few episodes on the massive overbuilding of infrastructure over the last few years from high speed rail (stations with only a few inhabitants and one train a day), to an airport in every town (beautiful expensive new airports with 2 flights a week). to libraries and cultural centers (a gorgeous library with no money for books, or opera houses with only a couple of shows per year). A lot of government money went into very useless (but quite beautiful and impressive) infrastructure. Of course China is in even worse shape … but it will take longer for the truth to come out there.

      Even if you don’t understand spanish some of the episodes are enlightening. This one called “”when we were rich”” is an example.

      1. Ruben

        Didn’t they mention that the building of useless infrastucture was motivated by corruption? My reckoning is that lots of developers, politicians and state functionaries owe their wealth to this “constructive impetus”.

      2. Max424

        Did Spain overbuild solar and wind, too?

        Man, how people hate on great things, especially green infrastructure.*

        Spain’s HSR network is a marvel. Not only that, it sets the country up for the rest of the century. When airline travel becomes too expensive for all but the richest (which it will), the average Spaniard will still be able to travel, cheaply, efficiently and in comfort, from one distant city to another, all in the same time frame as a plane flight.

        Does state owned Renfe Operadora make a yearly profit? Not always, but who cares? They provide a tremendous public good.

        I’m old enough to remember traveling on American freeways that knew very little traffic, that are now, perpetually jammed.

        Everything is boondoggle, until it’s not.

        *Not airports, of course. If Spain is building airports, they’re as dumb as the Chinese, and almost as dumb as us.

        1. Susan the other

          Interesting story on TV, forget which channel. A multi billion euro investment into a consortium, I think led by France, is funding a massive project in Algeria to do solar energy and send it via an underwater cable to France. Why didn’t they just invest in Spain’s solar industry? I think these European Investment funds are intended to be spent in Europe, but voila! The money went to Algeria, via the French.

      3. Nathanael

        Infrastructure is useful. Particularly renewable energy.

        Way more important than money.

        All Spain has to do is have a revolution, repudiate foreign debts, print a new currency, and make sure the new currency is cheap compared to foreign currencies.

        Given good infrastructure, which they have, they will then have an instant, long-term boom. And probably an immigration problem.

        The problem is the poltical one, that revolution step….

    2. Demetri

      To hell with Greece? Let them rot?

      To hell with you.
      Oh ,what ignorance does to people.

      Except the facts that the bailouts were forced and never asked by the population ,the individual problems of any country have nothing to do with the origins of this crisis.

      The fact that we didn’t get out of the EZ or default in the EZ at the beginning is what saved the uncontrolled disintegeration of the overleveraged banksters.

      We were defamated ,slandered and accused for the whole crisis like we have the power to cause such multi-trillion trouble in a totally uncontrolled financial system were every thief ,top european leader politician bankster did what ever one wanted.

      And you talk about taxes?
      I do not pay to a state that steals from me and gives all the money to German corrupted corporations.

      It is not the tax evasion that caused the problem. It is the problems that caused the tax evasion.

      So easy to just accept to accuse with out knowing what the hell you are talking about.

      1. Susan the other

        It would be nice if everyone suffering verboten sovereign debt in the EZ would now take the curency and credit default swaps pushers to court and have all the contracts nullified because of LIBOR.

    3. damian

      if the wind and solar are substantively greater than 50% of total electric needs with little or no marginal cost of operation or fuel requirement – which was put in place with debt and the debt is forgiven 50%+ or more coupled with a new currency introduction and the banks nationalized and their debt repudiated…..

      then the spanish are set for a new age of opportunity

      leave the debt holders behind – negotiate endlessly until they give up and save the country and people

    4. Holygrail

      You are wrong on the numbers. Spain’s electricity *production* was/is 50% renewables but the electricity *needs* are currently covered by imports to the tune of 75%, which makes Spain more dependant on oil and foreign sources than most other european countries.

      Alternative energy was heavily subsidized and politized, with people making money off those subsidies while providing expensive energy that reduced spanish competitiveness. Alternative energy was no boon to Spain as its EROEI was subpar compared to other sources. Don’t try to paint it as a bold step because it was mainly just a political move, badly executed as usual.

      1. Maju

        No way! Neither one nor the other: Spain’s renewable energy production is far from 50% (even if it has been growing very fast until last year) but electricity imports are low (of the order of 10,000 Gw/hr, while production is of the order of 300,000 Gw/hr).

        In 2008 or 2009 Spain’s renewable energy production was of c. 15%, it was growing fast but I doubt it reached 50% in just 2-3 years.

        Imports are in the order of 5%:

      2. Maju

        Incidentally dirty energy is the one being subsidized by not paying indemnities for the damages caused to the environment of us all.

        The worst case is nuclear, which is so dirty and unmanageable that they are now delaying all decomissions because they just have no idea of how to do them without being a huge economic burden. This policy of extending and pretending is an almost guarantee for a Fukushima-style catastrophe every few years, with increasing frequency as the installations become older and older.

        1. Nathanael

          This will be particularly bad in the US, which has had the worst head-in-the-sand policies about decaying nuclear power plants.

          Much of Europe is less stupid about this.

          1. Maju

            Sorry but the nuclear station just 100 km from where I live, which has a Fukushima desing (Garoña), should be closed and is being extended once and again. Spain, being an earthquake prone are (not as much as Japan but still) has many nuclear power plants, while France is the most nuclearized state on Earth.

            Europe is definitely NOT safe from nuclear risks at all. There are accidents in nuclear facilities once and again. Most are of low importance but the risk is very high.

            And if something can go terribly wrong, it will eventually.

  5. Hans Maier

    “But depositors were pressured into buying preference shares and subordinated debt.”

    Indeed – by these banks! Not by the Troika, by creditor nations, by the ECB…

    “And because some of the creditor nations are dead set against debt mutualization”

    Of course they are, they must. It is the responsibility towards their own electorates. The spanish banks didn’t share their huge profits during the boom years with them, why now bear their losses?

  6. Mafer

    “Without significant debt restructuring they are left to flounder in a viscous spiral downwards.”

    Do they realize that in those conditions, a few charismatic personalities can turn the sheeple into wolves?

    1. mmckinl

      You’ll love this:

      Peak oil oppositional disorder: neurosis or psychosis?
      by Dmitry Orlov

      “If you feel that the distinction between denial and delusion is just a minor, innocuous terminological difference—a gratuitous splitting of hairs on my part—then pardon me while I whip out my Sigmund Freud: in The Loss of Reality in Neurosis and Psychosis [1924] he wrote the following: “Neurosis does not disavow the reality, it ignores it; psychosis disavows it and tries to replace it.” [p. 185] What psychosis replaces reality with is delusion.”

      1. Max424

        Classic Orlov.

        Have you seen, Monbiot and Maugeri’s idiotic essays are being published everywhere. Everywhere!

        Yesterday, the official news was, there is no such thing as peak oil, so we see no reason to ever publish anything about it.

        Today, the official word is, peak oil was indeed a mortal danger! A threat to civilization itself! BUT, due to sudden and massive “new” discoveries of rock/oil, and advancing technology on all crude oil fronts, everything is fine.

        Too funny. Hey, there’s no reason to worry about that terrible thing we didn’t tell you about, because the danger has passed, so now we can tell you about it.

        The psychotic propaganda machine is kicking into high gear. But they’ve made a mistake, in my opinion. By certifying that peak oil was once-upon-a-time real, they’ve opened the floor to possible debate.

        And if there is a debate, they will lose. How can they not? A peak oil bell curve is a peak oil bell curve, whether you add some delusional rock/oil* to it, or not.

        *Or a dash of technology! Don’t want leave out the techno-morons.

      2. Walter Wit Man

        Here’s Fletcher Prouty claiming that Peak Oil was a conspiracy going as far back as 1892:

        He claims the oil industry colluded to raise prices by making false claims about oil’s scarcity. He claims oil is the 2nd most common liquid and that it was falsely identified as a “fossil” fuel way back then to deceive people.

        Not saying I believe this, just find it interesting.

  7. rkka

    “Do they realize that in those conditions, a few charismatic personalities can turn the sheeple into wolves?”

    Their model is Adolpf, who directed the outraged sheeple towards foreign adventures.

    Where they met a guy named Georgy Konstantinovich Zhukov, with a powerful military-industrial complex behind him.

    That’s where their little game fell apart.

    1. ambrit

      Dear rkka;
      Gospodin, your argument leaves out the fact that a significant part of Zhukovs’ industrial support was American in nature and origin. Who was it who said that the Ford truck really won the Fatherland War? Somehow I don’t see gallant Chinese lovers of world freedom sending their hard won wealth over to support the fight against Neo-Fascism in the round eyes countries.

      1. Susan the other

        Eisenhower was disappointed after the War because he admired Zhukov but the general (Zhukov) had been put off limits to the West by Stalin. I think DDE talks about this briefly in his autobiography. During the war and just at the end of it there had been the clear hope for coming together with Russia.

      2. Anon

        Dear Ambrit, Alan Bullock, one of the best historians I have ever read, disagrees. But the myth that the US back-stopped the Red Army seems to be as persuasive as the myth that the war was won because of tardy US intervention on the western front. The Spielberg version of history, if you like.

      3. wanderer

        “Gospodin, your argument leaves out the fact that a significant part of Zhukovs’ industrial support was American in nature and origin. Who was it who said that the Ford truck really won the Fatherland War?”

        And how many Ford trucks had arrived before 31 December 1941, by which time Zhukov had rendered Army Group Center incapable of major offensive operations…

        for the rest of the war…

        If you speak of the factories that Albert Kahn built in the USSR in the 1920s and 1930s, they weren’t gifts. They were paid for. By grain exported in a time of starvation.

        And vital they were in 1941-1945.

        1. ambrit

          Dear wanderer;
          “By grain exported during a time of starvation.” And how is that different from present elites behaviour? Plus, just what was Hoover doing with the famine relief program anyway? With all due respect to Bullock, whom I do read and appreciate, even ‘labor intensive’ mass wave armies need supplies to sustain the offensives. That was one reason the Wermacht literally bogged down on the Eastern Front. Soviet Generals Mud and Snow were crucial to the Allied war effort.

          1. wanderer

            ““By grain exported during a time of starvation.” And how is that different from present elites behaviour?”

            Because the military-industrial capacity built with that sacrifice is the reason that Hitler’s big project, Generalplan Ost, the extermination of European Slavs, failed.

            That industrialization is why there are now Poles in Poland and Ukrainians in Ukraine.

            “Plus, just what was Hoover doing with the famine relief program anyway?”

            That happened in the early 1920s, and would have availed nothing in 1941 without the industrialization.

            “That was one reason the Wermacht literally bogged down on the Eastern Front. Soviet Generals Mud and Snow were crucial to the Allied war effort.”

            Heh. Far more crucial was the Red Army, equipped with the weapons produced by the factories bought by grain exports in a time of starvation. In the first seven weeks of Op. Barbarossa, the German Army had suffered 3 times as many troops killed in action as it had suffered in the process of crushing Western Allied armies numbering nearly three and a half million in six weeks the year previous.

          2. wanderer

            “Because the military-industrial capacity built with that sacrifice is the reason that Hitler’s big project, Generalplan Ost, the extermination of European Slavs, failed.”

            On the other hand, present bankster looting is building no such vital asset. It’s just about elite enrichment.

            Yes, that means that our bankster elite are worse than Stalin.

  8. craazyman

    wow stufffing the depositors is almost over the top, even for the financial elite, even now, even after everything we’ve seen and known, and especially after everything we’ve seen and known.

    not exactly like the “burgers of calais” out there is it? rotflmao

    the more you think about what’s going on the weirder it gets. I remember seeing at the Met Museum in New York a few years ago an exhibit of art from Weimar Germany. Even the drawings, somehow through the basic use of line, conveyed a horrific darkness, an anti-illumination, the energy not only of violent death but of a certain virulent negation of consciousness. I am not sure how they did this, but it was extreme. I was so disturbed after the show I had to go to the Rembrandt room and spend about 15 minutes there, inhaling that sane and controlled humanism, just to recover. Then I think I went home and had several glasses of red wine to calm down. It’s like that now, reading the news from Europe.

    1. carol

      “wow stufffing the depositors is almost over the top, ”

      When Iceland did just that, it was applauded by many commentators on this blog too.

      (Iceland nullified foreign depositors of Icesave — an Icelandic hedge fund on steroids, deguised as savings bank. The Icelandic president said: sorry, we can not be held accountable for the promised deposit guarantee. After a lot of negociations, Iceland will pay the nominal (!) savings by ….. 2040)

      1. Yan

        It’s easier to do when the people you are stuffing are not your constituents and you are not wiping out your own country’s savings.

      2. Heretic

        There is an important difference Carol. In the Iceland incident, Iceland refused to payout the depost British savers, knowing full well that The Exchequer (central bank) of England could easily print the money. Of course the bank and the press objected, because they ha to bailout a foreign bank… But Britiain certainly had the ability to make all the British ice save depositors while. The British Central bank is probably under obligation to do so as well. So the British savers would still be ok.

        In Spain, they have done a cruel trick. Spanish depositors in spanish banks were convinced (tricked into) converting their deposits ( which would have some degree legal of guarantee from bank, if not at least a strong cultural understanding ) into preferred shares, which have no basis for legal protection in the event of writes downs or bankruptcy. So these depositors have been tricked into buying a shitty investment, and there is no recourse for these unfortunate persons. They are screwed.

    2. Walter Wit Man

      Maybe they’ve had 60 years or so to hone the presentation of this art work to make it seem sinister?

      We know the great powers were using art as propaganda back then and Germany had an art tradition it was proud of and it wouldn’t surprise me if the U.S. and Britain propagandized against German art.

      Can we trust art directors in New York City to fairly show us Weimar art?

      And then it’s interesting to see the connections with people like Grant Wood who definitely used modern German style to create their own version of unique American art.

      1. craazyman

        Here’s some of it. but none of these are as bad as what I had in mind. I still remember one simple charcoal drawing of a blonde woman. Somehow it was a drawing of death itself. Clearly this isn’t run-of-the-mill sunday painter stuff. You have to be really good to pull this off. So whatever was typical of Weimar — flower scenes and landscapes like any other time and place in Europe — I don’t know. But it takes a special form of awareness to produce this sort of thing:

        1. Glenn Condell

          I have always been fascinated by the art of that place and time too – the ‘ugly beauty’ of Dix, Beckmann, Grosz etc, the unflinching snapshots amid a communal descent. This dislocated anomie, conveyed with a trangressively louche and unsentimental attitude, characterises much of the art of this transitional period, neither fish nor fowl, caught in the no mans land between the twin certitudes of Empire and Reich. One of the greatest novels of them all, Joseph Roth’s Radetzky March, dramatises the trauma pictures like these embody.

          Barry Humphries (who has always painted as a diversion from his other activities) curated a show at the art gallery here last year on Weimar art, called The Mad Square, which along with Schad and co also included some left-fielders:

    3. Susan the other

      Have you seen those two big wooden sculptures at the MOMA, Die Krieger? They might cheer you up.

  9. Kiste

    Is Spain going the way of Greece? I doubt it. Spain actually has something like a real economy. Greece not so much.

    1. Max424

      What is a real economy?

      Spain has entered into a Great Depression (25% unemployment!). The operative word in that sentence is “entered.” They are also under attack by economic forces of destruction which their leadership, in their infinite wisdom, have chosen not to repel. This means, things can only get worse in Spain. Much worse.

      So, the Great Depression Spain has just entered will likely devolve into an extended Age of Misery and Despair. How long this Age of M & D will last is anybody’s guess, but my personal estimate is, forever.

      Will Spain suffer less than Greece. Yeah, I think so. I believe this because, since the crisis began, an estimated 600,000 black market AK-47s have found their way down thru Albania to a Greek population of only 12 million.

      The desperate, mostly jobless and soon to be starving male population of Greece is arming itself to the teeth with automatic killing power. This leads me to believe that Greece will rapidly move beyond relative benign things, like misery and despair, and offer up for world entertainment, some gold old fashioned, internecine war.

      I predict an Age of Fratricide is coming to Greece. After that, comes the Age of Nothing.

      1. Eric

        FACT: before the (euro fueled) bubble (in the 90s) Spain also had 25% unemployment. Nobody claimed at that time Spain was in a depression. Spain always had high unemployment.

        1. Max424

          Fact: Spain was mired in a deep recession in the mid-90s, reflected in an unemployment rate that topped out at 21.5% in April of ’94.

          Clearly, this time is different. Spain’s unemployment line is heading straight vertical, from starting point of 25%, and to remind, the shitstorm raining down on Spain has just begun.

          True, Spain, like many European countries that FORMERLY enjoyed the Social Contract, has traditionally allowed for higher unemployment rate than what might be deemed “acceptable” in the US.

          But part of the great Spanish success story (a short-lived epoch that began roughly in the late 1990s), was Spain’s ability to employ an ever growing percentage of its population.

          In fact, for almost four straight years in the mid-90s, Spain’s unemployment rate never topped 10% –a historically unheard of achievement in what was traditionally considered, a backwater 3rd world rump state on a perpetual siesta.

          I believe Spain showed creative hubris (reflected in large things, like their solar, wind, and HSR build-outs, and in the small things too, like producing a magnificent, best ever football team), and for this, they have been targeted for destruction.

          And my prediction is, they will be destroyed.

          1. Eric

            between 1987 and 2000 Spanish unemployment was between 15 and 25%
            Couldn’t find older data, but I don’t expect it to be much better.
            High unemployment has been the norm in Spain. The bubble economy of the euro period has been the exception.
            Note that Spain allowed millions of immigrants entry during the housing bubble, many are now unemployed inflating the current number.

      2. Susan the other

        Mmm…Palestine, Egypt, Lybia, Tunisia, Alegeria (a while back), Yemen, Syria, Iran, Georgia… w ho am I forgetting… and oh yes Iraq and Afghanistan… and now Greece. Greece? Why? Hillary just pledged Afghanistan our full support as an ally, equivalent to our NATO allies. I’m confused.

  10. Warren Celli

    Yves said; “To add to the list of Spanish tsuris, home prices are down over 30% from their peak, industrial production is contracting sharply, and the current account is still in deficit. There’s no signs of vitality here, yet the alchemists continue to bleed the patient. To change metaphors, Spain is too large for it to be broken on the rack like Greece and not have the rest of Europe suffer along with it, but that seems to be the plan”

    “But that seems to be the plan.” Bingo! That is the plan! It is part of the intentional herd thinning.

    And stay with the human body as analogue, it is very fitting. The ‘alchemists’ are all infected with Xtrevilism — it is a disease! They are not bleeding the patient however but rather they are, and they represent metaphorically, a cancer in the blood supply. Carcinogenesis is a multi-step process that includes infecting and then forcing complicity on surrounding healthy cells — the retail depositors! Kill off the invasive external and internal cancerous cells (Xtrevilism and Evilism) and the infected local cells, the retail depositors, will recover.

    This is not a financial crisis. This is a global moral crisis caused by the aberrant sociopathic few Xtrevilists who are infecting us all with their debilitating disease.

    Deception is the strongest political force on the planet.

    1. Doug Terpstra

      Bingo, indeed, a sharp eye for layered deception. As Richard Kline and Bill Clay note above, the formula for Spain, following Greece, preceding Italy, US, etc., is textbook for contraction and depression. The Shock Doctrine only appears evil and malicious, but it employs the creative destruction of disaster capitalism for the greater good, to clear the way for the utopian new world odor.

      Remember the words of Alan Greenspan, former Chairman of the Criminal Reserve, promoter of ARM mortgages and the exuberant self-regulation of Wall Steet:

      ‘”Atlas Shrugged” is a celebration of life and happiness. Justice is unrelenting. Creative individuals and undeviating purpose and rationality achieve joy and fulfillment. Parasites who persistently avoid either purpose or reason perish as they should.’

  11. Maju

    It’s not just Spain (after all, most of those measures are impossed by Brussels, notably the VAT rise) in the EU (and the IMF) they seem to have decided that the Greek collapse spiral is a cool model to follow and therefore every single state must go the way of Greece.

    In my whole life I’ve never seen the European Union in such a disastrous political and economical direction. I have once and again supported EU and Eurozone continuity (as lesser evil and also because there must be continental political union one way or another) but at this point I totally expect the collapse of EU any day.

    Worse: I’ve began hoping for it.

    1. Ruben

      “In my whole life I’ve never seen the European Union in such a disastrous political and economical direction.”

      It is not so chaotic as you may think. The general plan is that indebted nations should experience high unemployment for a long time in order to deflate internally and become competitive. And the plan is working! Slowly, yes, but it is in fact working. The only possible problem with the plan is that the populace may rebel or otherwise make a mess. But after the last Greek elections, and other examples such as the ‘indignados’ and ‘occupy WS’ it has been shown irrefutably that the populace has a remarkable capacity to sustain the pain in order for the plan of their Masters to work out, ever so slowly.

      So now the plan has to be applied to Spain. It will work. They have added a proviso to reduce unemployment benefits in advance of the sustained high unemployment that the plan is contemplating as its key source of dynamism. Eventually the mass of 2000 to 3000 euros ‘asalariados’ will die out or accept lower wages, new waves of ‘asalariados’ will accept lower wages, and a happy new year it will be announced that unemployment is easing, that exports are increasing (there are a few signs already, Germany’s Minister of Finance has told us that Spanish export to Germany have, …, increased!).

      Then Italy.

      And then stop.

      A new alignment will ensue. The Masters of the European subjects are guiding them towards a new equlibrium. The docile subjects will continue meekly voting them into power. Many will die in misery, lose everything, but most of them are unfit anyways, lesser minds.

      There are a few more elements to consider that support the Master’s plan.

      1. Warren Celli

        “Many will die in misery, lose everything, but most of them are unfit anyways, lesser minds.”

        It appears you have caught a bad dose of the Xtrevilism bug Ruben. Get well my friend.

        Deception is the strongest political force on the planet.

        1. Doug Terpstra

          Methinks Ruben is channeling Robert Rubin, with impeccable Neocon logic. Note his cheek slightly distended by his tongue, as he stifles a smirk and chortle at the plight of the lesser-minded Goyim.

      2. Jim

        I imagine that that’s what the Argentine establishment said about the Dollar, before the reintroduction of the peso. I recal Cavallo arguing that, with a few more years, Argentina will pull through, and that an decades long implosion would follow the reintroduction of the peso.

        Well, the establish was wrong re: Argentina, and I believe it’s wrong re: the Eurozone. The only way the EZ is viable long-term, even with an 80% debt forgiveness of the periphery, is through PERMANENT fiscal transfers from the Core to the Periphery.

        And I don’t believe that German’s will vote to send 10% of their GDP to the South, on a permanent basis.

        Of course, if Brussels decides to appoint a Viceroy in Germany and do away with democracy, I could be wrong.

        1. JTFaraday

          Well, failing Plan-A for Austerity, I’m sure that’s Plan-B because fiscal transfers is the only way they can get capitalism to work.

      3. Maju

        That plan is not working and will never work: it’s just the old colonialist IMF’s doublespeak that means demolish the rights and perks of the Working Class, harder!, faster!, more mercilessly! Eventually they will reach a bottom where they can’t fall down anymore, just like the Great Latvia Success Story, which was posted in this blog some weeks ago:

        Success! :D

        Incidentally Spain was not even seriously indebted (at least before the “rescue”), much less that Germany or France (but these two never get any “medicine”, not even a fine).

        Let’s be serious: a Europe that does not serve the interests of European citizens is a failed Europe, also a Spain that does not serve the interests of Spanish citizens is a failed Spain.

        And the stinky rotten useless trash is better not to keep with you… for your own good: get rid of EU and get rid of Spain. Just keep Schengen (like Switzerland or Norway): success! Real success!

  12. Stan Getz

    Forced massive writedown of debt coupled with government taking over the insolvent banks. Bondholders, you made a poor investment and in capitalism you lose your investment. Forced writedown of bank debt in inverse proportion to its actual economic utility to society as a whole. So speculators get pennies on dollar as their trickle-down theory of econ growth doesn’t actually hold water. We are living in a multi polar world and even if western supra national debt lords like World bank and IMF won’t lend spain money, they will find like argentina, that china or brazil will lend them money. The hubris of interests aligned with IMF, world bank must be disciplined as a matter of survival.

    Then spanish Gov uses banks as engines to spur industrial growth to extent it employees spanairds.

    This approach has benefit of not sacraficing the people at the feet of financial interests, discourages the dangerous moral hazard associated with following the policy framework of financial speculators and other predatory financial classes and actually encourages economic growth that is widespread and closely linked to societal well being and econ sustainability.

  13. Stephen Neumeier

    If a bank is insolvent, then the stockholders should take the first loss, junior debt the second loss, senior debt the third loss and depositors should be safe in almost all cases.

    If employees of banks misrepresented what they sold to investors, then they should be prosecuted for fraud.

    The global policy of protecting bond investors is extending the crisis.

    1. Susan the other

      Sheila Bair (my idol) was interviewed by the twits on CNBC about the Eurocrisis. She said it was her opinion that the EZ “needs a type of FDIC” to reassure against bank runs (the R word now). But it’s going around and coming around too fast for my buzzed-out brain. Our Big Failures are stuffing bad, zombie derivatives and maybe the underlying MBS stuff into their “depositaries.” What does this mean? We, not as depositors, but as taxpayers via the Treasury, will bail out these bad investments because they reside in the depositary now. Bair would never have let that happen on her watch. Would she? So this is close to stuffing depositors. Maybe the derivatives will take precedence over the honest deposits. I wouldn’t put it past them.

      1. Maju

        Spain has a “FDIC” by another name, each state does. Not the Eurozone as a whole but each state does, of course. It’s of no use if the state runs to “save” the bank at the expense of social services each time one goes into trouble.

  14. Yan

    Speaking about social stress. This happened yesterday at the inauguration in central madrid of a new shop aimed mostly at teenagers (as you can see by the footage). The kids are waiting to get into the venue when riot police mistake the gathering for some kind of demonstration and start charging…

    1. Nathanael

      Spaniards don’t have the ingrained “expect government to behave itself” training that white people in the US do; Franco wasn’t THAT long ago.

      Therefore I think this is going to result in major political change sooner (10 year timeframe) rather than later (I’ve been figuring 20 year timeframe for the US).

  15. jsmith

    And once again:

    It is literally breath-taking that we are witnessing the demise of sovereign nations and European society over the cooked up numbers of a handful of bankers.

    Debts could be written off, stimulus programs could be enacted, unions could be dissolved etc etc but all of this due to the fact that bankers are telling us that we have to play by their imaginary numbers and rules.

    Reality – the neoliberal fascists tell us – is not that people no longer have access to needed medications, food or employment but rather reality is the marked to fantasy garbage and other assorted shite on their computer monitors that just needs be repaid.


  16. Jim Haygood

    ‘[Spain’s] economy [is] structured around the delivery of a failed industry [i.e., construction].’

    One sentence that says it all! Structurally Spain is no worse than the rest of Europe. But Spain experienced the Mother of All Property Bubbles, and now it is getting hammered the hardest by Bubble Hangover.

    This is where de facto state support of the banking system gets ugly. A lesson learnt in the 1930s depression is that you can’t let bank failures collapse your deposit base. Fair enough.

    But when a bank cartel [i.e., the central bank] becomes the centerpiece of national policy, and banksters can (for example) dictate the terms of their massive bailout in 2008, then moral hazard has inverted the incentives in the system.

    Banksters, being the dumbest f**ks on the planet, never fail to load up on the Bubble Asset du Jour just before it crashes and turns into reeking dogsh*t. Then they bleed like stuck pigs, and cry piteously for state aid.

    Though this broken system could be reformed from the bottom up [for instance, by zeroing out zombie bank equity holders and haircutting the lower ranks of bondholders], it won’t be as long as banksters exert de facto policy control in the rich countries.

    Rather, attack the heads of the monster — the central banks. Expose their ‘seigniorage’ for the brazen fraud on humanity that it represents: FIAT CURRENCY BREEDS BUBBLES. Then abolish them, tear down their buildings, and salt the ground where they stood.

    Bulldozing the Marriner S. Eccles building to dust would be a more propitious milestone than the demolition of the Pruitt Igoe houses, ridding our economy of the grotesque carbuncle that disfigures its face. Same goes for the failed ECB — SMASH IT HARD!

    1. Susan the other

      And Spain’s other industries? The EZ’s investment fund funnels money to Algeria to produce solar? It probably isn’t central banks and sovereign debt and fiat money. It’s graft.

    2. F. Beard


      No, bank credit is what inflates the bubbles and the central bank provided additional reserves (of new fiat) AFTERWARDS.

      The problem is government privileges for the banks, not inexpensive fiat itself which is the ONLY ethical money form for government debts.

      1. F. Beard

        correction: “provided” should be “provides”.

        Also, it all goes back to the banks.

  17. ignorant on this q

    “Hurting small savers will not only be a political disaster, it will generate lawsuits against the banks and will further crimp the economy. ”

    Totally ignorant on Spanish banking regulations, so my question for anyone in the know….can’t Spain offer some kind of “disaster aid/grants” to the wiped-out small time depositors/shareholders? Say a grant/zero-interest loan up to a set amount like $100,000 EUR?

    1. Maju

      “The Deposit Guarantee Fund of Credit Institutions was set up by virtue of Royal Decree Law 16/2011, of 14 October”.


      “The objective of the new Fund is, as before, to guarantee deposits and securities held by credit institutions, up to the limit of 100.000 Euros”.

      They read your mind in advance ;)

  18. overpopover

    “The growing unemployment is leading to a slowing of industrial production, which means that even though the country is importing less it also appears to be exporting less”

    Does this make sense to anyone? If there’s a foreign market for Spanish goods wouldn’t Spanish companies hire enough to meet demand?

    1. Maju

      I don’t make sense of that: Spanish exports are slowing for other reasons, for example the IKEA phenomenon or Chinese exports, or even because of the capitals’ run (which may imply destruction of productive capacity) but hardly unemployment as such.

      Unemployment damages the internal market, which is a pillar of any half-serious economy.

      However the sentence may mean that unemployment reflects loss of productive capacity, which also implies less exports, not just in origin but also in the long run: you can’t export once your industries have been closed and they do not produce anymore.

  19. Susan the other

    Could the torture of Spain have anything to do with their politics on war crimes?

  20. Hugh

    Like Greece, Spain is caught in a downward spiral in a way that can’t be papered over. It’s there for all to see. This is what distinguishes it from a country like Italy. Italy still has a few fig leaves left.

    The spiral is both economic and political. As the economy sinks further into depression, Spain’s political elites are pursuing policies that are making that depression worse. At the same time, these elites are ceding power and Spain’s sovereignty to elites in Northern countries, especially Germany. They are taking on more debt from the North when they can’t pay the debts they already have. And the debt they are adding on and the cruel austerity they are inflicting on Spainards isn’t even to make Spain competitive or anything like that. It is to service the debt owed to Northern banks and their rich bondholders.

    Put simply, Spanish political elites have betrayed the people of Spain in order to act as a pass through for a backdoor bailout of Northern banks by Northern governments. Why? Because in a kleptocracy, the elites work for the looters. And if you look at what is going on in Spain, it benefits both Spanish and German kleptocrats. The Spanish 99% is impoverished. The commons is up for sale. And the Northern banks where Spanish kleptocrats have moved their wealth are protected. This is a key concept that often gets lost. The interests of Spanish and German kleptocrats are aligned, just as the interests of Greek and German kleptocrats are. Looters will loot other looters if they can, but as a class, their interests are always congruent and always lined up their 99%s.

  21. rotter

    Spain is not Greece, Not geographically, culturally/politically, historically or economically. Driving Spain into the dust like Greece will certainly not lead to the “peace” the EU claims as it raison d’etre.

  22. mac

    So for how many years has Spain had issues that made them a problem?
    Including WWII they go back into the 1930’s or earlier.
    Why did folks think miracles were afoot?

  23. Bill Jones

    The combination of a fiat, debt based currency, Keynesian economic policy and fractional reserve banking could only ever have one outcome.

    Why are people surprised?

    The only issue now is who will be destroyed first.

    Hopefully it will be the parasitical, not productive sectors.

    1. Hugh

      The US has a fiat currency. Spain does not.

      Ot sure exactly what you mean by debt based currency. It some sense any currency can be viewed as debt based since it allows a call on society’s resources.

      Keynesianism has become class war code for any spending targeted at the 99%. Of course, with a fiat currency financing Keynesian stimulus isn’t a problem. A perhaps easier way of looking at this is that both government spending and taxation are ways to move resources around society. Spending puts resources in some areas while taxation removes them from others.

      We do not have a fractional banking system. Banks make loans without reference to deposit levels. In this way they are money creators because they make the loan first and then borrow from other banks or the Fed to balance their books. Ultimately, the Fed backs their action by creating the money for it, but it is the banks that create the money first and then the Fed. That is banks actively create money whereas the Fed does passively in response to banks’ needs.

      1. Hugh

        Should read: Not sure exactly what you mean by debt based currency. In some sense any currency can be viewed as debt based since it allows a call on society’s resources.

      2. Maju

        Yeah, actually the euro is the closest thing to gold after gold itself. That’s in fact the problem: lack of competitive devaluation.

  24. Jerri

    If losses permit, conversion to some form of capital in proportion to supervised assets assumed by the bad asset bank, and, or the FROB?

    BTW the supervisor of Caixas appears to be The Bank of Spain

  25. Nathanael

    The social situation in Spain is different from that in Greece.

    I don’t think it’s going to go down along exactly the same lines, in terms of Syriza, ND, PASOK, etc.

    It will go down differently. Spain’s indignados are a more mature and better organized movement than Greece’s protestors, so I expect it to go down *very* differently.

    1. Maju

      I’d say that Greek ones are in fact somewhat more mature in the sense that they are not being easily diverted by posturing and propaganda anymore, that their class consciousness is less hindered by the bourgeois discourse.

      Spaniards have been brainwashed quite successfully in the last decades with the supposed boons of Capitalism, European Union and the pseudo-democratic circus and it was a surprise that they even were able to mobilize at all. But they did and are doing again these days, suggesting that they are less immature than I thought in terms of class consciousness.

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