Saturday, 28 April 2012

Austerity or growth?

2011 was the year of austerity in the eurozone, driven by the demand of Germany and the French poodle. Now the flavour is growth.  Caught up in the middle of this are the populations of Greece, Italy, Spain and Ireland.

Something has to give.  The catalyst may be the result of the French presidential election, or it may be the failure of the Netherlands coalition government to push through the fiscal pact.

However it is far more likely that the problems in Spain will be the real tipping point.  Spain is in a mess, adult employment at 24%, youth  unemployment at 51%, debt downgraded to two notches above junk status and the country in recession.  More austerity??

The problem for the EC and the eurozone is that Spain is the zone's third largest economy after Germany and France. The economy is twice the combined size of the Greek, Italian and Irish economies.  To bail out Spain would be beyond the fire power of the current eurozone bailout mechanisms.

The  answer, devaluation, managed inflation and interest rate adjustments are not possible within the eurozone.  So, it may be Spain that decides to leave the common currency, unless there is a radical re-think in Berlin.

Since I published this post I have come across the following article:
Sense of deja vu.

And this:

No comments:

Post a Comment