Institutionalizing death by 1000 cuts:
Spanish Law Aims To Rein in Budget
(FT) Spain’s plan to toughen the central government’s control of regional finances passed its first legislative hurdle in a parliamentary vote Thursday. “This is a law that will serve as the foundation for policies to make Spain’s budget deficit disappear, so that Spain goes back to being a reliable European Union partner,” Budget Minister Cristóbal Montoro said after the bill passed the lower house of Parliament. The law will now go to the Senate, where it also is expected to pass. The new law will require that all levels of Spanish government have balanced budgets by 2020 and that the government lower its debt-to-GDP ratio to 60% by that year as well. The government has forecast its debt-to-GDP ratio will rise to around 80% this year.
The 17 Spanish communities have a very high degree of autonomy. Many Spanish people will say there are 17 Spains. This whole process will be very tough if feasible at all and I wonder what they will do if one breaks the rule.
Any Spanish readers who could comment on this plan?
The message seems to be spreading: “Spain’s effort at deficit reduction is not just bad economics, it is physically impossible”
http://www.ft.com/intl/cms/s/0/7d5b5910-8555-11e1-a75a-00144feab49a.html#axzz1sDKW2WHh
Also in France, the 2 PM candidates have taking up the campaign theme of asking for massive ECB intervention – even if the message twisted in a likely hopeless effort to appease the German ECB stance.
“Europe must purge its debts, it has no choice. But between deflation and growth, it has no more choice. If Europe chooses deflation it will die. We, the French, will open the debate on the role of the central bank in the support of growth.”
http://www.ft.com/intl/cms/s/0/9d26b6b8-870d-11e1-865d-00144feab49a.html#axzz1sDKW2WHh
If the rift in the France/German platform widened – and the ECB eventually did follow the Mosler state-bond policy – would Germany leave the emu in a huff? As you say, mkts aren’t pricing in near as much uncertainty as there seems to be.
@roger erickson,
I’ve been betting from the beginning that Germany is the first one out. The Bundesbank is never going to go for a real solution.
@Tom Hickey, Why do you think that the Bundesbank is never going to go for a real solution?
Soros recently spoke, in Berlin I believe, and stated that any union (from family to countries) can only exist with transfer payments. Given this fact he then basically proposed that the ez better starts calculating what transfers are needed. Then Germany can make up its mind and decide whether it still considers it worth it.
I think Germany is well aware that a return to the DM would make their exports plummet.