Spain’s conservative government, eager to change the media’s emphasis on its repudiation in recent EU elections, has launched a media campaign stressing its adoption of an aggressive “stimulus” program. Spain’s conservatives – and their predecessors the so-called socialists – are infamous for embracing the troika’s demands for austerity. Why have the Spanish conservatives finally admitted that austerity is a disaster and stimulus is essential? They have not done so. Instead, they have rebranded “austerity” as “stimulus.”
“MADRID—Spanish Prime Minister Mariano Rajoy is planning to launch a €6.3 billion ($8.59 billion) economic stimulus package, a move to keep sky-high unemployment and the risk of deflation from derailing the country’s recovery.
Mr. Rajoy told 200 business leaders at a conference in Sitges, near Barcelona….”
This is the third and final installment of a series of columns discussing the latest harmful policies and articles about eurozone deflation. This column discusses the March 31, 2014 article in the New York Times entitled “Another Worrisome Drop in Euro Zone Inflation.” I have already discussed the extraordinary sentence in the article in which the head of the European Central Bank (ECB), Mario Draghi, is cited as claiming that deflation is desirable for eurozone nations suffering Great Depression levels of unemployment. Draghi claims that deflation will cause reductions in working class wages and prices that will lead to increased exports and economic recoveries. I explained in prior columns that this is contrary to the ECB’s written policies and economic theories and the views of virtually all economists. The NYT article does not report these facts.
I posted an article earlier today on the demented memes about eurozone deflation U.S. financial journalists parrot after talking to Brussels’ troika-trolls. That article used the latest AP story to illustrate my points.
I promised a second installment that used a New York Times article (not sourced to AP) that was posted last night to illustrate the meme. The NYT article is simultaneously more complex and more alarmingly analytically awful than the AP piece.
This morning brought two April Fools’ Day articles about France and Italy that are also about the gratuitous second Great Recession (in the core) and the second Great Depression (in Spain, Italy, and Greece) inflicted by the troika’s infamous austerity dogmas. This article discusses one sentence from last night’s NYT piece that notes the position on deflation of the head of the European Central Bank (Mario Draghi). The NYT article misses the significance of the passage. I show how the passage, particularly when read in conjunction with quotations from Draghi’s fellow troika-trolls in the articles about France and Italy, reveals the troika’s fanatical devotion to failed dogmas and the clueless nature of U.S. financial journalists covering the eurozone who continue to treat the trolls like savants.
The troika has consigned one-third of the Eurozone to a gratuitous Great Depression
I have written several articles recently describing Spain’s continuing Great Depression levels of unemployment and the absurdity of the troika’s policies with regard to the “threat” presented by “deflation.” The troika consists of the European Commission, the European Central Bank (ECB), and the International Monetary Fund (IMF).
On February 6, 2014, Mario Draghi, the head of the ECB said a series of contradictory things each of which indicated a failure to understand economics – and the BBC article about his policies failed to point out or analyze this failure. Draghi’s primary message, in response to news that “Eurozone inflation slowed to 0.7% in January from 0.8% in December” was:
“We have to dispense with this idea of deflation. The question is – is there deflation? The answer is no.
We have to treat the recovery with extreme caution. It is very fragile. It is starting from very low levels but it is proceeding.”
Two articles that should be read by anyone interested in the global financial crisis have just been published. They address Spain. Spain tends to get far less coverage in the U.S. than Ireland and Greece, but it is a far larger country and economy. Its real estate bubble, relative to GDP, was the second worst among economically developed nations. Spain is so large and its unemployment is so severe that “Almost a quarter of all the unemployed in the 28-country European Union live in Spain….” Spain’s housing bubble was funded by an out of control banking sector and the bad loans are causing increasing damage to the banks. “[B]anks’ assets continue to deteriorate with an increase in the number of loans not being paid back.”
Alvaro Vargas Llosa (AVL) co-authored the Guide to the Perfect Latin American Idiot with two other journalists. He revisited the subject with an article in 2007 entitled “The Return of the Idiot.”
“The ‘Idiot’ species, we suggested, bore responsibility for Latin America’s underdevelopment. Its beliefs — revolution, economic nationalism, hatred of the United States, faith in the government as an agent of social justice, a passion for strongman rule over the rule of law — derived, in our opinion, from an inferiority complex. In the late 1990s, it seemed as if the Idiot were finally retreating. But the retreat was short lived. Today, the species is back in force in the form of populist heads of state who are reenacting the failed policies of the past, opinion leaders from around the world who are lending new credence to them, and supporters who are giving new life to ideas that seemed extinct.” Continue reading →
The real weak link now in the Eurozone is Spain, where the data is a disaster. It is Greece writ large. And this is before Madrid, under Prime Minister Mariano Rajoy, has submitted to a new ECB program of agreed austerity in exchange for the ECB backstopping the nation’s bonds via a renewed Securities Market Program (SMP).
Yiagos Alexopoulos at Credit Suisse estimates that Spanish capital outflows are currently running at an annualised rate of 50 per cent of GDP. No question, the bank run is clearly accelerating, and one can easily understand why. The country is turning into a Little House of Economic Horrors. The alleged “rescue” of Madrid’s banks is a non-starter. 100 billion euros won’t begin to cover the scale of the problem on any honest accounting or “stress test” (and that’s before we get to the next phase of announced austerity measures). Continue reading →