Commence Operation “EU crack up,” phase two!
**Posted by Phineas
Phase One was the unending financial crisis that began in 2008 and the Europeans’ unwillingness to anything that would really address the problem, instead choosing to keep feeding the beast of debt and taxation. Sickened by the failure of their political class (and made delirious by their own addiction to the teat of the State), European voters are responding by throwing the bums out and putting radical bums in their places: a hack Socialist demagogue in France, and communists and neo-Nazis in Greece.
Now comes word that Phase Two, the bailout of banks in Spain has begun:
It was only a matter of time before the next bank bailout began despite all those promises to the contrary. Sure enough, as math always wins over rhetoric and policy, earlier this morning the shot across the Spanish bow was fired after PM Rajoy did a 180 on “no bank bailout” promises as recent as last week. From Dow Jones: “Spain may pump public funds into its banking system to revive lending and its recessionary economy, Prime Minister Mariano Rajoy said Monday, signalling a policy U-turn. The government had pledged to not give money to the banking industry that is struggling in the wake of a collapsed, decade-long, housing boom. “If it was necessary to reactivate credit, to save the Spanish financial system, I wouldn’t rule out injecting public funds, like all European countries have done,” Rajoy said in interview with Onda Cero radio stations.
Spain is Europe’s fifth-largest economy, and its economic problems are huge, but bailing out the banks won’t make much of a difference, if any; it will merely transfer the debt burden from Spanish banks to the Spanish government, which will have to borrow the money or seek its own bailout, further burdening both the already over-taxed Spanish public — as well as German patience. It’s robbing Pedro to pay Pablo, but the bill will still come due — and it will be enormous.
With the EU’s fragile unity already threatened by a likely clash between Germany’s Chancellor Merkel and France’s new President Hollande, will the added pressures of a potential Spanish financial collapse (which would make Greece look like a block party) push the European Union and the Eurozone to the breaking point?
My guess is for at least a partial breakup within the next year, as Greece and other fiscally profligate Latin states leave the Euro so they can devalue their currencies enough to restart growth, while Germany and the other “adult” states are glad to see them go.
But with the rise of political fantasists in Greece, France, and elsewhere, one wonders if that will be enough?
via American Power
(Crossposted at Public Secrets)