Sunday, 23 September 2018

Spain flinches, Germany cringes

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So why have we been waiting? Reuters reported overnight that Spain is suddenly ready to request the long-awaited and certainly unavoidable bail-out funding from its Eurozone partners.

Anthony Peters, SwissInvest Strategist

The report suggests that the begging letter goes in the post this coming weekend. This means that whatever strategy Prime Minister Mariano Rajoy had been following hasn’t borne fruit. If he was planning, as had been supposed, to postpone the bail-out until after the regional elections, then he is clearly having to admit defeat.

The question facing (Germany) is whether Spain will need nothing more than bridge finance while it sorts itself out or whether state finances are moribund to such a degree that the ship will need a completely new hull.

Is this timing good or not good? On one hand, Rajoy’s personal credibility will have been shot to pieces as he seemed to make his own control of the timing a matter of principle but in doing so he has vexed the Germans who, as key donors – oops, sorry, lenders – feel that they should be sitting in the driving seat.

As far as Berlin is concerned, the haphazard appearance of weaker Eurozone members at its doors bearing begging bowls is not an engaging prospect and it would like to find a more structured approach before it opens its wallet.

There is no question that the Madrid administration has done all it can within the economic context to grasp the fiscal nettle and there is also little doubt that this has been recognised by Mutti Merkel and by her chief hatchet man, Wolfgang Schäuble. However, the question facing them is whether Spain will need nothing more than bridge finance while it sorts itself out or whether state finances are moribund to such a degree that the ship will need a completely new hull.

At some point, Merkel will have to stand up in front of the Bundestag, explain where the new line in the sand is to be drawn, why the old one was not good enough and convince the house that this very, very last offer of aid to the eurozone is better than the last very last offer and that there truly will be no more very, very, very last offers in the future. With Greece still unresolved and with Cyprus spooking around in the background, this will not be an easy task.

All the while, Spain still needs to address the recapitalisation of its banks. I pointed out again yesterday that I cannot quite work out how, if Bankia alone needs €35bn of fresh capital, the entire banking system is to be shored up on the balance of the €60bn which the complete process is supposed to cost. Then, this morning, I received a report suggesting that the national power system will require €25bn of emergency funding. Add this to the €35bn which the regions need in order to meet unpaid debts to suppliers and contractors but excluding the €18bn which the likes of Catalunia need in order to repay bond and loan obligations which they can’t roll over in the markets. These are big numbers and I have to laugh and cry at the same time when I hear when Minister for the Economy, Luis de Guindos, spouts: “These are one-off measures that won’t have any impact on the structural deficit”. Is that a fact?

How Red is Ed?

Meanwhile, here in the UK, we are watching the annual Labour Party conference where the party leader, the Rt Hon Ed Miliboy, will continue trying to convince the faithful that they did the right thing by choosing him over his elder brother, David. While playing up his time at comprehensive school, he will neatly forget to mention that he attended the same primary school as Boris Johnson and that he read the same degree at Oxford as did David Cameron. He has spent his life being a political hack and looks no more credible launching a class war than Tony Blair would have done – public school and Oxford – and a lot less than former Conservative Prime Minister Sir John Major would have done, had he chosen to, having left school at 16 with three O levels. Mind you, I suppose that neither Marx nor Engels ever got their hands dirty either.

“Red Ed” might have cut the mustard in the 1960s and 1970s with his brand of “Eat the Rich” socialism but the national give-away kitty which he needs was emptied with lots of help from his shadow chancellor, Ed Balls, and the principal providers of all the funding, the banks in the City, no longer pay the sort of taxes they once did.

The simple message really ought to be that we will all have to work harder for longer for less. For alternatives which have probably failed before they are even committed to paper, all he has to do is to look down and left towards Paris which was burning the year before he was born. I wonder what Rudi Dutschke and Daniel Cohn-Bendit would make of this chap? One of the ’68 slogans was “Soyes raisonable – demandez l’impossible.” What has changed?

I, however, will stick with another of the great one-liners of the time which is “Je suis Marxiste tendance Groucho”.

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