Spain Must Leave the Euro

An excellent article by Jeremy Warner in The Telegraph (September 27) along  the lines I developed in Euro Exit some time ago. The crisis exacerbated the underlying fundamental disequilibrium due to the euro, and not to some irresponsible macro policy mismanagement by the Spanish government or to  a refusal to adopt a German style "strategy and reform". 

Excerpts:

“To understand why, it is first necessary to explode some myths about the nature of the eurozone debt crisis. This is not at root either an isolated banking crisis or indeed a fiscal one, though that’s how public policy in Europe attempts to define it.

As many of us have long argued, both these phenomena are but symptoms of what in essence is just a good old fashioned balance-of-payments crisis. This has been greatly exaggerated by monetary union, which is also preventing the application of time-honoured solutions. Utopian pursuit of the single currency is damning Europe to economic oblivion. Political hubris has eclipsed economic common sense.

After monetary union, capital flowed in ever-increasing quantities from Europe’s surplus to its deficit nations; Germany and others were in essence lending the periphery the money to buy German goods and services.”

(…)

“Relative to the core, wages and prices rose, rendering these countries progressively less competitive and deepening the problem of trade imbalances.”

(…)

“Since the onset of the financial crisis, the process has gone violently into reverse. Money has fled the periphery, starving it of credit and exacerbating the economic downturn. Tax revenues have collapsed, causing budget deficits to soar and fiscal crisis to take root.

With a shrinking economy has come a mounting bad debt problem, which Spain and others have yet fully to recognize.”

(…)

“Other than leaving monetary union and defaulting on its euro debts, which for the moment even the rebellious Catalans don’t seem to want, is there any way out for Spain? The answer looks ever more likely to be no.”

Read  more.

My comment: But now eurocrats and national politicians (mostly the same) have to recognize first that they were fundamentally wrong from the beginning of the euro speculative project, and second that they have to commit to a complete reversal of their european policies, while trying at the same time to save their reputation among voters. That is the real difficulty.