Spain’s Dia of Reckoning
In case you’ve forgotten, things are still in freefall in Europe. Now Spain — you know, one of those troubled countries that’s too big to fail but too big to rescue — is on the brink:
The yields on closely-watched two-year debt surged by 78 basis points to a modern-era high of 6.42pc, leaving it unclear how long the country can continue funding itself. Italy’s two-year yields vaulted to 4.6pc.
“We can’t keep going like this for another 15 days,” said Prof Miguel Angel Bernal from Madrid’s Institute of Market Studies. “The European Central Bank has to bring out its heavy artillery.”
Andrew Roberts, credit chief at Royal Bank of Scotland, said the dramatic spike in short-term borrowing costs marked a key inflexion point in the crisis, replicating the pattern seen in Greece, Ireland and Portugal as they lost access to market finance. “We are fast approaching the endgame,” he said.
And then it’s on to Italy, which is tottering in part because of Sicily’s problems. All the smart people keep saying that you can’t treat what’s happening in Europe like a morality crisis, because you won’t respond in the most realistically helpful way. But dang, look at what’s gotten Sicily in too deep:
But many critics say Italy — and Sicily in particular — has been driven into dire financial straits not by austerity but by the rampant public spending of the past, the product of an entrenched jobs-for-votes system that helped keep Italian governments in power and Sicilians employed.
Today, Sicily’s regional government has 1,800 employees — more than the British Cabinet Office — and the island employs 26,000 auxiliary forest rangers; in the vast forestlands of British Columbia, there are fewer than 1,500.
Out of a population of five million people in Sicily, the state directly or indirectly employs more than 100,000 of them and pays pensions to many more. It changed its pension system eight years after the rest of Italy. (One retired politician recently won a case to keep an annual pension of 480,000 euros, about $584,000.)
“Of course that’s too many,” Mr. Lombardo said of the forest rangers. But he said it was difficult to cut back because state workers have job protection. “We have to wait for them to retire.”
There’s no way to sustain a system like that. Herb Stein’s Law: Things that can’t last forever, won’t.
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