Down With the Spanish Galleon
Between the banking and the provincial debts and the politics of the whole sorry mess, Spain’s government is in an untenable position. As in the Greek case, Europe is demanding actions from Spain that Spain cannot take. This is not policy; it is death.
The news from Spain is so shocking because it is making a lot of people think that Greece is not an isolated case. That is the thin, fragile reed of hope to which Europe’s dwindling band of optimists have clung: that Greece is different, that its insoluble problems are unique, that the inability of the European system to find an acceptable road out of the Greek crisis is a one-off.
But if the steps required by European authorities are also beyond the capacity of Spain to take, we have a very different and much grimmer future to await.
In the short term, the kind of bank run that has been troubling the sleep of European policy planners for the last couple of weeks begins to look unavoidable. (A company that services ATMs in Europe reports unusual withdrawals in Italy as well as in Greece.) The richest and savviest Spaniards have been ditching their country’s shaky banking system and assets in droves for some time; there are signs that some of the less affluent and less savvy Spaniards are sniffing the smoke and edging towards the exits as well. Should the specter of bank runs materialize there will not only be the need for lightening fast action by the ECB and other authorities to stop what would otherwise metastasize into a financial Armageddon; the effect of this kind of insecurity on mass psychology and the behavior of European citizens would unleash uncontrollable and unpredictable political forces. The herd would stampede, and nobody really knows what comes next.(Already there are reports that Greeks resident in the UK are taking out British citizenship even as the UK makes emergency plans to block immigration if the euro should collapse.)
But assuming we somehow get past the prospect of a crisis and the financial equivalent of martial law in the short term, the news from Spain has made Europe’s deepest fears much more credible. Those fears are that the SS Europa, that ‘unsinkable’ ship launched with such fanfare and so much acclaim, is headed toward an iceberg and that it is too late to turn.
(By the way, on an unrelated note, you might have noticed that I don’t participate as much in comments threads anymore. I find that the nested comments format discourages that. By the time I approve your comment — and by the way, Disqus is real hinky about this; it’s hard to be sure what one has approved and what one hasn’t — it’s so difficult to go back in to find where the comment is in the nest that I pretty much give up. It was so much easier in the previous format, when I knew what was newest, and where to find it.)