We often commented that Spain is about to get a bailout – our convictions cos of the persistent denials that Spain would need one!! What a pattern that has been repeated in different situations. Denials for weeks… then overnight a deal is made. Then the markets and its behaviour is very predictable. I find it difficult, at one level, to accept that the market will always find its level, that it self-regulates in a healthy sense, but I do accept that it has a mind of its own (and this is the concept behind the word ‘city’ in Scripture). So the market: ‘markets have reacted well to the euro discussions and have risen today’ says the commentator in response to some latest meeting. Two days later, down they come, as the confidence that the latest (of how many?) meetings has not come up with the solution to end all the problems.
I realise it is ‘confidence’ that sustains the money world. We are confident that our money is safe in the banks so leave it there. If, however, we all rush for the money (UK figures) we discover that something like 2.7% is actually there, and also discover that once we handed the money over it is no longer ours by law anyway(!!), we might soon think about where we want to really place our confidence. Confidence, though is an issue. But also greed. The markets going up is not simply about confidence, but working each window to squeeze some more ‘money’ through it.
So probably the markets in the early part of next week will have a rise, given that the leaders have reacted to the Spanish problem and by the end of the week they will lose confidence.
But to the bailout (although it is likely to be termed a ‘loan’ rather than a bailout).
The timing is a week before the Greek elections. We do pray for the eurozone leaders. They desperately need some stability / fallback resources as the outcome of that election is far from known. Athens could come closer to a eurozone exit and unleash contagion.
With the bailout it will be Spaniards who will have to pay for this, but the average Spaniard is not to blame. They largely continue to pay their mortgages, relying on family when unemployment and wage cuts make it impossible to meet their bills.
The major deficit (the Spanish government was working with a balanced budget right up to a few years ago) has been caused by, or at least fuelled by, property developers and land speculators, together with the senior bank staff who made the loans. Then over the past few years this has not been addressed so has worsened.
And at a local government level much of the money that has come in has been spent on needless prestige projects. The Valencian Art and Science city is an example, with (still) a 600m deficit. There are also two brand new unused airports (for example the one in Valencia community was completed in March last year: cost 150m, no of planes landed there: 0), as well as many empty holiday homes.
The local governments are in huge debt with (sadly) much of the debt being owed to small, local businesses, who carried out work for the local authorities and have still not been paid.
The current intensity of austerity has risen. Health and education cutbacks are now part of a relentless drive towards deficit-cutting. Labour reform, meanwhile, is helping drive down wages.
Improved productivity and the fact that, after years of importing goods and cheap loans to feed an insatiable wave of consumption, Spain will soon be exporting more than it imports are signs that the drive towards internal devaluation is, slowly, working. But this comes at the terrible price of almost 6 million people unemployed. (Source: Tremlett, The Guardian.)
So we enter now a few weeks that will prove critical. I have always maintained that change is possible, but at times of crisis the leverage for change is greater. We can have a bigger influence in the Spirit.
Finance minister Luis de Guindos has warned that, “The future of the euro is going to play out in the next few weeks in Spain and Italy.”
A bank bailout may or may not help with the eventual survival of the euro. We pray for those in authority but also by the grace of God pull for a new shape across this continent.