Los Indignados

I'm writing from a bit north of the occupied plazas.

I've said before, over and over, maybe to the point that people's eyes glaze over and over too, that people have dreamed of a union of Europeans since the time of Charlemagne. And we're no closer to that now than they may have been then.

And also, as I've said before, there are political limits to economic maneuver - as was shown in Argentina a few years ago when women took the streets carrying frying pans and threatened a revolt. I had thought it the coup d' grace for the IMF which had become already irrelevant in Asia a few years earlier. Rebellion against the money interests is showing again in the plazas here in España. Austerity isn't going to sell to the unemployed and 20% of Spain is unemployed; double that among the young. And it shouldn't. Austerity, tightening the belts of the productive classes to support the non-productive or rentier classes isn't necessary or desirable. And it isn't a solution for Greeks either.

Spain, Portugal, Italy in a different way, and I believe Ireland and Greece too though I'm less familiar with those economies, began their experience with European Union at great disadvantages to the northern industrially developed members. They were required to invest heavily to be able to compete with their northern neighbors. Required. And invest they did. Given monetary union they were able to borrow at only a few basis points over German rates. And German and Swiss banks, especially, were delighted to borrow at the low rates given to them and lend to sovereigns at the higher rates taking the few basis points as profits. It was big money. Trillions!

And it worked for a time. Or, at least appeared to. There was a time when it appeared every German would own a second home in Spain. That coupled with the mechanization of Spain's agricultural economy, which required still more investment, permitted, no, required, a large portion of Spain's rural population to move to the cities seeking work, which they found in construction industries, building homes for themselves and second homes for Germans. In Portugal it was a bit different though the result was the same. And Italy is different still but with a still similar result.

That was then. Whooocudanode it wouldn't last? Well yes, there were some of us.

The problem now is that the banks refuse to take the writedowns just as they do in the US. There is no way the Greek or Irish states can repay the money they owe and make up for the errors of the Greek and Irish banking sectors too. And if it comes to Spain, Portugal or Italy we'll find the same there. Yet, the ECB and the IMF (who would especially like to find new relevance were their benefactors - meaning especially the US - to knuckle under) can't contemplate a "default", a loss for themselves or for their investors. Germany too has held that position to now, but seems to be coming around. The latest proposal from Frau Merkel is for a "soft" restructuring. Nobody is quite sure what that means.

Another problem is that Greece and Spain have given up their sovereign ability to create money and repay their debts with cheaper currency.

And on top of that is all this pervasive dissension. Germany has had an outbreak of e-coli which has killed, I think now 32 people. And their first instinct was to blame the Spanish. Which they did further damaging the Spanish economy. (Though you should be skeptical of the estimates you hear of the extent of the damages.) This hasn't played well in Spain.

The wheels will come off. The present is unworkable. Something of European union may survive, but it can't survive in it's present form. Somebody has to leave. It should be Germany, the most different of the unified market. But, I imagine it won't be them. They have benefited most. Germany sells equipment to developing economies and German banks invest that surplus at interest creating an imbalance. But, they have no incentive to leave. Still, one can't be sure. This dissension works both ways. Germans feel they built the EU on their own and don't want to extend any more money or grant more favorable terms. I don't agree, but what is important is that there is no agreement.

My expectation is that Europe becomes the next sub-prime implosion. If I'm wrong it will only be because China blows up first.

Update: Plaza del Sol, Madrid was cleared peacefully last night. The demonstrators helped to clean the place up.