CAPE Germany and France
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The mention of France and French banks is most shocking point, but first… El País has: Spain gets a year more to reach the goal of a 3% deficit according to ECB; but the IMF is considering two. With Spain actually in recession the cure of budget balancing seems to be too aggressive. Such understanding does come with conditions. If Spain is to get lightened terms there will be additional demands on the taxation, as Spain is not fulfilling the present conditions. That even supposed nothing untoward happens in the mean time. Mariano Rajoy is considering the high political costs.


Precisely! There is no way both a restructuring of the banking sector and the economy can take place simultaneously without resorting to means that will be domestically politically unacceptable. The question is however, if Spain has any choice?

Rajoy has deftly tried to sidestep the obvious conclusion that Wolfgang Schäuble spelled out with Teutonic bluntness: “Hunt down tax-evaders and stop pampering retired persons!” That is open up new fountains for taxation: In the case of the pensions there is not much point in a lavish retirement plan if you can’t buy anything with that money! Christine Lagarde of the IMF has been as little circumspect when she said: Pay Your taxes.

This strikes however very deep into Spain where the fascist dictatorship of General Francisco Franco kept the peace by buying off the defeated communists with generous retirement plans – kicking the can that much further down the road. Since Franco nothing much has happened apart from the obligatory attempt on a coup d’etat. No notice has been taken of the fact that communism died from boredom more than 20 years ago, so the right in Spain serves no real purpose anymore as there are no communists to keep in check. A lot of things can be ignored when the band plays.

We see the same tendency in Denmark where the retirement age has been set up to 67 and early retirement plans have been cancelled simultaneously some of the generous social benefits have been restricted. As Angela Merkel in her honest and direct way has pointed out: Half the worlds social spending is made in Europe! But there is a lot of ground between the standards people think they are entitled to and the ones their fears imagine – a lot of ground.

El País also points out that the present plan does not contain the cost of the bank rescue nor certain one time expenditures or investments: “The plans allow for public onetime investments and with proven effect on the sustainability under certain conditions,” according to the Commissions Vice-president the Finn Olli Rehn.

The European Investment Bank does have some manoeuvre in 2013; but seem more preoccupied with keeping their credit rating.

Comment: I don’t share this estimate with El País. As I have earlier reported in some detail with the investments in the power grid – that money is not meant for Spain. Spain has squandered enough! If the Spanish public investments of years past had been justified, they would have begun to show a yield now in the form increased productivity: But that capital has been misallocated into totally superfluous housing.

A final important point:

The last summit promised a European Bank Inspection ready by March 2014 which will allow a direct recapitalisation of bank; but that is next to impossible to do retroactively. Spain now injects 40 bio. EUR in its banks and the EU estimates that will be enough to keep the Spanish banks afloat until a direct recapitalisation can take place. And this money is not to be spent fattening the public debt!

But it is possible to inject this money into a recapitalisation of the banks when the European Bank Inspection is up and running in March 2014. But this option is – according to Spanish government sources – meant not for Spain; but for France.

There is another perspective in this: Will that be the instrument to recondition the Danish mortgage banking system?