13 ms·

Spain Is Doomed

110 points by mattobrien 14y ago

christkv 14y ago
There is a fair bit of people who considers the euro to have been planned to cause a crisis to driver deeper integration in the Euro zone. Spain is grim BUT it's important to understand how big the black economy is here. A lot of the unemployment numbers are colored by people actually working on the side while putting the dole in their pockets. Also GDP debt is not that bad and the government seems able to actually push through reforms in comparison to Italy or Greece. I would prefer to see the percentage of people on the "ajuda" that is the only thing available after you loose the unemployment benefits. Living here there is one massive obvious issue. The property prices have not dropped as massively as in the states. My theory is that the banks are not selling property as they don't have to mark to market. If they had to write the market value of all that property I figure the whole Spanish banking system would be bankrupt.
- mipapage 14y ago
  Yeah, people always quote the unemployment rate but don't seem to get that there are a LOT of people working and collecting "paro" as unemployment insurance is called here. That said, if you are out of work and not working illegally, life is hard. As for property prices, banks aren't lending either. What I see is that people aren't buying or selling; they are moving into old family homes (la casa del campo) and moving in together or back with their parents. The real pain is how bad the situation is and how shameless the politicians are.
- muyuu 14y ago
  Spot on. Spanish society isn't up in arms precisely because of the black economy, rendering unemployment indicators really ineffective. I was in Spain in the early 2000s, and there was a huge Real Estate bubble. People came in droves into the country, illegal immigrants made 3000 euro per month (~5000 US$) tax free without any qualifications, and they couldn't come fast enough. Even then, when demand for workers was IMMENSE, official unemployment figures never came under 9%. That's pretty much the bottom over there. Rajoy already introduced a less protective employment legislation and he will have to lower the barriers to make contracts further. No doom and gloom. Hardship, yes. The biggest hurdles are already being taken upon in just about 100 days since the socialists left power: - forcing banks to re-provision on their massive mortgage leverage. Basically, take the hit and admit that housing prices need to FALL big, and they will have to take a big hit. - reform in sacred areas like education, healthcare and - most importantly - standard contracts.
- wagerlabs 14y ago
  http://www.cincodias.com/articulo/economia/parados-cobran-ayuda-economica/20120416cdscdieco_1/ http://www.cincodias.com/articulo/economia/parados-cobran-ay... There are 5,27 million of unemployed in Spain. 3 million of them receive unemployment benefits of some sort which leaves 43% without any sort of benefits. The two million that do not receive anything at the moment could become 2.5 million by the end of the year. Of the 3 million with unemployment benefits, 53% receive 426 euros (557 USD). N.B. I live in Tenerife, Canary Islands (Spain).
  - mipapage 14y ago
    "There are 5,27 million of unemployed in Spain... which leaves 43% without any sort of benefits" Sure, but how many of those people were unemployed before this mess? I live on the mainland, and honestly there are a lot of people "working", if you know what I mean. No benefits, no real job, but money comes in. The worst part is when they admit to it (or working illegally and collecting benefits) and laugh it off, then follow with "we know its wrong, its just the way we are". THEN they complain about the politicians? Who are... Just like them, but at a bigger scale?
    - christkv 14y ago
      The estimates I have seen for the black economy is somewhere in the range 20-30% of GDP for Spain
DanielBMarkham 14y ago
What happens when you keep spending more than you have? Your economy contracts. Can you inflate it with easy currency? Sure thing -- up unto a point. This Keynesian conversation is going to be very interesting to watch over the next few years. Lots of countries trying different things. I imagine no matter how it turns out, there will be quite a bit of spin, though. But still, it's better to have examples than just listen to theory, even if the examples are murky. From what I hear, more QE is coming from the ECB. That might have a generally good effect on many economies. Or it might just be fun to blow through for a few months. We'll see.
- nextparadigms 14y ago
  This article seems to suggest that money printing has led to price increases for everything in Europe: http://www.businessinsider.com/7-gasoline-thanks-ben-2012-4 http://www.businessinsider.com/7-gasoline-thanks-ben-2012-4
- deleted 14y ago
  [deleted]
- yequalsx 14y ago
  I don't think Keynesians advocate "spending more than you have" forever. The thrust, as a I understand it, of their arguments is that deficit spending can be useful in getting out of a downturn and can have beneficial aspects. Of course, if done improperly, it can have bad effects.
  - CWuestefeld 14y ago
    I don't think Keynesians advocate "spending more than you have" forever. As you indicate, Keynes by-the-book does not. He would have us actually save during booms, so that we can pump up the economy in the busts. However, in practice, those in power who follow Keynes seem to be doing so not because of any belief in the economics, but because it justifies their wish to buy greater power by wielding more money. Thus, they don't follow the invest-when-booming part of the model. The result is that the government spending is at best balanced, and much more often it's in deficit.
yummyfajitas 14y ago
The article goes off the rails pretty early: What matters for a nation is its GDP. That's a country's equivalent of personal income. GDP is not income, it's a sum of flows. The classic illustrative example is a man marrying his maid: Unmarried: Man earns $200k/year, pays his maid $25k/year. GDP = $225k. Married: Man earns $200k/year, pays his wife $0. GDP = $200k. In both cases, the ability of this pair of humans to service debt and purchase goods and services remains the same. Both couples are equally wealthy, you've just tweaked an accounting identity.
- Retric 14y ago
  Actually case 2 probably pays less taxes and is therefore better off. In countries where tax evasion is high enough, the standard of living can be fairly high while the government is failing see Italy and Greece.
  - to3m 14y ago
    And now there is a government employee who is correspondingly worse off...
    - fleitz 14y ago
      They arent any worse off, they just need to find something productive to do with their life, like everyone else.
- DanielBMarkham 14y ago
  One of the things I'm beginning to suspect is that the metrics are rigged. That is, most economic discussions are based on terms that aren't meaningful in any practical way. I see a lot of economists poking at the metrics with their pencils and talking theory while waving their arms around wildly. But I am simply an observer. I love watching smart people argue about stuff, so economics fascinates me. One thing is for sure, there is a ton of diverging opinions about the Euro and the sovereign debt crisis.
  - 14y ago
jstalin 14y ago
The article's title tells me that the author doesn't understand what's going on. "Why austerity is destroying Europe." How about the reality of the situation -- overspending and borrowing have destroyed europe. Iceland seems to have fixed the problem the correct way: default. Greece just did the equivalent of a credit card balance transfer while converting the loan to a secured transaction. In the name of "saving" the banks of Europe, Greece has been financially raped. Spain is next. Oh, and Japan and the United States aren't too far behind.
- nextparadigms 14y ago
  I think US would rather devalue the dollar by 30% in a very short amount of time than get in trouble over its debt. That would still be a catastrophic outcome, but I'm just saying that's most likely the option they will take.
  - jstalin 14y ago
    I agree. I think the reserve-currency status of the US places it in a position where inflating out of debt will be less devastating than in other parts of the world.
    - CWuestefeld 14y ago
      You're probably right. But what happens after that? On one side of the coin, people see that investment in US debt isn't so safe as they thought. Thus, borrowing becomes more expensive for the USA. On the other side of that coin, America will have mostly escaped the really bad consequences of its behavior. I submit that we will not learn our lesson from it, and won't alter our behavior in any meaningful way. I see those two things combining in a really vicious cycle.
  - GoodIntentions 14y ago
    I think you are right. Why default when you control the currency that all your foreign debt is denominated in? The us has an option other countries in this position do not.
antirez 14y ago
It is hard to read the Europe crisis without taking into account that is a model that, while flawed, traditionally tried (hard) to provide decent conditions for the poorest segments of the population. This huge national expenses (and taxation levels) of most EU countries are sometimes just stupid wastes, but also the result of a set of services that we know take for granted but are not granted in many places outside Europe. If our model will fail there will be to reconsider a lot of things, but if it will survive this crisis it will show that it is possible to create developed nations where a decent level of public health care, school, and services are possible in the long run.
- StavrosK 14y ago
  This didn't sink in until my recent trip to the States. "So if you're poor and you get sick you just... die?" "Pretty much."
  - cobrausn 14y ago
    No, not pretty much. Usually you end up in a lot of debt. But it is actually illegal in the US (last I checked) to actually turn away a dying person at the emergency room because of a lack of coverage. Now, they may wish they had died when they get the bill, but that's another argument.
    - sp332 14y ago
      Getting life-saving help at the ER is not the same as having access to drugs or other medical care that could have prevented you from needing emergency care in the first place. In fact, there have been studies proving that giving poorer people better access to medical care, even for little things, ends up being cheaper than limiting their care to emergency room visits only.
    - Symmetry 14y ago
      And bankruptcy is much less painful in the US than in Europe, though you won't be able to get any sort of credit for quite a while.
    - 14y ago
ajays 14y ago
I'm not an Euro Zone resident, so I have to ask: what's stopping the people of Spain (especially the youth, with their 50% unemployment) from hopping over to Germany and finding work there? Isn't it the case that any member of an Euro country can work in any other country?
- retr0rocket 14y ago
  Europe is not like the USA, there is a significant cultural and language divide between states that stops people from hopping over the fence like that. if i were to pick up and move to california from New York, there would be almost 0 change (other then the stress of moving etc), not quite the same leap from spain to germany even if they are geographically closer
  - ajays 14y ago
    I do understand the language divide at least. But given a choice between unemployment and, say, working in a place where you don't speak the language, I know I'd pick work any day! At least you're picking up work skills and a second language, which is far better than sitting at home twiddling your thumbs.
    - corin_ 14y ago
      But it's rarely as simple as a.) paycheck, different language or b.) no paycheck. What about family, friends, hobbies, etc. There's plenty of people not willing to move to a different town/city/village in their own country for a job, yet alone to a different country.
    - mobiplayer 14y ago
      If you don't speak the language you won't get a job.
    - mipapage 14y ago
      That last sentence you write exposes your cultural bias towards work and skills. Its not quite the same in Spain. Just ask the architect next door, who with 2 years of unemployment is sitting around, waiting... Well, he is fixing his house up a bit... That said, another out of work neighbor started a small business and my wife and I built him a small website and bootstrapped it a bit with an adwords 75 euro card. I wish more folks were like him...
meric 14y ago
All it boils down to is Monetarist vs Keynesian. I'm not too sure Keynesian is good in the long run. points to US's rapidly escalating debt. Oh that's right, according to Keynes: "In the long run we are all dead".
- wyan 14y ago
  People tend to forget that Keynesianism is about counter-cyclic measures. That includes not wasting trillions when the economy goes well -- not what was done in the '00s exactly...
  - gaius 14y ago
    They haven't forgotten. They just hope that you have forgotten.
- nhaehnle 14y ago
  points to US's rapidly escalating debt ... and explain why again this is a problem? Unfortunately, the majority of commentators just take "high debt = bad" as a given, because they confuse their own situation (private household, currency user) with that of the US government (currency issuer). The US situation basically boils down to: the rest of the world has been crazy for US$ for some time and is therefore willing to send real goods to the US in exchange for numbers in a computer system. This is certainly going to change in the long run. That will drive down US imports and make imported goods more expensive for US residents, but that's only fair. It won't lead to collapse. In fact, if it is semi-intelligently managed, it could lead to a rebirth of US industry.
  - tomjen3 14y ago
    Because the US has to pay interest on the loans. And because while you and I have no problem with the idea of saving for retirement, saving and buying that car in a few years, creating a college fund for the children before they are even born, etc, the US is run by politicians and politicians don't give the rear-end of that prostitute they are fucking about what happens after the next election. So they will spend the money on frevious things.
draggnar 14y ago
Germany has a better educated workforce, a much larger amount of flat land that is connected by waterways, and a central location to other high income nations. They are more competitive. For Spain to be competitive, they need to be able to price their goods lower. This means that their money won't be able to buy as many things from abroad, but they will be able to export things and conduct business amongst themselves. The simple fact is the fiscal policies in Europe are united and the political policies differ. The Euro was supposed to help unify the continent and avoid another war but instead has put the southern countries into debt.
drKarl 14y ago
The problem with spanish economy comes from the HUGE construction bubble it had a few years ago. Spain alone was building more than France, Germany and Italy TOGETHER. Government made money, construction enterprises made money, real state companies made lots of money, employment was high, even some citizens speculated buying and selling houses at a higher price some years later. To support that accelerated growth and construction, spanish banks borrowed money (LOTS OF IT) from european banks, mainly german banks. Banks went crazy giving mortgages, just as in the US. Mortgages went up to 25-30 years and beyond. When the bubble burst, prices went down, mortgage interest rates went up, and many people lost their jobs. That led to many people unable to pay for its mortgage, and banks started acumulating real state. Nowadays, banks hold a HUGE real state stock, and they don't want to sell it at current prices, because they would have to admit that their assets aren't worth what they claim. Because of that strategy of the banks, prices haven't go down as much as in other countries which suffered a bubble burst too. There is a very big stock of inmovilized real state in Spain.
- drKarl 14y ago
  And add to it that Spain issues bonds but doesn't easily find buyers now. ECB (European Central Bank) has given spanish banks thousands of millions of euros at an 1% interest rates, and those spanish banks, instead of giving loans and credit to enterprises and people, they buy spanish bonds (at 5%-6% levels).
cmcewen 14y ago
"Europe's policymakers have blundered in the control of a delicate machine, the workings of which they do not understand. They're not evil. But they're almost certainly wrong." How does this columnist then believe that he understands the economy if policymakers are so clueless? If Spain's economic problems were so easy to fix that everybody could just read this article and solve them, they probably wouldn't exist in the first place.
- skylan_q 14y ago
  "The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design." -F.A. Hayek The author isn't claiming they know how to manage it better. He's just suggesting that their management, or philosophy of management isn't correct. (But maybe I'm giving the author too much credit!)
nhebb 14y ago
When did writers at major publications like The Atlantic start submitting their own articles to HN? It's one thing when a programmer or other startup / tech blogger submits their own work, but when a magazine does, it just feels like spamming.</rant>
Facens 14y ago
This article is totally pointless. It doesn't provide a single argument, just a bunch of assumptions.
hk_kh 14y ago
The alarming headlines on these articles won't help Spain get any better. Sometimes it seems politics and the media just want to see Spain sink. Maybe it's just that seeing it from the inside doesn't render it that bad.
excuse-me 14y ago
The graphs are meaningless. What they measure is how strict the government is at collecting unemployment figures for young people. It simply shows 3sets of countries.: Spain/Greece/Portugal it's presumably very easy to claim unemployment and 50% of those 50% listed are also working for cash Italy/UK/France it's relatively harder to claim unemployment while working and most of the 15% are actually unemployed Germany has a much smaller youth population and managed to absorb more of them in youth-training-schemes. And it got doubly lucky that birth rates fell fastest in the east where the unemployment is. It's as if in the mid80s the UK had persuaded everyone outside the M25 to stop having kids.
loverobots 14y ago
Spain today, US tomorrow. Unless we make the dollar even more worthless, $1 trillion+ deficits are not exactly sustainable
kposehn 14y ago
Despite many of the very clear comments in this thread pointing out holes in the article, the overall conclusion is unfortunately fairly sound - for the mid term. The current austerity measures combined with unemployment mean the markets at large do not expect Spain to remain stable enough to invest in. With extremely high unemployment, especially among youth, comes social instability. This kind of instability frightens governments, which typically point to the private sector as the source of all ills and nationalize swaths of industry in order to feed populist sentiment. This fear is being reflected now, and I tend to agree that I don't expect the mid-term to be kind to Spain. However, in the longer term it may come out better off, provided Germany continues to hold the Eurozone with an iron-wallet. Germany does (mostly) control the EU by proxy anyway (~ '-')~
fasouto 14y ago
I'm spanish and I couldn't agree more. Many scientist and engineers are leaving the country looking for better work conditions. Also It's really difficult to run a business here. No future...
wagerlabs 14y ago
I live in the Tenerife. Canary Islands are, supposedly, one the top 3 regions with the most consumer debt. Unemployment here is also higher than in the mainland since there's not much of an economy. There was construction but that bubble burst. There's tourism... and nothing else. The interesting bit is that you don't really see the effects of the economic crisis, not directly. Most everyone drives nice cars, the parking lot at the mall is full, etc. You do see indirect effects, though. There are more security guards at the mall and the supermarket within. One of the cafes installed two video cameras. The pharmacy posted a note that stating that no refunds will be offered on medicine or unused prescriptions. Oh yes, the property prices here are behind the mainland adjustment-wise. Must be due to our awesome weather.
huhtenberg 14y ago
> Spain Is Doomed So, generally speaking, this should make moving to Spain and working remotely from there pretty attractive, shouldn't it? Can anyone from Spain comment on how the life is like there at the moment (assuming the 100K USD income level)?
- mobiplayer 14y ago
  100K USD? I make a third of that (a fourth after taxes) and live happily in a coastal town (Vilassar de Mar, if you want to GoogleMap it :)) 25 minutes by train from Barcelona, with my girldfriend (no income). So, yes, with 100K USD you'll be fine ;)
- gjulianm 14y ago
  Spain is a nice country to live in. With that level of income you can live without any kind of economic problems. Our sanitary system is free and pretty good (for now), so no worries about medical insurance. Crime rates are low, so no security problems neither. Cities like Madrid and Barcelona offer all kind of services and their public transportation is great (you don't even need a car). And, of course, our climate is really great. In short: Spain is a good country to live in. Although all the news you can hear with "Spain is sinking, Spain is doomed" we still live (I'm talking from my experience) very well.
deleted 14y ago
[deleted]
harryf 14y ago
Is it me or do Euro austerity measures seem to drive a certain segment of economic commentators nuts? The number of articles I've seen raging about "evil" Germany forcing Greece / Italy / Spain to the brink of destruction with austerity measures. It's like they're afraid of something. What if austerity measures work? Is that going to burst someone's bubble?
- skylan_q 14y ago
  "What if austerity measures work? Is that going to burst someone's bubble?" Yes. The managerial class. Banksters need reckless spending in order to put more people and nations into debt servitude. If austerity works, people might (gasp) start to look to the free market for answers to economic woes, and start damming the banks and governments for their mis-management of economic matters.
coldarchon 14y ago
put political correctness aside, the socialist party in spain has nationalized 6 million migrants with no job qualification and now 60% of the youth in spain is unemployed. Am I asking the wrong question?
stretchwithme 14y ago
Spain's minimum wage is up 50% from 8 years ago. Demand for labor has collapsed. There's a thing called the law of supply and demand. Price fluctuates to keep both roughly equal. But when you hold the price artificially high, you get more supply than demand, especially when supply is not easily changed, as is the case with labor. There is no mystery here. Just people adopting policies whose effects they do not or will not understand. http://www.google.com/publicdata/explore?ds=ml9s8a132hlg_&ctype=l&strail=false&bcs=d&nselm=h&met_y=minimum_wage&fdim_y=currency:eur&scale_y=lin&ind_y=false&rdim=country&idim=country:es:ee:lt:bg:cz:hu:el:pt&ifdim=country&tstart=1055919600000&tend=1326873600000&hl=en&dl=en&q=spain+minimum+wage http://www.google.com/publicdata/explore?ds=ml9s8a132hlg_&#3...
sopooneo 14y ago
One of the great things about terrible situations is that everyone agrees on how bad it is. This agreement makes them think they have something in common. But if you prompt them to independently suggest solutions, you usually find that they hardly agree at all. That's happening here with the Euro. The situation is potentially unfixably bad, which gives the advantage that nothing will work and no one will ever have to find out they didn't agree all along.

110 points by mattobrien 14y ago

There is a fair bit of people who considers the euro to have been planned to cause a crisis to driver deeper integration in the Euro zone. Spain is grim BUT it's important to understand how big the black economy is here. A lot of the unemployment numbers are colored by people actually working on the side while putting the dole in their pockets. Also GDP debt is not that bad and the government seems able to actually push through reforms in comparison to Italy or Greece. I would prefer to see the percentage of people on the "ajuda" that is the only thing available after you loose the unemployment benefits. Living here there is one massive obvious issue. The property prices have not dropped as massively as in the states. My theory is that the banks are not selling property as they don't have to mark to market. If they had to write the market value of all that property I figure the whole Spanish banking system would be bankrupt.

mipapage 14y ago
Yeah, people always quote the unemployment rate but don't seem to get that there are a LOT of people working and collecting "paro" as unemployment insurance is called here. That said, if you are out of work and not working illegally, life is hard. As for property prices, banks aren't lending either. What I see is that people aren't buying or selling; they are moving into old family homes (la casa del campo) and moving in together or back with their parents. The real pain is how bad the situation is and how shameless the politicians are.
muyuu 14y ago
Spot on. Spanish society isn't up in arms precisely because of the black economy, rendering unemployment indicators really ineffective. I was in Spain in the early 2000s, and there was a huge Real Estate bubble. People came in droves into the country, illegal immigrants made 3000 euro per month (~5000 US$) tax free without any qualifications, and they couldn't come fast enough. Even then, when demand for workers was IMMENSE, official unemployment figures never came under 9%. That's pretty much the bottom over there. Rajoy already introduced a less protective employment legislation and he will have to lower the barriers to make contracts further. No doom and gloom. Hardship, yes. The biggest hurdles are already being taken upon in just about 100 days since the socialists left power: - forcing banks to re-provision on their massive mortgage leverage. Basically, take the hit and admit that housing prices need to FALL big, and they will have to take a big hit. - reform in sacred areas like education, healthcare and - most importantly - standard contracts.
wagerlabs 14y ago
http://www.cincodias.com/articulo/economia/parados-cobran-ayuda-economica/20120416cdscdieco_1/ http://www.cincodias.com/articulo/economia/parados-cobran-ay... There are 5,27 million of unemployed in Spain. 3 million of them receive unemployment benefits of some sort which leaves 43% without any sort of benefits. The two million that do not receive anything at the moment could become 2.5 million by the end of the year. Of the 3 million with unemployment benefits, 53% receive 426 euros (557 USD). N.B. I live in Tenerife, Canary Islands (Spain).
- mipapage 14y ago
  "There are 5,27 million of unemployed in Spain... which leaves 43% without any sort of benefits" Sure, but how many of those people were unemployed before this mess? I live on the mainland, and honestly there are a lot of people "working", if you know what I mean. No benefits, no real job, but money comes in. The worst part is when they admit to it (or working illegally and collecting benefits) and laugh it off, then follow with "we know its wrong, its just the way we are". THEN they complain about the politicians? Who are... Just like them, but at a bigger scale?
  - christkv 14y ago
    The estimates I have seen for the black economy is somewhere in the range 20-30% of GDP for Spain

DanielBMarkham 14y ago

What happens when you keep spending more than you have? Your economy contracts. Can you inflate it with easy currency? Sure thing -- up unto a point. This Keynesian conversation is going to be very interesting to watch over the next few years. Lots of countries trying different things. I imagine no matter how it turns out, there will be quite a bit of spin, though. But still, it's better to have examples than just listen to theory, even if the examples are murky. From what I hear, more QE is coming from the ECB. That might have a generally good effect on many economies. Or it might just be fun to blow through for a few months. We'll see.

nextparadigms 14y ago
This article seems to suggest that money printing has led to price increases for everything in Europe: http://www.businessinsider.com/7-gasoline-thanks-ben-2012-4 http://www.businessinsider.com/7-gasoline-thanks-ben-2012-4
deleted 14y ago
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yequalsx 14y ago
I don't think Keynesians advocate "spending more than you have" forever. The thrust, as a I understand it, of their arguments is that deficit spending can be useful in getting out of a downturn and can have beneficial aspects. Of course, if done improperly, it can have bad effects.
- CWuestefeld 14y ago
  I don't think Keynesians advocate "spending more than you have" forever. As you indicate, Keynes by-the-book does not. He would have us actually save during booms, so that we can pump up the economy in the busts. However, in practice, those in power who follow Keynes seem to be doing so not because of any belief in the economics, but because it justifies their wish to buy greater power by wielding more money. Thus, they don't follow the invest-when-booming part of the model. The result is that the government spending is at best balanced, and much more often it's in deficit.

yummyfajitas 14y ago

The article goes off the rails pretty early: What matters for a nation is its GDP. That's a country's equivalent of personal income. GDP is not income, it's a sum of flows. The classic illustrative example is a man marrying his maid: Unmarried: Man earns $200k/year, pays his maid $25k/year. GDP = $225k. Married: Man earns $200k/year, pays his wife $0. GDP = $200k. In both cases, the ability of this pair of humans to service debt and purchase goods and services remains the same. Both couples are equally wealthy, you've just tweaked an accounting identity.

Retric 14y ago
Actually case 2 probably pays less taxes and is therefore better off. In countries where tax evasion is high enough, the standard of living can be fairly high while the government is failing see Italy and Greece.
- to3m 14y ago
  And now there is a government employee who is correspondingly worse off...
  - fleitz 14y ago
    They arent any worse off, they just need to find something productive to do with their life, like everyone else.
DanielBMarkham 14y ago
One of the things I'm beginning to suspect is that the metrics are rigged. That is, most economic discussions are based on terms that aren't meaningful in any practical way. I see a lot of economists poking at the metrics with their pencils and talking theory while waving their arms around wildly. But I am simply an observer. I love watching smart people argue about stuff, so economics fascinates me. One thing is for sure, there is a ton of diverging opinions about the Euro and the sovereign debt crisis.
- 14y ago

jstalin 14y ago

The article's title tells me that the author doesn't understand what's going on. "Why austerity is destroying Europe." How about the reality of the situation -- overspending and borrowing have destroyed europe. Iceland seems to have fixed the problem the correct way: default. Greece just did the equivalent of a credit card balance transfer while converting the loan to a secured transaction. In the name of "saving" the banks of Europe, Greece has been financially raped. Spain is next. Oh, and Japan and the United States aren't too far behind.

nextparadigms 14y ago
I think US would rather devalue the dollar by 30% in a very short amount of time than get in trouble over its debt. That would still be a catastrophic outcome, but I'm just saying that's most likely the option they will take.
- jstalin 14y ago
  I agree. I think the reserve-currency status of the US places it in a position where inflating out of debt will be less devastating than in other parts of the world.
  - CWuestefeld 14y ago
    You're probably right. But what happens after that? On one side of the coin, people see that investment in US debt isn't so safe as they thought. Thus, borrowing becomes more expensive for the USA. On the other side of that coin, America will have mostly escaped the really bad consequences of its behavior. I submit that we will not learn our lesson from it, and won't alter our behavior in any meaningful way. I see those two things combining in a really vicious cycle.
- GoodIntentions 14y ago
  I think you are right. Why default when you control the currency that all your foreign debt is denominated in? The us has an option other countries in this position do not.

antirez 14y ago

It is hard to read the Europe crisis without taking into account that is a model that, while flawed, traditionally tried (hard) to provide decent conditions for the poorest segments of the population. This huge national expenses (and taxation levels) of most EU countries are sometimes just stupid wastes, but also the result of a set of services that we know take for granted but are not granted in many places outside Europe. If our model will fail there will be to reconsider a lot of things, but if it will survive this crisis it will show that it is possible to create developed nations where a decent level of public health care, school, and services are possible in the long run.

StavrosK 14y ago
This didn't sink in until my recent trip to the States. "So if you're poor and you get sick you just... die?" "Pretty much."
- cobrausn 14y ago
  No, not pretty much. Usually you end up in a lot of debt. But it is actually illegal in the US (last I checked) to actually turn away a dying person at the emergency room because of a lack of coverage. Now, they may wish they had died when they get the bill, but that's another argument.
  - sp332 14y ago
    Getting life-saving help at the ER is not the same as having access to drugs or other medical care that could have prevented you from needing emergency care in the first place. In fact, there have been studies proving that giving poorer people better access to medical care, even for little things, ends up being cheaper than limiting their care to emergency room visits only.
  - Symmetry 14y ago
    And bankruptcy is much less painful in the US than in Europe, though you won't be able to get any sort of credit for quite a while.
  - 14y ago

ajays 14y ago

I'm not an Euro Zone resident, so I have to ask: what's stopping the people of Spain (especially the youth, with their 50% unemployment) from hopping over to Germany and finding work there? Isn't it the case that any member of an Euro country can work in any other country?

retr0rocket 14y ago
Europe is not like the USA, there is a significant cultural and language divide between states that stops people from hopping over the fence like that. if i were to pick up and move to california from New York, there would be almost 0 change (other then the stress of moving etc), not quite the same leap from spain to germany even if they are geographically closer
- ajays 14y ago
  I do understand the language divide at least. But given a choice between unemployment and, say, working in a place where you don't speak the language, I know I'd pick work any day! At least you're picking up work skills and a second language, which is far better than sitting at home twiddling your thumbs.
  - corin_ 14y ago
    But it's rarely as simple as a.) paycheck, different language or b.) no paycheck. What about family, friends, hobbies, etc. There's plenty of people not willing to move to a different town/city/village in their own country for a job, yet alone to a different country.
  - mobiplayer 14y ago
    If you don't speak the language you won't get a job.
  - mipapage 14y ago
    That last sentence you write exposes your cultural bias towards work and skills. Its not quite the same in Spain. Just ask the architect next door, who with 2 years of unemployment is sitting around, waiting... Well, he is fixing his house up a bit... That said, another out of work neighbor started a small business and my wife and I built him a small website and bootstrapped it a bit with an adwords 75 euro card. I wish more folks were like him...

meric 14y ago

All it boils down to is Monetarist vs Keynesian. I'm not too sure Keynesian is good in the long run. points to US's rapidly escalating debt. Oh that's right, according to Keynes: "In the long run we are all dead".

wyan 14y ago
People tend to forget that Keynesianism is about counter-cyclic measures. That includes not wasting trillions when the economy goes well -- not what was done in the '00s exactly...
- gaius 14y ago
  They haven't forgotten. They just hope that you have forgotten.
nhaehnle 14y ago
points to US's rapidly escalating debt ... and explain why again this is a problem? Unfortunately, the majority of commentators just take "high debt = bad" as a given, because they confuse their own situation (private household, currency user) with that of the US government (currency issuer). The US situation basically boils down to: the rest of the world has been crazy for US$ for some time and is therefore willing to send real goods to the US in exchange for numbers in a computer system. This is certainly going to change in the long run. That will drive down US imports and make imported goods more expensive for US residents, but that's only fair. It won't lead to collapse. In fact, if it is semi-intelligently managed, it could lead to a rebirth of US industry.
- tomjen3 14y ago
  Because the US has to pay interest on the loans. And because while you and I have no problem with the idea of saving for retirement, saving and buying that car in a few years, creating a college fund for the children before they are even born, etc, the US is run by politicians and politicians don't give the rear-end of that prostitute they are fucking about what happens after the next election. So they will spend the money on frevious things.

draggnar 14y ago

Germany has a better educated workforce, a much larger amount of flat land that is connected by waterways, and a central location to other high income nations. They are more competitive. For Spain to be competitive, they need to be able to price their goods lower. This means that their money won't be able to buy as many things from abroad, but they will be able to export things and conduct business amongst themselves. The simple fact is the fiscal policies in Europe are united and the political policies differ. The Euro was supposed to help unify the continent and avoid another war but instead has put the southern countries into debt.

drKarl 14y ago

The problem with spanish economy comes from the HUGE construction bubble it had a few years ago. Spain alone was building more than France, Germany and Italy TOGETHER. Government made money, construction enterprises made money, real state companies made lots of money, employment was high, even some citizens speculated buying and selling houses at a higher price some years later. To support that accelerated growth and construction, spanish banks borrowed money (LOTS OF IT) from european banks, mainly german banks. Banks went crazy giving mortgages, just as in the US. Mortgages went up to 25-30 years and beyond. When the bubble burst, prices went down, mortgage interest rates went up, and many people lost their jobs. That led to many people unable to pay for its mortgage, and banks started acumulating real state. Nowadays, banks hold a HUGE real state stock, and they don't want to sell it at current prices, because they would have to admit that their assets aren't worth what they claim. Because of that strategy of the banks, prices haven't go down as much as in other countries which suffered a bubble burst too. There is a very big stock of inmovilized real state in Spain.

drKarl 14y ago
And add to it that Spain issues bonds but doesn't easily find buyers now. ECB (European Central Bank) has given spanish banks thousands of millions of euros at an 1% interest rates, and those spanish banks, instead of giving loans and credit to enterprises and people, they buy spanish bonds (at 5%-6% levels).

cmcewen 14y ago

"Europe's policymakers have blundered in the control of a delicate machine, the workings of which they do not understand. They're not evil. But they're almost certainly wrong." How does this columnist then believe that he understands the economy if policymakers are so clueless? If Spain's economic problems were so easy to fix that everybody could just read this article and solve them, they probably wouldn't exist in the first place.

skylan_q 14y ago
"The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design." -F.A. Hayek The author isn't claiming they know how to manage it better. He's just suggesting that their management, or philosophy of management isn't correct. (But maybe I'm giving the author too much credit!)

nhebb 14y ago

When did writers at major publications like The Atlantic start submitting their own articles to HN? It's one thing when a programmer or other startup / tech blogger submits their own work, but when a magazine does, it just feels like spamming.</rant>

Facens 14y ago

This article is totally pointless. It doesn't provide a single argument, just a bunch of assumptions.

hk_kh 14y ago

The alarming headlines on these articles won't help Spain get any better. Sometimes it seems politics and the media just want to see Spain sink. Maybe it's just that seeing it from the inside doesn't render it that bad.

excuse-me 14y ago

The graphs are meaningless. What they measure is how strict the government is at collecting unemployment figures for young people. It simply shows 3sets of countries.: Spain/Greece/Portugal it's presumably very easy to claim unemployment and 50% of those 50% listed are also working for cash Italy/UK/France it's relatively harder to claim unemployment while working and most of the 15% are actually unemployed Germany has a much smaller youth population and managed to absorb more of them in youth-training-schemes. And it got doubly lucky that birth rates fell fastest in the east where the unemployment is. It's as if in the mid80s the UK had persuaded everyone outside the M25 to stop having kids.

loverobots 14y ago

Spain today, US tomorrow. Unless we make the dollar even more worthless, $1 trillion+ deficits are not exactly sustainable

kposehn 14y ago

Despite many of the very clear comments in this thread pointing out holes in the article, the overall conclusion is unfortunately fairly sound - for the mid term. The current austerity measures combined with unemployment mean the markets at large do not expect Spain to remain stable enough to invest in. With extremely high unemployment, especially among youth, comes social instability. This kind of instability frightens governments, which typically point to the private sector as the source of all ills and nationalize swaths of industry in order to feed populist sentiment. This fear is being reflected now, and I tend to agree that I don't expect the mid-term to be kind to Spain. However, in the longer term it may come out better off, provided Germany continues to hold the Eurozone with an iron-wallet. Germany does (mostly) control the EU by proxy anyway (~ '-')~

fasouto 14y ago

I'm spanish and I couldn't agree more. Many scientist and engineers are leaving the country looking for better work conditions. Also It's really difficult to run a business here. No future...

wagerlabs 14y ago

I live in the Tenerife. Canary Islands are, supposedly, one the top 3 regions with the most consumer debt. Unemployment here is also higher than in the mainland since there's not much of an economy. There was construction but that bubble burst. There's tourism... and nothing else. The interesting bit is that you don't really see the effects of the economic crisis, not directly. Most everyone drives nice cars, the parking lot at the mall is full, etc. You do see indirect effects, though. There are more security guards at the mall and the supermarket within. One of the cafes installed two video cameras. The pharmacy posted a note that stating that no refunds will be offered on medicine or unused prescriptions. Oh yes, the property prices here are behind the mainland adjustment-wise. Must be due to our awesome weather.

huhtenberg 14y ago

> Spain Is Doomed So, generally speaking, this should make moving to Spain and working remotely from there pretty attractive, shouldn't it? Can anyone from Spain comment on how the life is like there at the moment (assuming the 100K USD income level)?

mobiplayer 14y ago
100K USD? I make a third of that (a fourth after taxes) and live happily in a coastal town (Vilassar de Mar, if you want to GoogleMap it :)) 25 minutes by train from Barcelona, with my girldfriend (no income). So, yes, with 100K USD you'll be fine ;)
gjulianm 14y ago
Spain is a nice country to live in. With that level of income you can live without any kind of economic problems. Our sanitary system is free and pretty good (for now), so no worries about medical insurance. Crime rates are low, so no security problems neither. Cities like Madrid and Barcelona offer all kind of services and their public transportation is great (you don't even need a car). And, of course, our climate is really great. In short: Spain is a good country to live in. Although all the news you can hear with "Spain is sinking, Spain is doomed" we still live (I'm talking from my experience) very well.

deleted 14y ago

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harryf 14y ago

Is it me or do Euro austerity measures seem to drive a certain segment of economic commentators nuts? The number of articles I've seen raging about "evil" Germany forcing Greece / Italy / Spain to the brink of destruction with austerity measures. It's like they're afraid of something. What if austerity measures work? Is that going to burst someone's bubble?

skylan_q 14y ago
"What if austerity measures work? Is that going to burst someone's bubble?" Yes. The managerial class. Banksters need reckless spending in order to put more people and nations into debt servitude. If austerity works, people might (gasp) start to look to the free market for answers to economic woes, and start damming the banks and governments for their mis-management of economic matters.

coldarchon 14y ago

put political correctness aside, the socialist party in spain has nationalized 6 million migrants with no job qualification and now 60% of the youth in spain is unemployed. Am I asking the wrong question?

stretchwithme 14y ago

Spain's minimum wage is up 50% from 8 years ago. Demand for labor has collapsed. There's a thing called the law of supply and demand. Price fluctuates to keep both roughly equal. But when you hold the price artificially high, you get more supply than demand, especially when supply is not easily changed, as is the case with labor. There is no mystery here. Just people adopting policies whose effects they do not or will not understand. http://www.google.com/publicdata/explore?ds=ml9s8a132hlg_&ctype=l&strail=false&bcs=d&nselm=h&met_y=minimum_wage&fdim_y=currency:eur&scale_y=lin&ind_y=false&rdim=country&idim=country:es:ee:lt:bg:cz:hu:el:pt&ifdim=country&tstart=1055919600000&tend=1326873600000&hl=en&dl=en&q=spain+minimum+wage http://www.google.com/publicdata/explore?ds=ml9s8a132hlg_&#3...

sopooneo 14y ago

One of the great things about terrible situations is that everyone agrees on how bad it is. This agreement makes them think they have something in common. But if you prompt them to independently suggest solutions, you usually find that they hardly agree at all. That's happening here with the Euro. The situation is potentially unfixably bad, which gives the advantage that nothing will work and no one will ever have to find out they didn't agree all along.