What was once the Celtic Tiger, Today it is nothing more than a scrawny, flea-bitten, street-wise puss. Tax hikes, which are mortgaging (never better said) future growth, will perpetuate its ragged appearance over time. So far this year, up to 31 August, the Irish public deficit was €18.7 billion, which in just eight months is almost four times the 3% of annual GDP allowed by the EU.. More than twice as much as in the same period last year, which was €8.4 billion, according to the recently published Belfast Telegraph.
The Irish indicators are a litmus test for the EU's solidity, and a real torpedo to the waterline of the monetary union. But the Spanish figures are much more destructive because, even if they are somewhat better (or lagging behind), the specific weight of the Spanish economy in the EU is much greater. Ireland is a small country that, if it were the only case that strained the guidelines of economic rigour demanded by the EU, could be treated as an exception, as a small island whose economy shares even the pockets of its inhabitants with the pound sterling, on its border with its northern neighbours. But it is not alone. Ireland's figures, unsustainable in a € environment with engines such as Germany or France, are the path to the graveyard that follows the Spanish elephant. And although the Irish Prime Minister Brian Cowen said back in March that «.«...sharing the euro strengthens us greatly at a time when immense forces are at work«The reality is that the economies of Ireland and Spain are going to be, are already being, a tremendous stress-test for the European monetary union. All countries that have had their own monetary policy, have made intensive use of it in these troubled economic times. Even the leading economies, with the exception of of the usual dabbler. Politicians, as always, systematically miss (sic) all their macroeconomic forecasts, They proclaim the advantages and benefits of the € in the midst of state bankruptcy, and announce green shoots that they hope will have opiate-like properties for their increasingly famished voters. Because EU monetary union is politically correct, and today it is still sacrilege to speak of a two-speed euro officially (a nauseating cowardice). The majority of ordinary Spaniards believe that the single currency is saving them from who-knows-what, in a perfect Stockholm Syndrome of the €. And the truth is that nothing could be further from the truth when economies, especially the weaker ones, suffer.
As long as hands are still tied in a Spain in technical bankruptcy, its economy will continue to free fall. The latest figures from the Social Security system show that only 18 million members have to support the system, and down. In the meantime, unemployment continues blatantly and dramatically far above the rest of the EU, and rising. But the most serious thing is that from the first quarter of 2010 the worst will come: the 400,000 jobs that Plan E pulled out of the hat will be massively destroyed again on January 1st, the extraordinary extensions of some subsidies will be exhausted, and the destruction of the business fabric and the constant redundancies will continue to be a major problem. drag society into dependence on a bankrupt state. The deterioration is on the verge of being so tremendous that the government still does not dare to cut the panparahoy of the direct subsidy to society in distress, even if it the countdown is short. A sterile waste of money it does not have, and what is much more serious, cannot even create.. In other words, either the Spanish state is given the capacity to flee forward, or Spain is going to live through some terrible years. And for us, in the best-case scenario, to be able to flee forward, we need to devalue our debts to be able to breathe, and our costs to make them more attractive to the rest of the world. To achieve this growing and inflating sufficiently is the only long way out of the tunnel.
Getting out of the hole without using monetary policy is a desert crossing that only the strongest can attempt (and even they do not do it). The weak like Spain, Ireland and the other PIIGS must focus on devaluing their liabilities and production costs. And that can be done through an appropriate monetary policy, but it is impossible without the freedom to increase the cluster M1 and at the same time devaluing the currency itself (we said almost a year ago: «...we must not suffer because the Risk being bought by States is transformed into monetary damage that will break countries with the capacity to manipulate conglomerates...«). Only then would growth pull us, over the years, to the surface and inflation eat into the unmanageable debt we have gluttonously surrounded ourselves with. If the spreads on Spanish-Irish and Franco-German sovereign debt tighten beyond what the monetary union can bear, it will signal an imminent unwinding of much-needed monetary policy.
We need a lot of restraint, sacrifice and jerry cans full of clear water to try to cross the desert in the footsteps of the rich countries. But from the last celebration we barely have a flask with a small canteen of Irish coffee and another with two fingers of carajillo. Oh, and a hangover. This is where the desert begins.