Friday, 24 October 2014 / TRUTH-OUT.ORG

Greeks Cast Ballots, Spain Gets a Bailout, Yet Nothing Changes

Friday, 22 June 2012 13:08 By Paul Krugman, Krugman & Co. | Op-Ed

Greece Spain(Image: CartoonArts International / NYT Syndicate)So the governing coalition in Greece pulled out a narrow victory Sunday — winning only a minority of votes, but getting a narrow majority in the parliament thanks to a 50-seat bonus the New Democracy party gets for coming in first. So they will now have the ability to continue pursuing an unworkable policy. Yay!

Joe Wiesenthal, a deputy editor at Business Insider, reported that there's a meme in Greece to the effect that the anti-austerity Syriza party didn't really want to win, because it would rather see the current government flail some more. Conversely, establishment types should actually be dismayed by this outcome: if current policies fail completely, which seems almost a given, and Greece exits the euro anyway, which seems highly likely, the entire Greek center will end up discredited; better, in a way, to be able to blame the radicals.

And I gather I'm not the only one thinking along these lines. Business Insider also reported hints that the Pasok party, which has suffered terribly from its identification with failing policies, might not continue in the coalition unless Syriza is also brought on board — which then raises the question, why would Syriza do that?

The debacle rolls on.

The EuroTARP Cometh

O.K., Spain got a bank bailout. It's basically like the Troubled Asset Relief Program in the United States: a Spanish government agency will give banks cash, presumably in return for an ownership stake, with the goal of reassuring depositors and interbank lenders that their funds will remain safe even if the banks turn out to have big losses. The point is that these losses will initially come out of the new cash hoard, so that default on debts won't happen.

The twist is that the Spanish government itself is cash-poor and must pay high rates to borrow on the market, so this money comes as a loan from stronger European economies, presumably at below-market rates.

The question you should ask is, what problem does this solve? It may — may — put a temporary end to the "doom loop" of funds fleeing Spanish banks, forcing the banks to sell assets, driving asset prices down and creating further doubts about solvency. (It won't help even here to the extent that fears involve euro breakup rather than default). But it does nothing to restore Spanish competitiveness or lessen the suffering from austerity.

So the whole thing at best buys time — just like the European Central Bank's lending program from last fall.

What will Europe do with that time? If past behavior is any indication, the answer is nothing.

© 2014 The New York Times Company
Truthout has licensed this content. It may not be reproduced by any other source and is not covered by our Creative Commons license.
Paul Krugman joined The New York Times in 1999 as a columnist on the Op-Ed page and continues as a professor of economics and international affairs at Princeton University. He was awarded the Nobel in economic science in 2008. Mr Krugman is the author or editor of 20 books and more than 200 papers in professional journals and edited volumes, including "The Return of Depression Economics" (2008) and "The Conscience of a Liberal" (2007).
Copyright 2014 The New York Times.

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Greeks Cast Ballots, Spain Gets a Bailout, Yet Nothing Changes

Friday, 22 June 2012 13:08 By Paul Krugman, Krugman & Co. | Op-Ed

Greece Spain(Image: CartoonArts International / NYT Syndicate)So the governing coalition in Greece pulled out a narrow victory Sunday — winning only a minority of votes, but getting a narrow majority in the parliament thanks to a 50-seat bonus the New Democracy party gets for coming in first. So they will now have the ability to continue pursuing an unworkable policy. Yay!

Joe Wiesenthal, a deputy editor at Business Insider, reported that there's a meme in Greece to the effect that the anti-austerity Syriza party didn't really want to win, because it would rather see the current government flail some more. Conversely, establishment types should actually be dismayed by this outcome: if current policies fail completely, which seems almost a given, and Greece exits the euro anyway, which seems highly likely, the entire Greek center will end up discredited; better, in a way, to be able to blame the radicals.

And I gather I'm not the only one thinking along these lines. Business Insider also reported hints that the Pasok party, which has suffered terribly from its identification with failing policies, might not continue in the coalition unless Syriza is also brought on board — which then raises the question, why would Syriza do that?

The debacle rolls on.

The EuroTARP Cometh

O.K., Spain got a bank bailout. It's basically like the Troubled Asset Relief Program in the United States: a Spanish government agency will give banks cash, presumably in return for an ownership stake, with the goal of reassuring depositors and interbank lenders that their funds will remain safe even if the banks turn out to have big losses. The point is that these losses will initially come out of the new cash hoard, so that default on debts won't happen.

The twist is that the Spanish government itself is cash-poor and must pay high rates to borrow on the market, so this money comes as a loan from stronger European economies, presumably at below-market rates.

The question you should ask is, what problem does this solve? It may — may — put a temporary end to the "doom loop" of funds fleeing Spanish banks, forcing the banks to sell assets, driving asset prices down and creating further doubts about solvency. (It won't help even here to the extent that fears involve euro breakup rather than default). But it does nothing to restore Spanish competitiveness or lessen the suffering from austerity.

So the whole thing at best buys time — just like the European Central Bank's lending program from last fall.

What will Europe do with that time? If past behavior is any indication, the answer is nothing.

© 2014 The New York Times Company
Truthout has licensed this content. It may not be reproduced by any other source and is not covered by our Creative Commons license.
Paul Krugman joined The New York Times in 1999 as a columnist on the Op-Ed page and continues as a professor of economics and international affairs at Princeton University. He was awarded the Nobel in economic science in 2008. Mr Krugman is the author or editor of 20 books and more than 200 papers in professional journals and edited volumes, including "The Return of Depression Economics" (2008) and "The Conscience of a Liberal" (2007).
Copyright 2014 The New York Times.

Hide Comments

blog comments powered by Disqus