Can the Eurozone Survive the Economic Challenges of Greece and Italy?

[MarcoD]

The thing that probably isn't "built in" to the markets is the fact that the Greek debt restructuring still isn't done and dusted. That time bomb is still ticking away with the deadline to defuse it about 3 months off.

I disagree with that. There will be a haircut, everybody knows it, and there is no alternative. So it has been defused anyway.

To be honest, the last problem, if it still exists, I think now boils down to making making the bean counters happy with a financial trick which will make their balance sheets look kind-of okay. It depends on the size of the debt hole in the books, I am not sure it is even needed. If cheap liquidity doesn't do it, some clever accounting will probably solve it.

(The meltdown of the US housing market probably left a trillion dollar hole in some accountants books. But at the same time, the Euros which were invested have no other alternative except for returning to the EU zone, so it should solve itself in time.)

As far as I can see the financial problem already has been solved, maybe a structural solution for Europe's economy is now needed.

If all fails, I am kind of warming up to the idea of Eurobonds to keep the nations' debt under control. Somewhat like a yearly allowance by a central bureaucratic EU office, also with some stimulation for the weaker economies built in.

And, maybe I am clueless. No idea.

(After looking at the problem, I got the feeling the bean counters are upset, but I doubt the ECB or any economist should be.)

(To be really honest: I have the feeling the presidents of our banks have hysterical laughing fits when they hear of the Euro breaking up, since nothing is the matter according to their data.)

 

[JonDE]

I disagree with that. There will be a haircut, everybody knows it, and there is no alternative. So it has been defused anyway.

To be honest, the last problem, if it still exists, I think now boils down to making making the bean counters happy with a financial trick which will make their balance sheets look kind-of okay. It depends on the size of the debt hole in the books, I am not sure it is even needed. If cheap liquidity doesn't do it, some clever accounting will probably solve it.

(The meltdown of the US housing market probably left a trillion dollar hole in some accountants books. But at the same time, the Euros which were invested have no other alternative except for returning to the EU zone, so it should solve itself in time.)

As far as I can see the financial problem already has been solved, maybe a structural solution for Europe's economy is now needed.

If all fails, I am kind of warming up to the idea of Eurobonds to keep the nations' debt under control. Somewhat like a yearly allowance by a central bureaucratic EU office, also with some stimulation for the weaker economies built in.

And, maybe I am clueless. No idea.

(After looking at the problem, I got the feeling the bean counters are upset, but I doubt the ECB or any economist should be.)

(To be really honest: I have the feeling the presidents of our banks have hysterical laughing fits when they hear of the Euro breaking up, since nothing is the matter according to their data.)

Personally I think the Euro needs to break up. As far as I can tell, the whole thing negates one of the most important factors in a self correcting market. That is devaluation.
Normally when a country goes into a recession, their currency is devaluated, which makes it easier for that coutnry to export, and essentially bring back jobs. The problem with the Euro is that certain countries now (namely Greece and Italy among others) will have to cut spending and raise taxes, which will be a slight disadvantage for their businesses, while other countries (namely Germany), won't need to do ethier, and since their economy is not really that weak, their businesses should have plenty of cash and capital.
This allows for Germany to help steal some of the self recovery from other countries. Instead of fixing the problem, it only seems to make it worse and drag it on.

 

[edward]

It is a bit Ironic that Standard & Poor's was giving AAA ratings to packaged sub prime mortgages just a few years ago.

 

[MarcoD]

Personally I think the Euro needs to break up.

All arguments you make can be made for the US too. Does Michigan pay for California's spending (or debt level), and does the US need to break up over that?

There is no long term problem unless there isn't enough money being pumped to the deficit states from the surplus states. Until now, that probably happened with public debt, financial markets, the free commidity market, and other means.

Honestly, the system is pretty damned good since governments are, need to be, run like companies, and there's one central bank overseeing the banking system and currency.

There are only two questions: Are the debt levels of the individual economies too high to be sustainable in this system? (I would say no, except for Greece.) And second, is there enough money being pumped around between the states?

The first is debatable, if not, then Eurobonds. The second is probably okay at the moment, with the addendum that the surplus states probably will need to pay some for Greek pensions, which honestly, is a whatever. And a second addendum that part of the current mess is the result of sending too much money to the periphery, not too less.

Everything else: The balance of trade, the external debt, the amount of money, the number of assets, look okay for the Eurozone. Most of the news, therefor, is short-term humbug. It can all be solved, and since it can be solved, it will be solved.

(There's also the point that devaluing in current day markets might not work as good anymore as it used to, since everything is hedged anyway.)

(I am not an economist, so this is pretty much my layman's view.)

 

[JonDE]

All arguments you make can be made for the US too. Does Michigan pay for California's spending (or debt level), and does the US need to break up over that?

In a way it kind of does. If California was going through a recession and Michigan wasn't, California would be bringing in less then its share of federal tax. Whatever it was minus in this instance would be added to the federal deficit which the whole country is responsible for. To be the same as the countries that are involved in the Euro, in the above example, the US would have to tax California at a higher tax rate (to make up for lost tax revenue) while intentionally spending less money in California. Neither of these happen IRL.
The argument that Michigan doesn't pay for California's state debt is true and so that point is relevant, but what is state tax compared to federal tax? Federal taxes have to be at least 4X larger (couldn't find an exact number, and I'm really not going to spend time to calculate it)

There is no long term problem unless there isn't enough money being pumped to the deficit states from the surplus states. Until now, that probably happened with public debt, financial markets, the free commidity market, and other means.

Honestly, the system is pretty damned good since governments are, need to be, run like companies, and there's one central bank overseeing the banking system and currency.

I admit that this is good in theory, but are any countries actually run like companies?

There are only two questions: Are the debt levels of the individual economies too high to be sustainable in this system? (I would say no, except for Greece.) And second, is there enough money being pumped around between the states?

The first is debatable, if not, then Eurobonds. The second is probably okay at the moment, with the addendum that the surplus states probably will need to pay some for Greek pensions, which honestly, is a whatever. And a second addendum that part of the current mess is the result of sending too much money to the periphery, not too less.

Everything else: The balance of trade, the external debt, the amount of money, the number of assets, look okay for the Eurozone. Most of the news, therefor, is short-term humbug. It can all be solved, and since it can be solved, it will be solved.

(There's also the point that devaluing in current day markets might not work as good anymore as it used to, since everything is hedged anyway.)

I agree with most of this. The debts of most of the countries aren't especially high, with one or a few exceptions.
Although I disagree with one part, that since everything can be solved, it will be. Politics don't always work in the best manner to solve problems.
Also can you elaberate on the hedging part. I understand hedging from an investors standpoint, but I admit don't know anything for a country as a whole, or for an entire currency.

 

[MarcoD]

Also can you elaberate on the hedging part. I understand hedging from an investors standpoint, but I admit don't know anything for a country as a whole, or for an entire currency.

I think an economy like Greece is probably too small to protect itself against hedging. Wall Street, or London, or Frankfurt, are just too big and filled with people way smarter than me; i.e., lots of currency traders. If they feel a currency will need/want to devalue, they'll just all short it - or protect their investment in some smart manner. And since there's that much money in all western economies, even the idea of devaluing it might actually annul whatever percentage they would want to devalue it. (Hmmm, I need to think this over a bit more, now I am not so sure anymore.)

EDIT: OKAY, HYPOTHESIS: If financial markets are really smart it is impossible to get rid of your debt since smart financial markets will find manners to protect themselves against it/protect their investment.

 

[JonDE]

I think an economy like Greece is probably too small to protect itself against hedging. Wall Street, or London, or Frankfurt, are just too big and filled with people way smarter than me; i.e., lots of currency traders. If they feel a currency will need/want to devalue, they'll just all short it - or protect their investment in some smart manner. And since there's that much money in all western economies, even the idea of devaluing it might actually annul whatever percentage they would want to devalue it. (Hmmm, I need to think this over a bit more, now I am not so sure anymore.)

EDIT: OKAY, HYPOTHESIS: If financial markets are really smart it is impossible to get rid of your debt since smart financial markets will find manners to protect themselves against it/protect their investment.

Shorting and hedging are not the same thing. Shorting can be used to hedge, but so can other things. In effect if people think that a currency is going to be devalued, shorting it would only make it drop sooner, and maybe even bigger, not stop it from dropping.

 

[MarcoD]

In a way it kind of does. If California was going through a recession and Michigan wasn't, California would be bringing in less then its share of federal tax. Whatever it was minus in this instance would be added to the federal deficit which the whole country is responsible for. To be the same as the countries that are involved in the Euro, in the above example, the US would have to tax California at a higher tax rate (to make up for lost tax revenue) while intentionally spending less money in California. Neither of these happen IRL.

Not really a fair comparison I think. There are no real federal taxes in Europe; if California shrinks, it would get cheaper, that's all. There is no extra burden to keep up with.

This is actually a damned good argument against Eurobonds.

Moreover, money from the outside would poor in and buy assets, or construct factories, in California after the recession. The question is whether federal stimulus actually helps an economy, or just 'makes it lazy.'

The argument that Michigan doesn't pay for California's state debt is true and so that point is relevant, but what is state tax compared to federal tax? Federal taxes have to be at least 4X larger (couldn't find an exact number, and I'm really not going to spend time to calculate it)

I don't know the difference between what is being payed in the US by the state or by the federation, but say you need to pay 10% on health care. What does it matter who pays it?

I admit that this is good in theory, but are any countries actually run like companies?

Well, now all of them are.

Politics don't always work in the best manner to solve problems.

Most European economies are run by their financial departments, not by their politicians. And those who weren't, now are being reformed.

 

[MarcoD]

Shorting and hedging are not the same thing. Shorting can be used to hedge, but so can other things. In effect if people think that a currency is going to be devalued, shorting it would only make it drop sooner, and maybe even bigger, not stop it from dropping.

Yeah, I thought of that too. And you usually short against another (outside) party, so that wouldn't really mean a lot.

Still, I am not sure devaluing is that good a tool still given current day complex financial markets. Let's say I want to invest in a country which constantly devalues, or is going to devalue, I guess I could -or would- protect my investment by just buying real estate instead of public debt, immediately annulling any devaluing effect. And devaluing makes any debt unattractive so how good a tool is it anyway?

(Anyway, I give up. I am not an economist, I've tried to understand it, and I don't. Or rather, I don't see the problem with the Eurozone, atm.)

 

[JonDE]

Yeah, I thought of that too. And you usually short against another (outside) party, so that wouldn't really mean a lot.

Still, I am not sure devaluing is that good a tool still given current day complex financial markets. Let's say I want to invest in a country which constantly devalues, or is going to devalue, I guess I could -or would- protect my investment by just buying real estate instead of public debt, immediately annulling any devaluing effect. And devaluing makes any debt unattractive so how good a tool is it anyway?

(Anyway, I give up. I am not an economist, I've tried to understand it, and I don't. Or rather, I don't see the problem with the Eurozone, atm.)

I can understand not wanting to invest in certain aspects of an economy that purposefully devaluates their currency, especially repeatedly. My point was that the cycle of devaluation and re-valuation (probably not a word), is normal and might even encourage people to invest in that economy when the currency is devalued.

 

[AlephZero]

The thing that probably isn't "built in" to the markets is the
fact that the Greek debt restructuring still isn't done and dusted. That time bomb is still ticking away with the deadline to defuse it about 3 months off.

I disagree with that. There will be a haircut, everybody knows it, and there is no alternative. So it has been defused anyway.

It hasn't been defused yet. The market doesn't think so either. Last time I looked, the market price of short term Greek debt put the effective interest rate at over 1,000%, up more than 100% in the last 24 hours. If you really think it is going to be defused, fill your boots while you can!

But now Germany has a Plan B: http://www.bbc.co.uk/news/world-europe-16773974

 

[MarcoD]

It hasn't been defused yet. The market doesn't think so either. Last time I looked, the market price of short term Greek debt put the effective interest rate at over 1,000%, up more than 100% in the last 24 hours. If you really think it is going to be defused, fill your boots while you can!

Why? Bad debt is bad debt. Private investors will probably be last in line or part of a forced haircut.

When I say defused, I mean that everybody knows what needs to happen. You can bet a bit on the variants of the outcome, but that's about it.

But now Germany has a Plan B: http://www.bbc.co.uk/news/world-europe-16773974

Which is what I mean that everybody knows what needs to happen. This is, as far as I recollect, the same measure the British took the last time Greece defaulted on its debt.

It's a long dance, that's all. They needed to kick the can for a while, to let stuff settle down and be controlled, they need some manner of writing off some of the debt, they need to have Greece under financial restraints (or be kicked out).

Europe has been playing currency games and state debt troubles for 1500 years, there's nothing new here, except that for a change it didn't escalate into a war.

 

[MarcoD]

By now, I am constantly running into Sapir-Whorf, or linguistic relativity, on this forum.

To clarify my position a bit more: When I say need, I mean you can expect actors to act in a certain manner which -given historical, cultural, and economic necessities- will make a certain outcome become true.

The Eurozone is about creating an internal market, not -as many in the US think- about creating a competitor for the dollar. The overall aim of most in the top -even if they don't know it- is transparency, stability and accountability because without that you neither have a currency or trade. The (short-term) debt problems are secondary to that.

I am not inclined to publicly dwell on some financial trivia, except for that you cannot use my assertions as predictions on how financial markets will behave now or in the future. If you really want to bet on anything, then my opinion is that the Euro cannot fail due to some technical considerations.

 

[Astronuc]

In the last 4 months, Greece has been vacillating between rescue and crisis. The DOW was up then down.

Now - 6 reasons Spain will leave the euro first
Commentary: Spain is too big to rescue, and doesn’t want it anyway
http://www.marketwatch.com/story/6-reasons-spain-will-leave-the-euro-first-2012-05-30

 

[Hlafordlaes]

Hogwash. There is very little support for leaving the euro or the EU here in Spain. Yes, you get grumping about things having been better under Franco from some old folks, and quite a few do reminisce about the peseta. But no one in their right mind thinks leaving the euro is a good idea.

Because Spain does have a real economy, including sophisticated pharma a medical research, recent renewals of plant production plans by companies such as Nissan, indicating an improving competitive cost base, heavy weight agriculture exporting worldwide, and leading firms in telecom, renewable energy and other fields, the country feels it has a place and a role to play in the EU. Neither the PP nor the PSOE, nor even the smaller more extreme parties are calling for exiting the euro. It would be political suicide.

As recent events in Argentina and Bolivia have shown, Spain does not have a reliable outlet in Latin America, at least not a basket in which to put all its eggs.

The pundit's points are all designed to craft a message for his target market, which seems to enjoy baloney. I'll stick with my jamón de jabugo, thanks.

 

[mheslep]

When and if the time comes, the Euro will leave the faltering country before the country leaves the Euro.

 

[AlephZero]

Hogwash. There is very little support for leaving the euro or the EU here in Spain. Yes, you get grumping about things having been better under Franco from some old folks, and quite a few do reminisce about the peseta. But no one in their right mind thinks leaving the euro is a good idea.

The people who moved about EUR 100bn from Spanish banks in the first 3 months of 2012 might disagree (that's about 10% of Spain's GDP). The capital reduction for the second quarter is expected to be "much bigger".

Because Spain does have a real economy...

... with an unemployment rate close to 25% (a straight line increase from a low point of about 8%), and more than 50% unemployment for people aged under 25.

Source: Financial Times (UK) reporting official Spanish statistics.

I think what people "want" is fairly irrelevant, given the ecomonic (un)reality of the situtation.

 

[Hlafordlaes]

Capital flight indicates tremendous uncertainty, but is not a vote for leaving the euro, rather a hedge. Of course there is fear.

Where the rub lies is in the increasingly obvious falsification of data across a broad spectrum of political party and banking shenanigans, this time from the right. We were all ready for the PSOE to leave power and experience some relief from the PP's "street" cred on the bond markets, which did in fact happen in the grace period following this Spring's elections.

Now that the Partido Popular (PP) is showing its full and true colors as the Tea Party* of Spain, all rhetoric and no brains, we are indeed truly in trouble.

[*Tea Party being the closest approximation, but it's worse than that. These are dogma-driven Catholic traditionalists whose rhetoric is of sound management, but whose actions are those of an old boys club, whose errors are mutually covered in collusion.]

 

[mheslep]

The only way of avoiding a break with the Euro is for the leadership in both the troubled countries and their sounder neighbors like Germany to announce clearly that even in the event of bank or sovereign debt defaults they will strongly support the Euro. They won't do that now for fear of harming those banks (private or central). Too bad. They don't have a choice any more.

 

[jduster]

Greece should have never been in the E.U. to begin with.

The whole world should not be teetering on the brink because of 1 or 2 unstable countries.

However, it's not palatable to remove Greece from the E.U.

 

[Astronuc]

Interesting commentary - Europe’s ‘Call Me Maybe’ Approach to Financial Crisis Management
http://finance.yahoo.com/blogs/dani...ch-financial-crisis-management-144011569.html

Let's review. America's financial panic ended in the spring of 2009. But Europe has been seized by a series of rolling banking and fiscal crises. So far, three constituent members of the euro zone have officially cried uncle and asked for bailouts — Ireland, Greece and Portugal. A fourth — tiny Cyprus, whose banks are heavily exposed to Greece and has been relying on direct loans from China and Russia — is poised to ask for help.

And Then There's Spain

. . . .

 

[Naty1]

Wisconsin, San Jose and San Diego (in California of all places] have taken the early steps
towards solvency:

2 California cities voters embrace pension cuts:

http://news.yahoo.com/2-california-cities-voters-embrace-pension-cuts-102049905--finance.html;_ylt=A2KLOzEdQs9PiTYApcXQtDMD

but it may already be too late for those cities because California is headed down and good 'ol Jerry Brown is not the person to fix it. Incredibly, governments workers in Wisconsin sport salaries and benefits more than 20% above the private sector there.

The Eurozone is a more advanced progressive made disaster of profligate government spending; It's difficult to see how they will retain the European Union.

Margret Thatcher proclaimed:

Eventually liberals run out of other people's money to spend.

Winston Churchill: "The inherent vice of capitalism is the unequal sharing of blessings; the inherent virtue of socialism is the equal sharing of miseries."

Hence the situations we observe.

 

[Hlafordlaes]

@Naty1
The genesis of the crisis has absolutely nothing to do with the issues you frame above, nor do the subsequent events. The only applicable case is Greece, who set a retirement age of 50 and are nuts.

Think bank troubles -> bailouts with sovereign debt -> banks buy sovereign debt -> bank troubles -> bailout with sovereign debt - > banks troubles, ad nauseum. As for the success of austerity only, think 1937.

 

[Astronuc]

The bargaining has begun over a deal to rescue Spain's ailing banks, which have hoped to avoid onerous bailout conditions like those that hobbled Greece, Portugal and Ireland.

Spain Holds a Trump Card in Bank Bailout Negotiations
http://www.nytimes.com/2012/06/07/world/europe/spain-holds-a-trump-card-in-bank-bailout-talks.html

German officials have said they are prepared to weather a Greek exit from the euro if necessary, but no such claims are made about Spain. As such, Spanish leaders, who feel Madrid has already made many painful changes and spending cuts, are holding out for a deal that requires only a tightening of oversight on the financial sector and no strings attached to the country’s budget powers.

Spain also appears to be forcing a reckoning about the expensive steps political leaders in Europe need to take if they want to hold the euro zone together. . . .
. . . .
The wrangling over Spain underlines the way the European Union stumbles to solutions for each problem as it arises. Frustration has grown over the uncertainty afflicting the global economy as a result of Europe’s instability and the toll it takes on an already slowing growth rate. . . . .

 

[mheslep]

@Naty1
The genesis of the crisis has absolutely nothing to do with the issues you frame above, nor do the subsequent events. The only applicable case is Greece, who set a retirement age of 50 and are nuts.

Think bank troubles -> bailouts with sovereign debt -> banks buy sovereign debt -> bank troubles -> bailout with sovereign debt - > banks troubles, ad nauseum. As for the success of austerity only, think 1937.

That's largely backwards. What's happened is Bank Loans -> sovereign nations exactly because of the profligate spending to which Naty refers. Some of those nations now threaten to default on those loans, hence the banks are in trouble. The applicable cases include Spain, Portugal, Greece, Italy so far. Hollande just dropped France's retirement rate to 60. Greece's is 55 BTW, Italy 57, Spain 60. More relevant is the age 55-59 employment rate:
Germany 64%
Switzerland 77%

Greece 31%
Italy 26%
Spain 46%

All have aging populations, which is unsustainable in the latter three. So the 'genesis of the crisis has absolutely nothing to do with' ... bank bailouts, which are a symptom, not a cause.

 

[turbo]

At some point in situations involving unemployment/underemployment in younger workers, it can be quite helpful to let older workers get out of the way and provide job opportunities for the younger ones. This is not a popular concept in some circles, but it is a form of "spending" on pensions, etc, that can provide stability and revenues for the countries involved.

http://www.ft.com/cms/s/0/37d456dc-262d-11df-aff3-00144feabdc0.html#axzz1xAjjeDye

http://blog.nwjobs.com/careercenterblog/2010/05/us-retirement-age-work-till-yo.html

http://www.pemtechnology.co.uk/index.php?public/news/view/drop-the-compulsory-retirement-age-says-equality-commission

I am already effectively "retired" due to disability, but my wife is younger than me and is trying to figure out when she might be able to leave the work-force. It is very complex. Can you keep your health insurance at an affordable rate? Can you roll over your retirement accounts without excessive risk? Can you afford to opt out early if the rate of inflation increases and your reduced income is effectively reducing the buying-power of your money? These issues are not addressed properly (IMO) by the major media outlets. Too bad, because as the US population ages, and the numbers of young people who can find no work increases, we need to be willing to "spend" to find a balance.

 

[Astronuc]

Spain relieved, angry over humiliating $125B rescue for nation that was Europe's economic star
http://news.yahoo.com/spain-relieved-angry-over-humiliating-133958929.html

MADRID (AP) -- Spain's grinding economic misery will get worse this year, despite the country's request for a European financial lifeline of up to €100 billion ($125 billion) to save its banks, Prime Minister Mariano Rajoy said Sunday.

A day after the country conceded it needed outside help following months of denying it would seek assistance, Rajoy said more Spaniards will lose their jobs in a country where one out of every four are already unemployed.

"This year is going to be a bad one," Rajoy said Sunday in his first comments about the rescue since it was announced the previous evening by his economy minister.

. . . .

 

[Hlafordlaes]

That's largely backwards. What's happened is Bank Loans -> sovereign nations exactly because of the profligate spending to which Naty refers. Some of those nations now threaten to default on those loans, hence the banks are in trouble. The applicable cases include Spain, Portugal, Greece, Italy so far. Hollande just dropped France's retirement rate to 60. Greece's is 55 BTW, Italy 57, Spain 60. More relevant is the age 55-59 employment rate:
Germany 64%
Switzerland 77%

Greece 31%
Italy 26%
Spain 46%

All have aging populations, which is unsustainable in the latter three. So the 'genesis of the crisis has absolutely nothing to do with' ... bank bailouts, which are a symptom, not a cause.

Spain's debt-to-GDP ratio prior to the crisis was 62%, far lower than the 80-90% of Germany and France. Here the impact of the financial crisis hit an overheated housing segment, leading to bank weaknesses.

So, the profligate spending was actually more an issue elsewhere. Watch out for confirmation bias, looking for data to prove a theory rather than finding an explanation for real data.

 

[mheslep]

Spain's debt-to-GDP ratio prior to the crisis was 62%, far lower than the 80-90% of Germany and France...

France and Germany's debt-to-GDP were more like 65% prior to the financial crisis; they are at ~85% currently, though debt alone is not the main issue.

Here the impact of the financial crisis hit an overheated housing segment, leading to bank weaknesses.

Agreed, Spanish banks are in trouble in part due to a housing bubble.

So, the profligate spending was actually more an issue elsewhere. ...

For lenders setting the cost of money, the sustainability of the current *deficit* spending is the issue. Spain's deficit-to-GDP exceeded 10% in 2009 and is now ~9%, while Germany is at 1% and France 5%. Spain's deficit was brought on not so much by the financial crisis, but by large government spending increases: a 60% increase from 2004-2010, while France and Germany increased 30% over the same period. Furthermore, with Spanish unemployment at catastrophic levels there is little hope for the revenue side to bring Spain out of trouble.

Watch out for confirmation bias, looking for data to prove a theory rather than finding an explanation for real data.

Indeed. I find the level of denial about European government spending baffling. Likewise with the claims of spending austerity where, with a couple of exceptions, spending is flat or even continues to increase (UK, France, Germany) in absolute terms.

 

[Naty1]

Turbo:

At some point in situations involving unemployment/underemployment in younger workers, it can be quite helpful to let older workers get out of the way and provide job opportunities for the younger ones. This is not a popular concept in some circles, but it is a form of "spending" on pensions, etc, that can provide stability and revenues for the countries involved... Too bad, because as the US population ages, and the numbers of young people who can find no work increases, we need to be willing to "spend" to find a balance.

That is just a tad upsidedown and backwards.

If that is the only option, that entity is headed down and out. Excessive entitlement 'spending' by governments is the very essence of such disasters. Even James Carville is telling Obama based on focus groups and polling:

The correct answer is a simple one and a time proven one: economic growth. A bigger pie, not diviing up a fixed pie different ways. Get government bureaucracy, high taxes, excessive regulations out of the way of the private sector. As Larry Kudlow [economist] says: "Free market capitalism is the best path to prosperity."

 

[Naty1]

Spanish leaders, who feel Madrid has already made many painful changes and spending cuts, are holding out for a deal that requires only a tightening of oversight on the financial sector and no strings attached to the country’s budget powers.

maybe so, but 'Spanish leaders' are the ones who got themselves into the current mess.
So if I were them I'd be happy some other more thrifty leaders were willing to risk their
money after my silly decisions.

I'd like to see 'painful changes' detailed. A reteat from disasterously profligate spending, overly generous entitlements and onerous policies is better dscribed as "a return to responsible government'.

 

[mheslep]

When and if the time comes, the Euro will leave the faltering country before the country leaves the Euro.

For example ...

"There has been a deterioration in the situation in the past few days; I estimate that between €600 million euros ($750 million) and €900 million have been leaving the [Greek] system per day," said a senior banker at one of Greece's leading lenders.

http://online.wsj.com/article/SB10001424052702303822204577464783282542366.html

A sad disaster. The country seems to be largely shutting down.

 

[Astronuc]

The Spanish problem - borrowing from international banks/markets and making loans/mortgages on real estate - houses, resorts, commercial buildings. It was the huge volume of loans, in the billions of euros, that became problematic.

http://www.npr.org/blogs/money/2012/06/12/154876489/episode-378-how-spain-created-a-banking-monster

 

[mheslep]

The Spanish problem - borrowing from international banks/markets and making loans/mortgages on real estate - houses, resorts, commercial buildings. It was the huge volume of loans, in the billions of euros, that became problematic.

http://www.npr.org/blogs/money/2012/06/12/154876489/episode-378-how-spain-created-a-banking-monster

Spanish banks are indeed in trouble from a real estate bubble, but I think it is a myopic mistake to see the banks themselves as fundamental to Spain's troubles, which might lead to, for instance, a call for more banking regulation and all will be well next time. Instead the banks a symptom of long term policy mistakes: the Euro, restrictive labor laws, business laws and other laws that inhibit productivity and encourage dependency.

 

[JonDE]

Spanish banks are indeed in trouble from a real estate bubble, but I think it is a myopic mistake to see the banks themselves as fundamental to Spain's troubles, which might lead to, for instance, a call for more banking regulation and all will be well next time. Instead the banks a symptom of long term policy mistakes: the Euro, restrictive labor laws, business laws and other laws that inhibit productivity and encourage dependency.

I'm not following you at all. The bursting of the housing bubble is what caused the economic meltdown. The economic meltdown led to their debt problem.

Easing "restrictive labor laws" would not have stopped the bubble from forming, nor would it have stopped it from popping as the two are almost completely unrelated. You could argue that it would help it recover, but that does absolutely nothing about the problem to begin with.