Thursday, September 15, 2011

Spain gets it right again

Spain has proven once more adept at reading the signs of an attack and going on the offensive. As everyone closes around Greece and France, Spain has passed a balanced budget amendment to its constitution. I expect it will do better than otherwise possible in the turbulence that is coming up this month and next. Indeed, with Spain's lower overall spending profile, the adjustment should hurt less than it does elsewhere.

It's not that budget retrenchment is objectively necessary, especially for Spain, with its low public debt. Nor is it that the current hysteria about deficit reduction is somehow right in treating Spain the same way as Greece or Portugal. Instead, the objectively good reason to move is that markets collectively are sloshing in a huge wave around Europe and don't really care about economic fundamentals any more. They care about political signals like this that identify a country as one of the winners.

Spain has decided it's going to come out of this crisis even stronger than it started. With such a big wave coming, whilst other countries are looking at it and wondering whether they can swim, Spain has just pulled out a surfboard. 

They may just pull it off. Whether it works or not, you've got to admire the balls behind that move.


  1. Indeed. Nice move by Zapatero stealing what would otherwise be one of the PP's go-to moves. They're still going to lose the election, though, so you can expect the new centre-right government to do something even more "virgin into the volcano" once they're in power, just to show the confidence fairies that they can.

  2. Yes, I think you're right about the PP. Today's fundraising did reasonably well, so Spain is off to a good start with this strategy.