Europe’s Maquina Infernal has crippled Spain
(The Telegraph) – Spain is spiralling into the vortex of debt-deflation. This has nothing to do with Greece. It is not the result of fiscal extravagance over the past decade, or other such Wagnerian myths.
The country’s collapse is the mathematically certain – and widely predicted – result of ferocious monetary and fiscal contraction on an economy struggling to deal with a housing bust.
Monetary tightening by the European Central Bank caused Spanish real M1 deposits to fall at an 8pc rate in mid-to-late 2011, guaranteeing the crash into double-dip recession that we now see.
Catalan chief Artur Mas tossed nitroglycerine into the mix last week by warning that his fiefdom would run out of money by the end of the month. Skittish markets have little feel for the game of brinkmanship between Barcelona and Madrid. They don’t know that rich Catalans keep Spain afloat, not the other way round. His mischievous comments pushed the 10-year yield spread over German Bunds to a post-EMU record of 496 basis points.