Spain in the spotlight

The Spanish economy has been attracting world attention as it never has before, and not of a desirable kind. The annual assembly of the International Monetary Fund (IMF) in Tokyo has summed up this worried and worrying attention in a number of elements of considerable impact and gravity, all of them interconnected. To wit: Spain occupies the second-from-last place in world growth forecasts for 2013; a general bailout of Spain by the EU is urgent to prevent new episodes of market turbulence that might raise the Spanish risk premium to 750 points; if the Spanish government requests it, the most prosperous and healthy countries, such as Germany, must facilitate it; the EU must concede to peripheral countries, such as Greece, but also to Spain, longer periods for compliance with their commitments to reduce the public deficit.

A connecting threads runs through all these statements, which are blunt in tone yet at the same time confident in the ability of Spain and the EU to find a solution. It is this: if Spain is going to experience a record drop in GDP, it will be more difficult for the Spanish state to collect tax revenue to balance its budget. This vulnerability may be exploited by the volatility of the markets, thus causing the cost of financing its debt to skyrocket. To prevent such an eventuality, the sequence must be broken by the prompt formalization of a bailout.

The proposal to soften the path of the adjustment of the Spanish economy, essentially by phasing the adjustment in longer periods, must not go disregarded. It forms part of a more general reflection by the IMF on the damage that results from an excess of austerity. And it is founded not merely on a tactical resurrection of the Keynesian doctrines, but on very elaborate studies which show that the negative impact of adjustments, aggravating a drop in growth, may double or even quadruple that which has so far been calculated.

This is the culmination of a Copernican about-face in the Fund’s view of the crisis, setting aside its traditional extreme orthodoxy in favor of a realism of a new and promising kind. Many people, especially within the controlling group of the European Union, with Germany at their head, ought to take note, and endeavor to understand and assimilate these conclusions.

At the same time, a ratings agency whose name need not be remembered here has lowered the rating of the Spanish public debt almost to the level of junk status. This downgrading is malicious and wretched because, in the text that accompanies it, a critical analysis not unlike that of the IMF is wrapped in rhetoric that is gloomy and hyper-politicized — as when, in language like that of a radio talk show, it discusses the problem of central vs. regional government in Spain. In these terms, it sets itself up as an arbiter above suspicion.

This agency, and some others, ought to reflect seriously on the effectiveness of their analyses. The best proof is the fact that on Thursday the markets, which the agency claims to be serving, ignored the broadsides it fired against Spain, as they did when it downgraded the public debt of the United States and France.