Spain getting dicked over by the euro.

[Beet]

http://www.nytimes.com/2009/04/21/business/global/21deflate.html

By NELSON D. SCHWARTZ
Published: April 20, 2009
VALENCIA, Spain — Faced with plunging orders, merchants across this recession-wracked country are starting to do something that many of them have never done: cut retail prices.

Prices dipped everywhere, from restaurants and fashion retailers to pharmacies and supermarkets in March. Hoping to increase sales, Fernando Maestre reduced prices by a third on the video intercoms his company makes for homes and apartment buildings. But that has not helped, so, along with many other Spanish employers, he is continuing to fire workers.

The nation’s jobless rate, already a painful 15.5 percent, could soon reach 20 percent, a troubling number for a major industrialized country.

With the combination of rising unemployment and falling prices, economists fear Spain may be in the early grip of deflation, a hallmark of both the Great Depression and Japan’s lost decade of the 1990s, and a major concern since the financial crisis went global last year.

Deflation can result in a downward spiral that can be difficult to reverse. As unemployment rises sharply and consumers cut spending, companies cut prices. But if sales do not pick up, then revenue can decline further, forcing more cuts in workers or wages. Mr. Maestre is already contemplating additional job and wage cuts for his 250 employees.

Nowhere is this cycle more evident than in Spain. Last month, it became the first of the 16 nations that use the euro to record a negative inflation rate. The drop, though just 0.1 percent, had not happened since the government began tracking inflation in 1961, and Spanish officials have said prices could keep dropping through the summer.

Some of the decline came as volatile food prices sank; the cost of fish fell 6.2 percent, and sugar was down 5.7 percent. But even prices in normally stable sectors like drugs and medical treatments fell 0.7 percent in March, and there were slight declines in footwear, clothing and prices for household electronics.

“Alarm bells are going off,” said Lorenzo Amor, president of the Association of Autonomous Workers, which represents small businesses and self-employed people. “Economies can recover from deceleration, but it’s harder to recover from a deflationary situation. This could be a catastrophe for the Spanish economy.”

Deflation is not just a Spanish concern. Luxembourg, Portugal and Ireland have reported price drops, too. While the declines have been slight — and prices rose modestly after factoring out food and energy prices, which can fluctuate widely — other figures released this month suggest the risk of deflation is growing.

In Germany, wholesale prices dropped 8 percent in March from a year ago, the steepest fall since 1987. In Japan, wholesale prices fell 2.2 percent on an annual basis. In the United States, the Consumer Price Index fell 0.1 percent in March, year over year, the first decline of its kind since 1955, though prices rose 0.2 percent excluding food and energy.

...

All this has made deflation, once a subject largely reserved for economists who studied the Great Depression, into front-page news here.

The American economy is less vulnerable to deflation, in part because of the Federal Reserve’s decision to cut interest rates to near zero and increase lending by $2 trillion. The European Central Bank has also cut rates, though more slowly, and it has resisted the lending measures adopted by the Fed and the Bank of England to prop up spending.

When Spain had its own currency, the peseta, the central bank could have simply devalued it, or cut interest rates to zero. But that is not an option in the era of the euro, when monetary policy is controlled from the European Central Bank’s headquarters in Frankfurt, said Santiago Carbó, a professor of economics at the University of Granada.

“If we enter into a deflationary period, we won’t have the monetary tools to sort it out,” Mr. Carbó said.

[jokerman]

Europe has to make a choice.  A common currency without common fiscal and monetary institutions is going to great inbalances.  Either dismiss the former or create the latter.

[opebo]

The Euro union should be devaluing and printing massively.  If they don't, the individual countries must pull out and do it themselves.

[k-onmmunist]

The euro needs to die.

[Gustaf]

Though political reasons play in for me as well, yeah, I think Spain should quit. Having their own currency may put a little more pressure on them to get their finances under control.

[Sam Spade]

Isn't most of Spain's private debt in dollars or euros?

If so, then the ability to devalue your own currency is rather useless - actually it would make things worse.

The Euro is dead fairly soon, anyway, I suspect.  But I won't be certain until it passes below USD/EUR = 1.18 (very, very important technical marker).

[2952-0-0]

Isn't most of Spain's private debt in dollars or euros?

If so, then the ability to devalue your own currency is rather useless - actually it would make things worse.

The Euro is dead fairly soon, anyway, I suspect.  But I won't be certain until it passes below USD/EUR = 1.18 (very, very important technical marker).

Perhaps you should be aware Spain can devalue its currency just like California can devalue the US Dollar, before commenting on something like this.

[Gustaf]

Isn't most of Spain's private debt in dollars or euros?

If so, then the ability to devalue your own currency is rather useless - actually it would make things worse.

The Euro is dead fairly soon, anyway, I suspect.  But I won't be certain until it passes below USD/EUR = 1.18 (very, very important technical marker).

Perhaps you should be aware Spain can devalue its currency just like California can devalue the US Dollar, before commenting on something like this.

I still think it's politically impossible for the euro to break down. The European politicians will be ready to sacrifice a lot before they give it up.

[k-onmmunist]

Isn't most of Spain's private debt in dollars or euros?

If so, then the ability to devalue your own currency is rather useless - actually it would make things worse.

The Euro is dead fairly soon, anyway, I suspect.  But I won't be certain until it passes below USD/EUR = 1.18 (very, very important technical marker).

Perhaps you should be aware Spain can devalue its currency just like California can devalue the US Dollar, before commenting on something like this.

I still think it's politically impossible for the euro to break down. The European politicians will be ready to sacrifice a lot before they give it up.

The euro cannot last.

[Bono]

Funny, it's the US Dollar and the Pound I see getting inflated like there's no tomorrow, not the euro. But don't worry, just because your currency sucks, your e-peen isn't smaller.

[Gustaf]

Isn't most of Spain's private debt in dollars or euros?

If so, then the ability to devalue your own currency is rather useless - actually it would make things worse.

The Euro is dead fairly soon, anyway, I suspect.  But I won't be certain until it passes below USD/EUR = 1.18 (very, very important technical marker).

Perhaps you should be aware Spain can devalue its currency just like California can devalue the US Dollar, before commenting on something like this.

I still think it's politically impossible for the euro to break down. The European politicians will be ready to sacrifice a lot before they give it up.

The euro cannot last.

It's a political issue. It comes down to whether you are prepared to deal with the costs of keeping it. I suspect most European politicians are prepared to let their electorates take the fall.

But it IS going to cost quite a bit. The question is whether the mis-managed countries (Greece, Ireland, Spain, Portugal, Italy) will bear the burden or if they will be allowed to shift it to Germany.

[Sam Spade]

Isn't most of Spain's private debt in dollars or euros?

If so, then the ability to devalue your own currency is rather useless - actually it would make things worse.

The Euro is dead fairly soon, anyway, I suspect.  But I won't be certain until it passes below USD/EUR = 1.18 (very, very important technical marker).

Perhaps you should be aware Spain can devalue its currency just like California can devalue the US Dollar, before commenting on something like this.

I thought that's what I was saying - in that this was merely a theory "if Spain still had its own currency." (and the problems thereby with devaluation)

Sorry for the confusion, if such.

[Lunar]

I also predict the Euro isn't going anywhere, but I've mostly just studied the history of its development instead of the modern predicament.  Eh.  It's not that easy to jump around between currencies.

[Gustaf]

I also predict the Euro isn't going anywhere, but I've mostly just studied the history of its development instead of the modern predicament.  Eh.  It's not that easy to jump around between currencies.

On the other hand, historically speaking, monetary unions don't survive without far-reaching political integration.

[2952-0-0]

Has leaving a monetary union ever been carried out before, in an electronic banking system?

If there is any hint of a Eurozone state leaving the Euro, there would be so much capital flight the economy would be crippled for decades.

[Sam Spade]

Has leaving a monetary union ever been carried out before, in an electronic banking system?

If there is any hint of a Eurozone state leaving the Euro, there would be so much capital flight the economy would be crippled for decades.

The more likely answer is that "said country" gets kicked out if it blows up (because other countries will probably follow).  Or Germany/France will vleave voluntarily.  The key point - will Germany/France prop all these countries up if one or two blows up (meaning others will follow)?  My bet is that they will try to but eventually realize they'll be taken down if they do.

[Torie]

Isn't most of Spain's private debt in dollars or euros?

If so, then the ability to devalue your own currency is rather useless - actually it would make things worse.

The Euro is dead fairly soon, anyway, I suspect.  But I won't be certain until it passes below USD/EUR = 1.18 (very, very important technical marker).

Ah, $1.18.  You used the word "technical," as I assume technical analysis, regarding which I was "bred" to believe was what an alchemist did, with in this case the more common "metal" used as an input was "momentum," but what I first thought of was something out of that field where folks get off on numbers as having their own cosmic meaning, "numerancy" or something.

Moving right along, Sam, to the extent one can divert from patience, why is $1.18 of particular significance, and where (I am sure that is is  a plural where knowing you) by the way are you getting all of this cheerful tea leaf reading of something not that far from the "end is near" is a toxin seeping out from the edges?  Are there gurus here in your life, or is this all cutting edge from someplace in near beautiful downtown Brooklyn.

By the way, speaking of Brooklyn, I just read thanks to one of my cousins, the 1919 obit of my great grandfather (the guy who moved to Brooklyn from Norfolk, VA after the Civil War), and learned that my Dad (his granddad lived with the family, and paid the bills since my grandfather did not condescend to indulge in pecuniary labor because he fantasized himself as being above engaging in such demeaning  activities). The obit revealed the address of the house in which he died and in which my Dad  grew up in until around this guy's death. (After that, with the twin breadwinners now both dead, this guy and one of his sons, it was off to the slums of Bed-Stey via St. Petersburg, FL). Anyway, the house was  on 1286 Elmore Place, in Flatbush. I wonder if the house is still there. My Dad used to tell me stories about it, e.g., it had three stories but one bathroom.  If it is still there, I would like to see it.