In regards to the latest flare-up in Europe, Paul Krugman makes an excellent point about why it’s actually welcome that the worries are centered on Spain.
Unlike with Greece, nobody has really argued that the government was fiscally irresponsible.
Check out these stats from 2007:
The Spanish government was actually more austere than the German government by every metric that mattered.
Of course, Spain had a big housing bubble, and the bursting of that has done all kinds of damage to the banking system and the government balance sheet, but that’s a different story than what we’re typically told, and certainly different than what happened in Greece.
So the good news is that the German orthodoxy is blown to bits by what’s going on in Spain.
Krugman doesn’t say it, but it’s also worth pointing out something funny about the timing of the latest freakout.
It was just at the end of March that the Spanish government did exactly what Germany and the ECB wanted it to: Announce a harsh austerity budget.
In the two weeks since then, yields have skyrocketed, so although the leaders of central Europe might want austerity, it’s not obviously what the market is looking for. The market is looking for some signs of growth and stabilisation, and not only is the market not seeing it, it’s seeing measures that accomplish exactly the opposite.