Always great to see Paul Krugman turning his eye to Spain, even if it is because the Euro crisis is spreading its way over here. As he succinctly says, Spain is no case of meltdown by excess spending: it was running a surplus in 2007 and its debt level was very low. What Spain did have, however, was a housing bubble–created in no small part by way too much cheap money from Germany.
I’m still amazed at how the PIGS countries are putting up with German-led nonsense about how to solve this crisis. Foolish Northern lending was as responsible for Europe’s current woes as anything, so it is not unreasonable to ask those responsible to bear a share of the pain of fixing the problem.
There is that old saying: If you owe the bank $1,000, the bank owns you; but if you owe the bank $1 million, you own the bank. If I were Spain–and Portugal, and perhaps Italy (but not Greece: they really are messed up with excessive spending–I would be pushing back. Sure, Spain pulling out of the euro would create havoc here, but it was be just as bad for the rest of Europe. The threat would go a long way to righting the balance between Europe’s north and south.
For more information about the Spanish economy, there is always the wonderful Edward Hugh. He has a new interview up here. I wonder what Mr. Hugh would make of Krugman’s suggestion that Germany should raise its inflation rate up to 4% or so, while the PIGS are kept at 1%-ish, to help re-balance the north and south of Europe.