Things Come Full Circle in Spain with Rajoy Getting the Boot

in #politics6 years ago (edited)

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Mariano Rajoy is gone from Spain’s political scene. And good riddance. Live by the jackboot die by the ballot box. Catalan and Basque separatists took their revenge on Rajoy’s brutal crackdown on last year’s Catalan independence movement by voting with the Socialists and Podemos to oust Rajoy from power.

The political situation in Spain has been complicated for nearly two years now as Rajoy governed with a very weak, cartel-style coalition. It was cobbled together under duress and pressure from the European Union to not allow anti-austerity party, Podemos to take power and prevent Catalan independence.

That was Friday. Today the new government in Catalonia was sworn in and it looks to be just as set on seceding from Spain as the last one was. The difference now is that EU-firster, Rajoy, is no longer in power.

The leader of the Socialist party, Pedro Sanchez, has vowed to discuss Catalonia’s situation “government to government” which is a radical change from Rajoy’s refusal to even countenance a dialog with former Catalan leader Carles Puidgemont, who is in Germany out on bond after being arrested by German authorities at Rajoy’s request.

Now, Spain’s political future is up in the air and at a time when hard-core populists in Italy are determined to either tear down its relationship with the EU or force it to reform bodily.

Matteo Salvini is preparing to oust thousands of refugees. Italian politicians are calling for Germany to leave the euro, going on the offensive against German rule over the rest of Europe. And now, Spain’s Socialists are trying to put together a weak, minority government which thumbs its nose at Podemos after using its support to get rid of Rajoy and take power.

Sanchez is trying to go it alone with support of around 20% of Spanish voters in putting together a cabinet. He’s doing this to keep Brussels from lashing out at involving Podemos in the mix who will push to undo fiscal austerity policies demanded by the Troika — EU, ECB and IMF.

But, it’s also obvious he’s willing to repay the separatists for their support. And in this way keep everyone honest. Brussels can’t push him too hard because he’ll simply allow the Catalans to go forth with their independence drive again this fall while also throwing domestic opponents a bone by loosening austerity policies.

Debt Bomb, Debt Bomb

As I’ve been saying for weeks now in relations to Italy, Brussels has almost zero leverage at this point in dealing with populist movements in Souther Europe. None other than J. P. Morgan finally came out and admitted that this time, unlike with Greece in 2015, is truly different.

Long story short, Italy has very few options for improving its situation by staying in the euro. In fact, all of its incentives thanks to a strong current account surplus and discharging its obligations under TARGET 2, are to leave the euro-zone.

This is why Paolo Savona’s saying it would be better if Germany left the euro, rather than Italy, because it highlights the underlying problem perfectly, that Germany has been sucking the continent dry through currency arbitrage.

Germany leaving would be similar to issuing a new lira, as the euro would drop 20% overnight (at least) and that adjustment would turbo-charge the rest of Europe and begin re-balancing the scales.

It would also assist Spain who wouldn’t benefit as much at this point from leaving the euro (see the Zerohedge article linked above) because of its less favorable foreign net investment position.

The bottom line for both countries is simply the old adage when you owe the bank a thousand dollars it’s your problem and when you owe the bank a trillion it’s theirs.

And the bank in question here is the ECB, and, by extension, the Bundesbanke.

That Sanchez is trying to placate Brussels by rejecting Podemos as a coalition partner is savvy politics. It’s saying he’s not ready to throw out the current fiscal controls, but that Rajoy’s rule was unacceptable any longer.

It is also saying, quite explicitly, that Catalonia’s grievances with Madrid will finally get a sympathetic ear which is anathema to the EU given the potential collapse of Spain’s finances if Catalonia forms an independent state, leaving Madrid unable to meet its debt obligations.

The Rain in Spain … Pours

The bigger question is whether Sanchez can pull off this third way path he’s trying to choose. He may not be able to. Even if he cobbles together a cabinet there are real risks of his government not surviving very long.

But, it is interesting that he’s trying to find the right balance here. Either way, the markets are not going to look kindly on this. Spain’s sovereign debt is going to be a problem here.

If Sanchez forms a government he has an automatic ally in the new leadership in Italy. And together they can truly put the screws to Brussels in a way that they haven’t been able to previously.

It will take convincing Podemos’ leaders that the goal is to break Brussels’ hold on Spanish finances and to be patient. I don’t know enough to know that this can work, but tactically, this is the right path.

The new Catalan Prime Minister, Quim Torra, has already put an October 1st independence referendum on the table. So the clock has begun ticking again. Because if an independence-friendly government in Madrid holds serve over the next four months, the entire board state, as we gamers call it, changes completely.

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Yeah, it's unfortunate that in Spain they don't have actual liberal democratic parties that can represent a mediating influence on the PP and PSOE. I actually had some streams with Catalan activists last year. Maybe I'll do an update stream with them.

Amazing political artical

Daily Learn some new from your post. Love to read it.

You downvoted the bot comment? Misunderstanding maybe?

no. I want the bot off my threads and stripped of its reward.

Ok I see. As for Spain, tomorrow I have spanish class - I am retired - and my spanish teacher hates Madrid government. We will discuss a little.

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