Willy\’s Cure!

It\’s amazing! He\’s found it! Will Hutton has solved the eurocrisis!

The nascent European Financial Stability Facility needs to be doubled in size and turned into a fund that can lend to EU governments and their banks.

Err, what?

They\’ve been scratching around the world trying to find the money to fill the current sized fund. So this is a solution that depends again on that magic money tree thing so beloved of the left….

There should be a ¤250bn euro pan-European infrastructure programme underwritten by the European Investment Bank.

Ditto…..and I\’m sorry, but anyone who thinks that more infastructure investment is what, say, Spain needs is simply mad. What the place is currently undergoing is the pain from a couple of decades of malinvestment in infrastructure: not too little but too much.

The European Central Bank should offer unlimited long term loans to eurozone banks.

And that\’ll just boost the carry trade as banks borrow at 1% and lend into govt bonds at 6%. Which is great: except when the capital values of the bonds fall and all the banks then go bust.

8 thoughts on “Willy\’s Cure!”

  1. More infrastructures? In Spain? We could halve or reduce by a lot, (I can’t be bothered to look) the bank bailout by flogging the 5 new airports never used (3, I think) or only used (2) by 20,000 passengers in a year on subsidised flights) to cover up the total waste of space they represent.

    Got a couple of cultural centres closed for lack of ideas and money. Famous architects, too.

    And so on…..

    Anybody want a complete airport? Cheap, know whad’I mean?

  2. Tim, you just don’t get this do you?

    Banks create money out of nothing with which to pay themselves bonuses, lend to downtrodden borrowers who are forced into borrowing and so on.

    Therefore governments can create money with which to pay hardworking navvies and other salt of the earth types to make motorways and runways which are great value even though no one will use them.

    And because the banks creating money for themselves was a problem for the non-banks, governments creating money for themselves will be a problem for the non-governments. Which in leftieland is a good thing.

    Now do you get it?

  3. “What the place [Spain] is currently undergoing is the pain from a couple of decades of malinvestment in infrastructure: not too little but too much.”

    Can you explain that, please? Let’s assume for the sake of argument that all or a huge part of the infrastructure spending was wasted. How does that explain why Spain is in the condition it now is?

    As I understand the position, Spain had a considerable smaller debt to GDP ratio than Germany at the beginning of the current crisis, and had been reducing that steadily over the decade. 10 seconds on google seems to bear that out. “While Greece had basically been running its credit lines at full tilt from 1997 to 2007, Spain spent the decade trimming its debt load by nearly half. ” (www.economist.com/blogs/freeexchange/2010/05/debt_crisis_7)

    So it looks (to me) unlikely that spending on infrastructure got Spain into debt. So how did it cause Spain’ current problems?

    Not a rhetorical question, it’s just that I’ve not seen infrastructure spending blamed for Spain’s problems before. I thought it was a good old fashioned property boom and bust, exacerbated by euro membership.

  4. Luke, I agree with you that Spain’s problem is too much property development, not too much infrastructure. But infrastructure spending is not going to help Spain fix its bankrupt banks.

  5. I’m thinking of boosting my pension by opening a couple of books:
    1. Greece will be out or committed to leave the EZ within 6 months, and:
    2. There will be a referendum to leave the EU in the UK in five years.
    OK, I realise I’m on to a loser with the great majority on Tim’s blog, but there are some true believers out there who deserve fleecing in a good cause.

  6. Frances, I don’t know if infrastructure spending in Spain will help its banks – my guess is that it would if (a very big if) Spain could come up with the money without causing other problems. But I can’t pretend to have any real expertise.

    The reason for my question is that if someone has misdiagnosed the cause of Spain’s predicament, I’m that much less interested in their ideas as to how to solve it (or not). I might wonder if they have a dogmatic objection to govt spending. I’m not saying tim’s diagnosis is wrong, just that it’s a new one on me. I thought (rightly or wrongly) that it was the private sector (plus euro) that causes the mess.

  7. Luke,

    In Spain it definitely was the private sector that caused the problem. Spain’s problem was too much housing construction funded by stupid bank lending – much like Ireland, really.

    Though that’s not to say that there aren’t other countries in Euroland which WOULD benefit from infrastructure investment. Greece and Portugal, for starters. Admittedly, Greece is a basket case: there is no doubt that its government has overspent, running up huge debts in order to give well-paid jobs to cronies and buy expensive armaments (fighter aircraft, frigates and tanks) from France and Germany. And there is a huge problem with corruption and tax evasion. But the country itself could definitely do with some infrastructure development. Portugal is generally a poor country (sorry, Tim!) that could seriously do with some investment to help it regain its lost competitiveness – though it does have far too large and bureaucratic a public sector.

    People really have to stop talking as if there is a single cause of the euro crisis. Apart from the idiotic Euro, of course. Why do we still have it? Can we get rid of it, please?

  8. My comment on infrastructures was not to blame them for the crisis. They are just another symptom of the bloated and stupid greedy, power crazy politician driven public sector.

    Frances is absolutely right. Crazy real estate development (every ignorant git in Spain leapt in), supported by bad lending from banks to companies and individuals (above all from the politically-run mutual cajas (watch out lefties, a real world example).

    Of course all promoted and funded from Europe. Money was pouring in (we had never had it so good).

    And now, we have the 15M movement, run by disaffected lefties and supported by a lot of quite rightly disgruntled people (although the level of analysis as to the problem, its causes and its possible solutions does seem a trifle simplistic to say the least).

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