It is a well-known maxim that to keep repeating the same action and expect a different result is a symptom of madness. It is hard to find a different way to account for the persistence of Eurozone leaders in inflicting punishing austerity on countries belonging to the common currency, a strategy that has proved both fiscally ineffective and socially destructive.
In recent days, the focus of the crisis has returned to Spain, and for good reason. The country suffers from the highest unemployment rate in Europe: 24 percent, and it’s more than 50 percent among those 15 to 24. Despite this catastrophic state of affairs, the relatively new, conservative Spanish government—elected last November with 46 percent of the vote on a platform of austerity and structural reform—recently unveiled a budget proposal that, in the words of Budget Minister Cristobal Montoro, is the strictest since the death of Franco in 1975. The total fiscal adjustment for 2012 is a massive 27 billion euros. The goal is to bring Spain’s budget deficit down from 8.5 percent of gross domestic product (GDP) to 5.3 percent.
The French presidential election, the first round of which will be held on April 22, is crucial for the future of the country and the wider European project. Nicolas Sarkozy, who won the presidency handily five years ago promising a “rupture” with France’s statist, dirigiste economic model, is fighting for his political life. Odds are he will lose it.
The successful conclusion last Friday of the PSI (Private Sector Involvement), the bond exchange process for Greece’s private creditors, was good news—both for the country and for the eurozone. Voluntary participation in the deal reached 85.8 percent (out of a total of 206 billion euros in Greek government bonds which were up for exchange). The level of participation reached 95.7 percent with the decision to activate the Collective Action Clauses (CAC) recently added to the legal contracts governing 177 billion euros of bonds under Greek law, forcing recalcitrant creditors to participate in the process. This means a 105 billion euro gross reduction in Greek debt—out of a total of 368 billion.
After nearly four months of negotiations, near misses, bouts of despair, and growing acrimony, the eurozone finally gave its blessing to Greece’s second bailout. It is a huge 130 billion euro package, accompanied by a debt writedown and strict austerity requirements. In a 13-hour-long meeting yesterday, under intense pressure from Germany and the Netherlands, Greece’s private bondholders were forced to take a larger haircut than originally planned—53.5 percent rather than 50 percent. This, according to the International Monetary Fund, will bring Greece’s debt down to 120.5 percent of GDP by 2020.