The Spanish government, a fragie coalition at its inception, loks set to collapse in the next few weeks as the Ciudadanos party has broken ranks and thrown in its lot with the opposition group, PSOE (socialist) and Podemos in a non-confidence vote against PM Rajoy. After months of strife following a vote by citizens of the most prosperous province, Catalona, to secede from the nation, which prompted a fascistic response from Rajoy's government as it persecuted Catalan politicians, jailing some and causing others to flee the country, this can only mean Spain has taken a giant step towards disintegration.
The Spanish political crisis is inextricably linked to the pending conflict betwen the new Eurosceptic Italian government and Brussels, not simply because the nations are culturally and economically so alike, but because both, having been coerced into joining the signle currency, now combine to create huge financial uncertainty in the eurozone.
Sometimes a crisis in needed to make people see that the emperor, strutting around in all his pomp and glory, is not just stark bollock naked, but also is afflicted with several disfiguring diseases.
Both countries, though Italy perhaps more than Spain, would by now have experienced total economic collapse had the European Central Bank (ECB) not propped up their economies bu mortgaging Europe's future. In essence, the ECB's Mario Draghi is buying up trillions in sovereign bonds to disguise the fact that the present economic condition of the Eurozone makes it inevitable that the poorer south of Europe will lose against the north.
Club Med as the poorer nations are known (or less politely PIGS, Portugal, Italy, Spain, Greece) needs a mechanism for devaluing their currencies from time to time to keep up in order to reduce the burden of interest due on Sovereign Bonds. Signing up for the euro meant they lost that sovereign right, their economies are now tied to the German economic powerhouse, and the single currency itself doesn’t provide a way out. The euro has become a liability to the poor nations, but if we did a bit deeper beneath the headline figures, it’s also a drain on Germany, which, one Britain leaves, will be the only net contributor to the EU budget and thus is forced to either bail out Italy and Spain or crush them the way Greece, Portugal and Ireland have been crushed and are now little more that client sttes of the Brussels bureaucratic empire.
Italy and Spain are much larger economies than Greece, Portugal or Ireland, and therefore present much biggr problems, which are about to become infinitely more painful than had those countries been able to devalue their currencies.
The main fault of the euro, it is that it creates problems that would not have existed if the common currency itself didn’t. This was inevitable from the get-go. The fatal flaw is embedded in the foundations.
The common currency has been rendered obsolete by technology, in 2018, people have no need of banks or exchange bureaus to exchange their dollars, krone, pounds, or yen, we can either pay in plastic or get some local currency out of an ATM. All this could be done at automatically adjusting exchange rates without the use of all sorts of middlemen that existed when the euro was introduced.
Americans, Australians and travellers from non Eurozone European nations such as Britain or Sweden visiting E U destinations already use this exact same system and it would work just as seamlessly for Francs, Deutschmarks, Peseta or Lira. Governments could easily agree rules that make it impossible for banks and credit card companies to charge more than, say, 0.5%, on currency exchange transactions. Nations do not need a body like the European Union in order to make deals with each other.
Technology has eradicated the reason for the euro's existence, but the euro is here to stay because the real but unspoken reason it was created was to ease the path for integrating the EU member states into a single political entity. It is therefore going to cause a lot more pain and mayhem before it collapses because Europe's bureaucratic elite are not going to give up their dream or a pan European empire easily. Any country that even thinks about leaving the system will be punished hard, even if leaving is the only was to prevent that nation sinking into third world poverty.
So many carers have been built of fulfilling the dream of a single European superstate run by unelected bureaucrats, so much has invested in it, and the richer nations and their banks still benefit hugely from the problems poorer ones face. The countries that got it right were Britain and Sweden, both of which more than met the conditions for single currency membership but decided to stay out of the eurozone. Italy, Spain, Portugal and Greece did not meet the conditions but through creative accounting and bullying in brussels were forced in, with disastrous results for all.
If, however, anyone want to take out a bet (by investing in government debt) on who’s going to be worse off when the euro shit hits the fan , post Brexit Britain or for instance Italy, Spain or France, think carefully first about how bond markets work.