Prospero’s Europe: Part 2, living in a cloud of smog
[Continued from yesterday’s Part 1.]
In Yesterday’s Part 1, we saw that Europe’s extremities – Spain, profiled in the Wall Street Journal (December 28, 2012) (red font), and Greece, written up in the Wall Street Journal (January 11, 2013) (blue font) – are dying a slow economic death from capital starvation, in large part because they cannot depreciate their currencies and make exports competitive once again.
As these countries run out of money, like Prichard Alabama their governments stop paying bills, and the result is some part of the economy simply die, and as they do, so too do some parts of the polity and some parts of the ecology.
Pharmacies in Valencia, including the one above, closed for much of November to protest the government’s failure to pay its bills.
In northern Greece, where climatic conditions in winter are closer to those in continental Europe than the Mediterranean, the struggle to stay warm amid government cutbacks is forcing tough choices on local municipalities.
While the Greeks are burning up their hillsides, they are also burning up their next generation’s hopes and spirits.
In late December, one of Greece’s teachers’ associations warned that many schools, particularly in the north, could soon be forced to suspend lessons because there was no money to heat classrooms.
Meanwhile, in a lions-and-lambs moment, the Greeks are obtaining help from their nearby Muslims:
In Orestiada, a town located along the shared Greek, Turkish and Bulgarian border, the local swimming team travels two or three times a week to neighboring Turkey to train, after the town’s mayor had to choose between heating local schools or the swimming pool. In a sign of solidarity with their fellow athletes, the Turkish swimming club of nearby Edirne invited the Orestiada youth to practice at its installations free of charge.
Edirne, the former Greek Adrianpolis, was for a century the Ottoman capital
After decades of being promised EU admission, only to be treated as Nth class applicants, the Turks may be asking themselves why they should want to join the EU
Join a sinking ship?
The struggle to stay warm has also had tragic consequences. In early December, in the northern Greek village of Mesoropi, three siblings age 5, 7 and 15 were found dead after a fire broke out from a wood stove their family was using to heat the house. The fire had spread quickly during the night, causing parts of the house to collapse and trapping the children as they slept. The family had 10 children.
Somewhere, Mario Draghi was unruffled.
Unemployment isn’t my problem
Mr. Draghi is still waiting for Spain to bid adios to sovereignty and ask for a loan.
The central government has moved to cover some of the debts of local administrations, raising pressure on Spanish Prime Minister Mariano Rajoy to seek financial help from the European Union—a politically risky step.
“I can call spirits from the vasty deep.”
“Why so can I, and so can any man.
But will they come when you do call for them?”
Spain’s crisis, set off by the collapse of a real estate boom nearly five years ago, is particularly acute in areas where declining revenue from real estate taxes pummeled municipal and regional finances.
I see no happy ending to this cycle.
Personally, I like happy endings
Public authorities’ average payment delay in Spain was 80 days in 2012, compared with 51 days in 2009, according to Intrum Justitia, a credit-management services company.
Sick, sicker, sickest – stretching the payables
For a vendor, uncollected accounts payable means unpaid payroll. Stretching the payables above ninety days means your workers go unpaid, and your society starts collapsing into disorder.
In Germany, it said, the average delay declined to 11 days in 2012 from 15 days in 2009.
What this means in human terms is all too clear.
Ms. Jarque’s Representaciones Blazquez SL is an example. Through 2011, local governments owed it about €350,000, she said. The company took out bank loans to cover operating costs.
The 67-year-old businesswoman and the company’s other co-founder halved their own wages over time, laid off five workers and froze the pay of the nine who remained. The company stopped serving unreliable clients. Its annual revenue fell by half since 2008, to about €600,000 in 2012.
The government’s new credit program covered about €200,000 of the company’s unpaid invoices, providing some financial relief. But Ms. Jarque’s remaining clients are still paying their bills as late as four months behind schedule. “We’re subsisting,” she said. “I don’t know how long we can hold on.”
Spanish law required public administrations to pay suppliers within 40 days in 2012; the limit next year will be 30 days.
A fat lot of good that’s doing – when the sovereign passes laws that the sovereign immediately flouts, the observant herd correctly concludes that the government is illegitimate.
Mr. Rajoy’s government tried to put a lid on arrears this summer. It established and guaranteed credit lines of about €27 billion for local governments to compensate suppliers for unpaid invoices through 2011. Late this year, officials sent an additional €12 billion for debt-maturity payments and suppliers to regions that requested aid through a special liquidity fund. The central government said it may have to borrow €23 billion for the regions in 2013.
Only one bank will lend to you – do you know which one it is?
The aid helped thousands of businesses stay afloat, but many still face cash crunches as overdue bills continue to pile up.
As I’ve said many times, financing will not solve an operating problem; it can buy time for an operating solution, and it can solve a financing problem. None of these solutions appear likely for Spain or Greece. And when the payments are not made, the platelets stop bringing nutrients, because you may be jefe in Spain, but a jefe in Spain is still a pauper in Brussels:
Rittal GmbH supplies, among other things, industrial enclosures for computer servers to companies that install data centers for various Spanish administrations. The German manufacturer has started rejecting clients that propose delaying payment by more than 75 days and sometimes demands payment up front, said David Cairol, Rittal’s chief financial officer in Spain.
Naturally: what else could they do?
The company does allow some clients that have trouble collecting from public authorities to pay 40 to 50 days late. “We’re trying to share some of the burden,” he said.
Though they are unwilling to acknowledge it, German vendors are buying unsecured Spanish debt – debt that is likely to be deeply discounted. Nor are they the only citizens who are being bilked by their government:
I hope not … but it’s heading that way
Laid off from a software consulting company in 2010, Victoria Manero, 41 years old, started a business making customized gift baskets in Valencia. In the summer of 2011, the regional government approved her request for a €7,000 entrepreneurship grant that required her to invest at least €5,000 of her own money in the business, Art de Cor Detalles, and to stay open three years.
Ms. Manero then made the mistake of relying on her government.
She has yet to receive the promised seed capital, she said. Her business, after doing well last year, has stalled, fallen behind on its loan payments and may need to close.
That’ll really spur job growth.
A spokesman for Valencia’s regional government said he couldn’t comment about Ms. Manero’s grant, but acknowledged the problem of bills past due. “We regret the payment delays and understand the discontent of those affected. We’re working on securing liquidity…to meet our financial obligations,” he said.
In other words, we hope a miracle happens.
Saint Teresa, pray for us
Pray for us now and at the moment of our death
“When you work so much and learn so much, it hurts so much when you meet your obligations and [the government] doesn’t,” Ms. Manero said. “If they gave me those €7,000, I think it would be my salvation.”
A country cannot keep doing lying to its citizens and stealing from them without triggering backlash.
The [children’s death by fire] shocked Greece and was quickly latched on to by the opposition Syriza party, which opposes the country’s austerity program that has led to higher costs for heating fuel and increased electricity tariffs.
Syriza spokesman Panos Skourletis said the austerity program is forcing Greece and Greeks to choose among “either getting burned by wood stoves, or destroying the forests, or living in a cloud of smog.”
Even a demagogue’s spokesman occasionally speaks the truth
I don’t see the peripheral economies getting better. I see them atrophying permanently.
As summarized on January 14 by Jennifer McKeown of Capital Economics:
McKeown wants Draghi to tell it to the 26.6% unemployed
The ECB’s comments last week dealt a blow to any hopes that the Bank might provide more support to the euro-zone economy as it slides further into recession. With financial market conditions improving, President Draghi stated that the Governing Council had been unanimous in its decision not to cut interest rates.
When asked specifically whether the Bank could do more about the high and rising level of unemployment in some euro-zone countries, Mr Draghi stated merely that low and stable inflation would create jobs. Try telling that to the 26.6% of the Spanish workforce that is currently unemployed despite the fact that underlying inflation has been broadly on target for the past five years in Spain.
Writing this post has made me angry, because I believe that the EU troika cannot see the whole system; in pursuit of economic theory, they are destroying families, cities, and nations.
The casket reads, RIP employment
Meanwhile, in Brussels, Mario Draghi and the lords of the EU ruled from Prospero’s palace:
An extensive and magnificent structure, the creation of the prince’s own eccentric yet august taste
But the Prince Prospero was happy and dauntless and sagacious.
I am Prince Prospero, and the world cannot touch me
When his dominions were half depopulated, he summoned to his presence a thousand hale and light-hearted friends from among the knights and dames of his court, and with these retired to the deep seclusion of one of his castellated abbeys. This was an extensive and magnificent structure, the creation of the prince’s own eccentric yet august taste. A strong and lofty wall girdled it in. This wall had gates of iron. The courtiers, having entered, brought furnaces and massy hammers and welded the bolts. They resolved to leave means neither of ingress or egress to the sudden impulses of despair or of frenzy from within. The abbey was amply provisioned. With such precautions the courtiers might bid defiance to contagion. The external world could take care of itself.
In the meantime it was folly to grieve, or to think. The prince had provided all the appliances of pleasure. There were buffoons, there were improvisatori, there were ballet-dancers, there were musicians, there was Beauty, there was wine. All these and security were within.
Without was the “Red Death.”
Take me to Mario Draghi