One of the flaws — perhaps the greatest one — of the Greece bailout system is that a rescue solves core economic problems. Of course, that is not true. If anything, the austerity involved in such programs makes unemployment more likely as government jobs disappear along with any stimulus that might improve GDP. Italy, Portugal, and perhaps Spain remain candidates for the next rescue. Not a single one of the economies is even close to healthy.
Spain has been identified as a nation that might avoid the need for aid, but the capital markets do not think so. Investors continue to drive higher the rates Spain must pay for debt. The cost to insure Spain’s debt is also up. It is unimaginable that Spain could make an even modest recovery if nearly half of its young people are out of work. The unemployment rate for all age groups remains 20%. It does not take a clever global capital market investor to realize that the foundations of the Spanish economy are broken.
The fiction of the EU and IMF plans to get the region’s economy back into order is that none of the programs they have suggested address the structural weakness of the most troubled nations. Unemployment is the first of these, and in Spain it is at levels similar to those the U.S. had experienced during the Great Depression. To relieve this kind of Great Depression jobless levels would require Great Depression-style solutions. Not a single provision of any bailout comes even close to that.
Douglas A. McIntyre
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