A blog on the political, economic and social causes and implications of the crisis in the Southern periphery of the Eurozone.

I'm a political scientist working on political parties and elections, social and economic policy and political corruption, with a particular focus on Italy and Spain. For more details on my work, see CV here, and LSE homepage here. For media or consultancy enquiries, please email J.R.Hopkin@lse.ac.uk.

Monday, May 28, 2012

Spain heading for bailout

It's hard to imagine anything more inevitable than Spain needing a bailout, and soon. The Rajoy government's latest trick - recapitalizing a bankrupt bank, Bankia, with bonds from a near-bankrupt state, Spain, is probably the final straw for investors who are paying attention. Bankia, in turn, has been suggesting that one way to return to profitability is to reduce its tax liability: in other words, to help the Spanish government get its money back, they will endeavour to pay less money to the Spanish government.

This is what hiring the likes of de Guindos achieves. After all, employees of institutions like Lehman Brothers are essentially trained to make money through tax avoidance/arbitrage and clever accounting, rather than generating real wealth through smart investment. The Spanish government is now in the hands of people whose ignorance and arrogance led the country into this mess, in both the political and the financial institutions. Rajoy turned a blind eye whilst corrupt regional leaders like Camps and Aguirre fuelled real estate booms which paid for their vote grabbing and created the conditions for today's tragic scenario.

Now it's all down to Europe. Will they blink, or will they bail? Almost certainly they will bail, just like in Greece, but in such a way as to make recovery impossible. If they let Greece go, who will buy into Spain? The endgame approaches.