More on euro problems, via Ambrose Evans-Pritchaird:
It is no mystery why Spain is trapped in depression. The country joined the euro without grasping its Faustian implications, as did others. Germany was equally naive in thinking it could have a currency union entirely on its own terms.
EMU caused Spanish interest rates to halve overnight, with dire results as the Bank of Spain's governor confessed in April 2007. "The single monetary policy has meant that excessively loose conditions for our economy have been almost continuous," he said.
Real rates were -2pc as the bubble reached its crescendo. Nearly 800,000 homes were built in 2007, more than in Britain, Germany, and Italy combined. There is now an overhang of 1.6m unsold properties, six times the level per capita in the US. Total public/private debt has reached 270pc of GDP.
The boom was a debt illusion....
And the conclusion:
... Spain can try to claw back an even greater loss by cutting wages, but that risks a slow death by debt-deflation as compound interest tightens its vice.
This can end only in two ways. Either Germany tolerates massive monetary reflation by the ECB or Spain will be forced out of EMU, setting off a catastrophic chain-reaction through north Europe's banking system.
Spain is trapped in a 'perverse spiral' as wage cuts deepen the crisis - Telegraph