Monday, April 23, 2012

Report from Barcelona

My wife and I traveled to Barcelona in Spain last week.

We had a terrific time!

Barcelona is a beautiful city, rivaling Paris in some ways, in my opinion.  Christina and I spent hours just walking around through the streets, marveling at the architecture and occasionally grabbing a coffee at one of the outdoor cafes and watching the people stream by.

The city abounds with great museums, and the restaurants are first class. Our visit went by far too quickly, and hopefully we will get the chance to return someday.

But we were visitors, and so largely avoided seeing any signs of the very real economic problems confronting the Spanish citizens.

Spain is at the center of the most recent eurozone crisis. The Spanish government is desperately trying to comply with the demands of the European Central Bank in exchange for financial aid.  However, the pain that the austerity measures are inflicting are highly unpopular, and there have been numerous protests and riots in the streets of Barcelona.

And yet, as Paul Krugman pointed out in last week's New York Times, the problems in Spain are not the result of a profligate government.  Instead:

Consider the state of affairs in Spain, which is now the epicenter of the crisis. Never mind talk of recession; Spain is in full-on depression, with the overall unemployment rate at 23.6 percent, comparable to America at the depths of the Great Depression, and the youth unemployment rate over 50 percent. This can’t go on — and the realization that it can’t go on is what is sending Spanish borrowing costs ever higher. 

In a way, it doesn’t really matter how Spain got to this point — but for what it’s worth, the Spanish story bears no resemblance to the morality tales so popular among European officials, especially in Germany. Spain wasn’t fiscally profligate — on the eve of the crisis it had low debt and a budget surplus. Unfortunately, it also had an enormous housing bubble, a bubble made possible in large part by huge loans from German banks to their Spanish counterparts. When the bubble burst, the Spanish economy was left high and dry; Spain’s fiscal problems are a consequence of its depression, not its cause.

One thing that really struck me was how important the whole concept of the euro is not only to the Spanish citizens we spoke with, but also other Europeans that we had the chance to meet as well.

Euro flags abound in the city, and the euro is featured on all the license plates.  We met people from several different countries in Europe (the advantages of drinking great Spanish wine at tapas bars!), and all seemed very committed to the concept of the euro.  No one, it seems, wants to go back to the days of separate currencies and economic policies despite the current strains in the European union.

Too often, it seems to me, American commentators are quick to dismiss the euro as a failed experiment.  The euro is more than just a financial idea - it is a political structure that attempts to not only make the European economy competitive with the United States and China.

In other words, it seems to me that Europe is a long way from giving up on the euro and its member states.