On the other article I was saying that with the abscence of a proper european budget which could invest in spain and help them, the only opportunity for spain is to dramaticaly cut salaries, share profits (when their will be one)and sell sell sell to foreign countries at cut price in order to keep current jobs. In fact it is applying the receipt of Southwest airlines and Toyota to a nation!

They could also ask people to leave to other countries but every country is in this crisis so that is not an option.

Thanks to associate my name to a singer and not a car, which having lived 15 years abroad was the usual association I got. By the way I am not French!

Also thanks for your great website that I just discovered today through a link through the Adamsmith blog.

“Very interesting article and very sorry for Spain a country that I loved.”

Thanks for your kind and perceptive comment. Your name also puts me in mind of a French singer I once loved, and a song “Mon HLM” and a film “Germinal”, all reminiscent of a world which I thought we had left behind us by which I fear we may be heading back towards.

All this remind me of Robert Mundell, The 1999 noble prize due to his work on a common currency across areas (and with the Euro across countries). I remember arguing with people that Mundell mentioned 3 requirements for a common currency to succeed and none of them was present in the Euro:
1) a strong across nations budget to help countries in difficuties. federal budget in the US is at 20% in Europe it is maybe 2%
2) flexibility of the people to move from one country to the other. Not yet high enough in Europe compare to the States due to different languages, educations, social security and pensions
3)flexibiity in the salary to go down which so far has been abscent in Europe but it seems it is pushed on the people to accept due to the economic crisis.

Still the 2 others are missings and reducing salaries might not be enough.

What is this, 1997? What else will they invest in, but government bonds? Stocks? Don’t make me laugh. Mortgage-backed securities, perhaps?

Is it possible that by giving up your national currency you are in fact giving up your sovereign state (or a huge part of your Independence) and there will be absolutely no return ticket, never ever? Is the EURO membership killing Spain?

In the worst case: will Spain end up in EU receivership/administration a la IMF style (EU bail out)? And would that in fact free local politicians form from bearing the responsibility & blame for what then would follow?

I personally fear this will be the case for some EUROZONE members as I cannot see how they could ever exit the EURO handcuffs without enormous suicidal risks.

Please see: The Absolute Return Letter
February 2009 Do BRICs (and Germans) Eat PIGS? from Absolute Return Partners by Niels C. Jensen

“1) How do you reduce wages without cutting imports? Isn’t that a necessary consequence?”

Yes. You reduce wages (and prices, only reducing wages is stupid, and only immiserises your population, the point is to devalue when you don’t have a currency) in order to correct the CA balance by making your home products more attractive on a cost for value basis, as well as increasing exports. You don’t do it by exhorting citizens to buy inferior products like Cinco Dias rather than the FT. Now of course, if Cinco Dias was 0.5 euro instead of one euro, it might be worth a quick read (although of course I personally read all my newspapers in the internet, I don’t read it since it is an inferior product and time is a constraint, on a Ricardian comparative advantage basis Spain would be better off not specialising in newspapers. Paella over curry might be a better example.

“Who is to buy the increased exports? If GDPs are contracting all over the world and some (many) countries export too little, there must be countries that import too little. Which are they?”

Oliver, you are assuming this contraction is to last forever. I hope it isn’t. One day the global economy will expand again, and any halfway intelligent country would be starting now to prepare for that moment, in order at the very least to try to pay off some of the debt that is being accumulated in paying the bank bailouts.

Now, in order to get a factory up and running from the original decision to start investing the money you probably need 3 years minimum. So if Spain wants to start to be able to return to export driven GDP growth (there won’t be any growth from internal consumption) then you need to start attracting the investment NOW. Is this so hard to see, since I am finding this sort of comment all over the place.

Or maybe Spain incorporated should simply resign for the worst and start to definitively close up shop?