NP - Greece is a Distraction, Spain is the Real Deal

[David Morris]

http://www.slate.com/blogs/moneybox/2012/05/30/greece_is_a_distraction_spain_is_the_real_deal.html

Greece was small fry. Cutting Greece loose would mean big problems for
the whole project, and making the Greek bailout a bit more generous
would be pretty cheap and easy.

Here's the deal with Spain. Lots of Spanish found themselves insolvent
after Spanish home prices started tumbling, which has required a lot
of bailouts. But the Spanish government lacks monetary sovereignty and
isn't a safe haven. To fully recapitalize Spain's banks would bankrupt
the Spanish state. And a bankrupt Spanish state would have to leave
the eurozone, which would destroy Spain's banks. So Spanish people are
afraid of Spanish banks and want to get their euros out of them and
into cash or safer banks in Germany. But the run on Spain's banks
increases the need for bailouts. And yet unlike Greece, Spain is not
small and an externally financed bailout would be very expensive.

What's more, I don't think anyone has deluded themselves into the idea
that the eurozone could survive Spain leaving. If Spain goes, it all
goes.

So this is the real moment of truth. Turning the United States from a
collection of rebellious colonies into a unified democratic republic
involved a massive bailout of the more indebted states and the
introduction of a whole new constitution. It was a big deal and the
financial transfers involved were not in any clear sense "fair." But
the United States of America was a political project, and that's what
it took to make the project work. With Spain, things come to a head.
The logic of the European project is a very expensive and not
particularly conditional bailout aimed at ensuring the existence of a
functioning banking system across the continent. The logic of
protecting the concrete interests of German taxpayers is to not do
that—let the Spanish fend for themselves and let German foreign aid
money go to help genuinely poor countries rather than rich ones that
happen to be located nearby.