Spanish Bank Fails, here comes the IMF

Over the weekend a Spanish bank, Cajasur, was seized. This is a large Spanish bank with $23.9 billion or 0.6% of Spain's assets.

Now the IMF is gunning for Spain and it looks like they are after.....their pension system and wages. From the IMF press release:

A dysfunctional labor market, the deflating property bubble, a large fiscal deficit, heavy private sector and external indebtedness, anemic productivity growth, weak competitiveness, and a banking sector with pockets of weakness. Ambitious fiscal consolidation is underway, recently reinforced and front-loaded. This needs to be complemented with growth-enhancing structural reforms, building on the progress made on product markets and the housing sector, especially overhauling the labor market. A bold pension reform, along the lines proposed by the government, should be quickly adopted. Consolidation and reform of the banking system needs to be accelerated.

The EU is also calling for Spain to modify it's pension system by raising the retirement age and scaling the benefits. The IMF is zeroing in on Spain's labor markets. So why exactly are they doing this and why are workers supposed to be stuck with the housing bubble and derivatives bill as sovereign nations become mired in debt?

The IMF is gunning for workers' wages, trying to kill collective bargaining. The IMF seems to dislike job security too and is promoting making it easier to fire people. It appears the IMF wants temporary labor markets, more global migration as a cheap labor agenda item. So, precisely how is that to help Spain build up their real economy and advance particular industries? How is that supposed to address the collapse of a housing bubble along with it's associated gambling chip derivatives?

Why aren't the banks being called upon to suffer austerity measures?

Meanwhile Spain is being blamed for a further weakening of the Euro. Gold is on the up again as safe haven.

Now Four Spanish banks merge, with €135 billion involved. ZeroHedge:

Just as the subprime collapse started with a few names toppling, this could easily be the start of implosion of the allegedly insolvent Spanish banking system.

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Labor Market Reform

Hello,

I like your blog but this is bordering on lunacy. The economic theory behind the benefits of the type of labor reforms the IMF is proposing is very straightforward and clear. The basic point is regarding resource allocation; capital and labor in this case.

Quite naturally, a large part of the adjustment process involved in economic booms and busts is shouldered by the labor market. In the case of Spain, the housing and construction industry saw a decade long bubble that is now in the 4th year of bursting. At its peak, the housing and construction industry employed millions of people. The problem is that Spain now has 5 to 10 years of housing supply, therefore has no reason to keep paying people to build. As the structure of the economy adjusts, ie. productive resources shifting from housing and construction to other areas such as alternative energy, people need to develop new skills to sell in the alternative energy industry. This transition takes time, thus there are people left without work. Paying people to stay employed in industries that are not competitive or profitable simple worsens the resource allocation.

Spain's problem is that labor is too secure; companies cannot fire people to match falling demand, thus are forced to overproduce. This is a major drag on economic productivity and thus growth. Allowing companies to fire is fundamentally important to the adjustment process. Your prescriptions would condemn Spain to decades of stagnation, decay, and political and social unrest.

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Is it?

While your comments are valid, i.e. of course one should not be overproducing in areas of collapse just to satisfy some labor law, that's not what I'm reading and it's also not the history of the IMF. Instead they are talking about removing collective bargaining across the board, and no, one should not be able to easily fire someone. One can make labor markets more flexible, but that's not through firing, that's through re-allocation and retraining. Think Finland for a moment. When a market goes bust, they do not fire everyone, they literally retrain everyone. That's a huge difference between outright mass firings and turning the labor force into "permatemp". We see how far that has gotten the United States. Because corporations were so busy labor arbitraging and firing people like Schnidler's list, there are now some areas where the expertise needed just isn't there and no American is going to invest to learn it....because that expertise does not pay out, i.e. careers are cut short due to this continual permatemp attitude towards staff.

The reason I wrote this is a pattern and no, labor should not shoulder the burden of derivatives/MNC/Bankster follies. The IMF pattern is to attack social safety nets and labor, all the while ignoring the MNCs, capital, the finance sector. It is the finance sector, capital and especially CDS and currency swaps which need to be reigned in, plus these government financing, LBO type deals which allow governments to hide immediate debt but come back and cost them way too much later.

The IMF routinely doesn't focus on the real areas from which the problem originates and it is the financial sector here, derivatives and instead seems to be almost a neo-con agenda to rip asunder social safety nets and social systems for equality, work security and well, basically the structures which built up the middle classes.

After announcement after announcement, this time I'm just not buying it. Not when we know the Banksters are now 63% of GDP in the U.S. and that's obscene and out of balance. Manufacturing is now about 8-12% of the U.S. economy and that's just so wrong.....yet when it comes to reducing debt levels, it is never shrink the financial sector, cancel out or take a hair cut on CDSes, swaps or LBO deals or other financial vehicles of this nature.....it is always attack the few social safety nets and worker levelers. Collective bargaining? That is their target for a housing bubble? There is no direct connection here that I am aware of....

Is should be retaining all of those construction workers into advanced manufacturing jobs, but I don't see anything in the IMF releases mentioning any of this.

Am I going nuts or is America so used to the worker squeeze mentality that no other causes and areas can be even examined? I'm all ears with statistics, numbers and percentages but ignoring the derivatives, interest, currency swaps and other costs, losses on retirement funds and all of the rest of it...let's chat about those percentages w.r.t. overall GDP drag.

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Anonymous Drive-by

Why do you hide behind 19th century economic ideas?

Confess your hatred for working people: you know work, right, basic science (unlike economics) moving a force through a distance (M=F x D). Maybe the darkened font will help you make the connection.

You'll feel much better about yourself

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Hmm, I guess we'll find out

Hmm, I guess we'll find out how thoroughly communism and anarchism were stamped out by Franco.

Viva La Revolucion!

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"Why aren't the banks being

"Why aren't the banks being called upon to suffer austerity measures?"

It's easier to break promises to voters than to financial backers. Politicians, like all of us, respond to incentives. If I can get elected taking money from bankers and block votes from unions (all conditional on giving to these groups at the expense of others, of course), then I will. Altruism exists, but never count on it. Any would-be politician who tries to do the 'right' thing will be eliminated very early in his career.

The system creates the incentives. That is why wise men like the founders of the American republic advocated the smallest government possible, so it could do the least damage. We're stuck now, because the system is too compromised to contemplate changing itself and will have to hit a wall before the various groups who hold veto power are dislodged. Expect unpleasantness.

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Andalusia, Pais Basco, Spain never gave up the struggle!

A less know book by a very famous author on the Spanish
Civil War is "Homage to Catalonia", by G. Orwell. It is autobiographical, & gets into the Nazis, Stalin, and Spanish Anarchists, Communists and Fascists.

Late into the 70s and 80s, you could talk to Spaniards
who were part of the Andalusian Anarchistas, and supporters of Largo Caballero, whose government voluntarily surrendered power in 1938. If you were a young American, traveling in Spain before Franco gave up,
you routinely got the fist when many Spaniards greeted you.

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Burton Leed

Bank Austerity

Their idea of austerity was shown by CitiGroup in the fall of 2008.

They laid off 50,000 US employees. Pandit cut his salary from $38 million a year to $1/year. I'll wager his stock options will make him a billionaire when all this is over.

Crooks.

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