Another massive Financial Bubble from Brussels

Until not long ago, the Spanish bail out looked like something almost impossible without bringing about the sinking of the whole eurozone - it was too big to fail and too big to be rescued - but today nobody seems surprised. And even worse the ECB is planning a rescue for a country whose main problem is not liquidity but solvency. Last Thursday the Frankfurter Allgemeine Zeitung stated "The ECB is fuelling another massive financial bubble". But the situations are  worse than the German and the ECB think . The Spanish Economy, as a consequence of the tough increases in  consumer taxes and  on the family means that  industrial income is now in free fall. That clearly means that Spain is actually unable to pay back its massive public debt, that has grown to 400B€ in four years, as well as the wider financial debt, that now amounts to some 892B€: (716B€ with European private banks and 176B€ with the monetary authority.)

The size of the Spanish external debt is already ten times bigger than that of  Greece, despite its economy being just five times bigger. That situation is crystal clear for the international private investors, who are running away from Spain. In the last six months a total of 229B€ has been withdrawn from the country, the equivalent of 21% of its GDP, and this is something that no economy can afford. Only  Germany and the ECB are reluctant to accept the disaster for what it is . "I totally trust Mr. Rajoy" said Mrs. Merkel in what looks like a declaration of love that bears no resemblance to  reality, because if we know anything about Rajoy, it is that nobody can trust him.  84% of the Spanish electors say they do not trust him anymore, and half of his supporters say they will never vote for him again.

Now the ECB wants to buy Spanish 3yr bonds, a bail out that, with no credible control mechanism over the use of the money and how it will be spent  will be a disaster for Spain and its citizens.  Bear in mind that the economical and social downfall will last several generations, and if what we have seen so far  looks like a total disaster, the worst is still to come. Not one Euro of that bail out will be for the productive economy, it is just giving more drugs to a the same drug addicts that have made no serious attempts at reform.

Nothing of what needs to be done has been fulfilled, nothing has been reformed in the normal way that business should be - rich people pay no tax, big corporations pay about half of what they should  pay and big financial gangsters are not put on trial in court. In some cases if they are found guilty the government indulges them - and there is no control over the waste of public money with regions and city administrations. This sector is  totally out of control  and the financial system, in an unprecedented situation. And Mr Rajoy still has no idea about what to do.

Germany rules, but doesn't understand and is not addressing the flaws  in countries like Italy, Spain and Greece. Nobody has been ever found guilty of building unused airports, leading systemic financial institutions to bankruptcy or ruining regions as important as Catalonia and Valencia due to disastrous mismanagement of the public funds both from Spain and the EU. Some are asking for a national debate about the bail out. That is pie in the sky . Put simply:  THERE IS NO MONEY.

The money pumped in to Spain without any external control from Europe has ruined the country.

Without the money first from the financial institutions, and then from the ECB, that was lent in an unlimited way to the corrupt political and financial oligarchy, the real estate bubble in Spain could never have happened. And without those money flows, Spain would have been forced to do its homework during the period of socialist rule - 2004 to 2011.  Maybe  it could have avoided the contemporary mess   indebted beyond what can be repaid by future generations. In this scenario, what stands out  is the  remarkable role of the European banks, particularly the German Landesbanki, who lent more that 700B€ with no analysis or control whatsoever of the totally politicized and corrupt saving banks.

Germany and the EU started between 2002 and 2007 to lend money to Spain as though there were  no limits . Due to this behaviour, dozens of banks and savings banks that needed to be closed stayed alive and the political oligarchy together with the corrupt businessmen started to built luxury sports and arts centres in every single city and conference centres in every major city. Moreover, they  built luxury networks on the railways and motorways of Europe, while still having the most badly run secondary rail and road in the whole developed world. A total waste and monstrously corrupt. Bribery has reached an all time high, a fact that means competitivity has suffered enormously.

Despite  all this, the ECB president, Mario Draghi, will offer Spain more of the same. A preventive bail out of between 20 and 100B€ in one year, payable twice  every six months. There are more possibilities, but the most probable is a credit line with "enforced conditionality,” This condition is a joke,  as the supposed conditionality is that Spain must adopt the necessary corrective measures that Madrid wants. This can be translated as more tax increases, more cuts in pensions and benefits of all kinds and in salaries, but no talk about reduction in regional waste.

Mr Draghi said that that auditing also will be performed on the public accounts to "check if the objectives are fulfilled. And if not, especially if they are quite far, the preventive bail out became a full one". The whole idea is so bizarre that it is difficult to understand what the ECB bureaucrats and the European Commission do for a living. What was all that about  “Checking the Targets?” Haven´t they already realized that the government is spending double its income, and the increase in VAT only will add 2.5B€ by the end of this year?. Haven't they already realized that all the regions and cities are bankrupt and that they are still spending as if there were no tomorrow? Haven´t they seen that after the publication of  July´s figures, the 2012 deficit will go far beyond the 10% of GDP?

It´s time for Germany and the ECB to realise that Spain is not even close to fulfilling any debt or growth  whatsoever, and the more money they get the bigger the ruin will be for the future generations of Spaniards, because not a single cent of that money will be invested in the productive economy..No, it will be used merely for fixing holes in savings banks or fixing corrupt regions or cities!. So why give more money to an irresponsible and rotten government? Just to allow it to sell the future generations down the river?

And to cap it all, the height of sarcasm:, "the target of the preventive program is to support healthy politics". What do the bureaucrats of the ECB understand by healthy politics? Keep giving Bankia 23B€ that, as its president said, it would be "paid back" in 20 years?. Keep financing the holes in the regions and cities, that have been wasting more that 40B€ in 2012, and now need 18B€ or more, because they just refuse to cut their  relatives’, lovers’ and friends’ expenses? This is not mere tittle tattle:  it is exactly what is going on. Neither the Spanish people nor any European people deserve those European institutions that are so deeply ignorant and irresponsible

But the first prize, of course, goes to  the opposition leader in Spain, Mr. Rubalcaba, the man mainly responsible, with Mr Zapatero, for the ruin of Spain. He has not found easy solutions to all our problems. For the third time of asking, the socialist announced a "big fiscal reform" - it can be a small one indeed! - and why not the umpteenth "Social sustainability law". And that´s not all, no, Rubalcaba has got a secret weapon. "I will tell the Europeans that the socialists will not accept any further cut", so let´s keep spending double the national income because the difference will be paid by the Germans and the rest of Europeans and the ECB, with no condition or limit whatsoever, as well as the 140B€ due every year. Why did nobody think of this before?

*Stefanie Claudia Müller is a German corespondent in Madrid and economist.

Roberto Centeno is a Professor of Economy in the Universidad Politécnica of Madrid.