Back in my second home, Spain.

My Spanish friends are amazed to hear that the USA is worried that Spain will follow Greece down the road to bankruptcy and that this will cause a global financial meltdown.  They do not have such a dire view of their country´s future.  Yes, they are fully aware of their dismal economic prospects, especially jobs for youngsters, but they point out that their national debt to national income ratio is one of the lowest in the European Union.  They do not see the reason why Spain has to pay a premium to borrow.  I explain to them that the interest rate on government bonds has more to do with impressions than with reality.  For instance, US Treasury bonds offer as little as 1% interest while Spain must pay 6% and more.  However, the US national debt equals 100% of our national income while the national debt of Spain is equal to less than 60% of its national income.

I also insist with my Spanish interlocutors that the first step in solving the EU situation is to have a Eurobond which would be guaranteed by the entire EU and offer an interest rate based on all the rates for various government obligations, say 3.5-4% .  Beyond that the EU must construct an EU wide financial system that provides a unified financing system for all member states.  The piecemeal process now employed is going no where fast.

Meanwhile Spain´s President of the Government (Prime Minister) has promised to comply with the German generated requirements to borrow more funds from the EU, i.e. to continue cutting government expenses and thereby reduce its deficit spending and growing debt.  This is still a different route than our use of massive deficit spending in the USA to correct our economy.  As I have already written I do not believe that either solution has produced the desired results, i.e. a robust economic recovery that would put all who want to work, back to work.   I still maintain that the solution lies in recreating the massive consumer debt we had until 2007 that spurred the global economy to heights from which we have all fallen and hope to return.