Focus shifts to Spaxit

The banking crisis could even mean that Spain beats Greece out the door.

Greece is so passé. This week, the eyes of the world have slowly begun to shift to Spain.

The real kick to switch focus was the news on Monday that the Spanish/German bond spread had topped 5 per cent - that is, the yield on Spanish bonds is now over five percentage points above the yield on German bonds. Why does this matter? Because spreads for Greek, Irish and Portugese bonds were over that level for 16 days, 24 days and 34 days respectively before they were forced into bailouts.

The root of Spain's problems are very different from Greece's, though. It's a combination of a terrible housing bust and the bind the euro traps them in. Once house prices started to plummet, the banking sector was in deep trouble, but due to the single currency, Spain can't recapitalise it the way a fully sovereign state would. So there is a very real risk of Spain going bankrupt and being forced out of the eurozone.

But this risk alone is surmountable. A combination of a sympathetic ECB (which, of course, means a sympathetic Germany), confidence in the ability of the institutions involved to find a solution, and speedy action would greatly reduce the danger of Spain leaving the currency (which has, inevitably, been dubbed a "Spaxit"). Unfortunately, none of those things actually exist.

Afraid of Spain leaving the eurozone, Spaniards are moving their euros out of their country's banks, and either hoarding notes or opening accounts in Northern Europe. Which means that the banks are in even more trouble, the bailout costs go up, and Germany is even less likely to help out. As Tyler Cowen put it:

Spain is in a self-cannibalizing downward spiral, as Greece was and is.  It will not end until there is, at the bottom, an absolute and total crash.

The Wall Street Journal's Matthew Lynn even thinks that the Spanish exit could happen without a Greek one, giving six reasons Spain will leave the euro first:

There are few good reasons for the country to stay in the euro — and little sign it has the will to endure the sacrifices the currency will demand of them.

What's more, as Matt Yglesias points out:

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

Grexit may or may not increase the chance of Spaxit. But Spaxit almost certainly means Netherlexit, Fraxit, and even Gerxit. (Although hopefully those "words" will never again see print)

Ironically, this death spiral may now be the best hope for Spain. The knowledge that a failure to recapitalise its banks could lead to the end of the eurozone gives it much needed leverage over the ECB to gain the funds it needs. But, as the Telegraph's Ambrose Evans-Pritchard reported:

There is no sign so far that the ECB is ready to relent as Frankfurt and Madrid cross swords in an escalting test of will. The ECB has scotched Mr Rajoy’s tentative plans to recapitalize Bankia by drawing on ECB funds.

Perhaps put more vividly by the LSE's Luis Garicano:

It is dangerous to play chicken when you are driving a Seat and the ECB is driving a tank.

 
A rally for the Spanish People's Party. Photograph: Getty Images

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

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Owen Smith is naïve if he thinks misogynist abuse in Labour started with Jeremy Corbyn

“We didn’t have this sort of abuse before Jeremy Corbyn became the leader.”

Owen Smith, the MP challenging Jeremy Corbyn in the Labour leadership contest, has told BBC News that the party’s nastier side is a result of its leader.

He said:

“I think Jeremy should take a little more responsibility for what’s going on in the Labour party. After all, we didn’t have this sort of abuse and intolerance, misogyny, antisemitism in the Labour party before Jeremy Corbyn became the leader.

“It’s now become something that is being talked about on television, on radio, and in newspapers. And Angela is right, it has been effectively licenced within the last nine months.

“We’re the Labour party. We’ve got to be about fairness, and tolerance, and equality. It’s in our DNA. So for us to be reduced to this infighting is awful. Now, I understand why people feel passionately about the future of our party – I feel passionately about that. I feel we’re in danger of splitting and being destroyed.

“But we can’t tolerate it. And it isn’t good enough for Jeremy simply to say he has threats too. Well, I’ve had death threats, I’ve had threats too, but I’m telling him, it’s got to be stamped out. We’ve got to have zero tolerance of this in the Labour party.”

While Smith’s conclusion is correct, his analysis is worryingly wrong.

Whether it is out of incompetence or an unwillingness to see the extent of the situation, Corbyn has done very little to stamp out abuse in his party, which has thus been allowed to escalate. It is fair enough of Smith to criticise him for his failure to stem the flow and punish the perpetrators.

It is also reasonable to condemn Corbyn's inability to stop allies like Chancellor John McDonnell and Unite leader Len McCluskey using violent language (“lynch mob”, “fucking useless”, etc) about their opponents, which feeds into the aggressive atmosphere. Though, as I’ve written before, Labour politicians on all sides have a duty to watch their words.

But it’s when we see how Smith came to the point of urging Corbyn to take more responsibility that we should worry. Smith confidently argues that there wasn’t “this sort of abuse and intolerance, misogyny, antisemitism” in the party before Corbyn was voted in. (I assume when he says “this sort”, he means online, death threats, letters, and abuse at protests. The sort that has been high-profile recently).

This is naïve. Anyone involved in Labour politics – or anything close to it – for longer than Corbyn’s leadership could tell Smith that misogyny and antisemitism have been around for a pretty long time. Perhaps because Smith isn’t the prime target, he hasn’t been paying close enough attention. Sexism wasn’t just invented nine months ago, and we shouldn’t let the belief set in that it did – then it simply becomes a useful tool for Corbyn’s detractors to bash him with, rather than a longstanding, structural problem to solve.

Smith's lament that “it’s now become something that is being talked about” is also jarring. Isnt it a good thing that such abuse is now being called out so publicly, and closely scrutinised by the media?

In my eyes, this is a bit like the argument that Corbyn has lost Labour’s heartlands. No, he hasn’t. They have been slowly slipping away for years – and we all noticed when Labour took a beating in the last general election (way before Corbyn had anything to do with the Labour leadership). As with the abuse, Corbyn hasn’t done much to address this, and his inaction has therefore exacerbated it. But if we tell ourselves that it started with him, then we’re grasping for a very, very simple solution (remove Corbyn = automatic win in the North, and immediate erasure of misogyny and antisemitism) to a problem we have catastrophically failed to analyse.

Anoosh Chakelian is deputy web editor at the New Statesman.