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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Our union backed Brexit, but that doesn't mean scrapping freedom of movement

We can only improve the lives of our members, like those planning stike action at McDonalds, through solidarity.

The campaign to defend and extend free movement – highlighted by the launch of the Labour Campaign for Free Movement this month – is being seen in some circles as a back door strategy to re-run the EU referendum. If that was truly the case, then I don't think Unions like mine (the BFAWU) would be involved, especially as we campaigned to leave the EU ourselves.

In stark contrast to the rhetoric used by many sections of the Leave campaign, our argument wasn’t driven by fear and paranoia about migrant workers. A good number of the BFAWU’s membership is made up of workers not just from the EU, but from all corners of the world. They make a positive contribution to the industry that we represent. These people make a far larger and important contribution to our society and our communities than the wealthy Brexiteers, who sought to do nothing other than de-humanise them, cheered along by a rabid, right-wing press. 

Those who are calling for end to freedom of movement fail to realise that it’s people, rather than land and borders that makes the world we live in. Division works only in the interest of those that want to hold power, control, influence and wealth. Unfortunately, despite a rich history in terms of where division leads us, a good chunk of the UK population still falls for it. We believe that those who live and work here or in other countries should have their skills recognised and enjoy the same rights as those born in that country, including the democratic right to vote. 

Workers born outside of the UK contribute more than £328 million to the UK economy every day. Our NHS depends on their labour in order to keep it running; the leisure and hospitality industries depend on them in order to function; the food industry (including farming to a degree) is often propped up by their work.

The real architects of our misery and hardship reside in Westminster. It is they who introduced legislation designed to allow bosses to act with impunity and pay poverty wages. The only way we can really improve our lives is not as some would have you believe, by blaming other poor workers from other countries, it is through standing together in solidarity. By organising and combining that we become stronger as our fabulous members are showing through their decision to ballot for strike action in McDonalds.

Our members in McDonalds are both born in the UK and outside the UK, and where the bosses have separated groups of workers by pitting certain nationalities against each other, the workers organised have stood together and fought to win change for all, even organising themed social events to welcome each other in the face of the bosses ‘attempts to create divisions in the workplace.

Our union has held the long term view that we should have a planned economy with an ability to own and control the means of production. Our members saw the EU as a gravy train, working in the interests of wealthy elites and industrial scale tax avoidance. They felt that leaving the EU would give the UK the best opportunity to renationalise our key industries and begin a programme of manufacturing on a scale that would allow us to be self-sufficient and independent while enjoying solid trading relationships with other countries. Obviously, a key component in terms of facilitating this is continued freedom of movement.

Many of our members come from communities that voted to leave the EU. They are a reflection of real life that the movers and shakers in both the Leave and Remain campaigns took for granted. We weren’t surprised by the outcome of the EU referendum; after decades of politicians heaping blame on the EU for everything from the shape of fruit to personal hardship, what else could we possibly expect? However, we cannot allow migrant labour to remain as a political football to give succour to the prejudices of the uninformed. Given the same rights and freedoms as UK citizens, foreign workers have the ability to ensure that the UK actually makes a success of Brexit, one that benefits the many, rather than the few.

Ian Hodon is President of the Bakers and Allied Food Workers Union and founding signatory of the Labour Campaign for Free Movement.