posted by King Minos in Money / Career

Catalonia: First EU Frog to Jump?

November 27, 2012

In thinking of the EU monetary project, one is reminded of the story of the two frogs: In the first case, the frog jumped into a pot of boiling water and immediately jumped to safety; in the second case, the frog jumped into a luke-warm kettle never bothering to get out as the water got hotter and hotter and eventually succumbing to the hot water bath.

Such may be the test, and possible choices, with little Catalonia, a semi-autonomous region made up of four provinces in Spain.

Language, economy, history - there are many motives governing Europe's separatist movements. The recent vote in Spain's Catalonia region has re-ignited debates across the European Union.

The immediate problem for EU members is two-fold: As members, their currency is subject to devaluation if EU members choose to default on their loans. Secondly, and more significantly, because they all use a common currency, members with beleaguered economies, high unemployment and great suffering are denied the right to declare bankruptcy on their debts; re-introduce and devalue their own currencies; and ride the historically normal wave of a once-non competitive economy cum economic superstar where the bargains are everywhere, and everyone wants to invest!

One analogy might be that of an underwater home owner who decides to send "jingle mail" to creditors; at worse, his or her credit is dinged for 7 years, but he is also able, immediately, to move into a situation where he can pay his bills, and he is no longer subject to the demands of creditors over debts that were un payable! He is, of course, immediately relieved of making payments on principal and interest; instead, whatever money he makes can go for more basic needs like food, clothing and shelter!

(Escaping the national? debt trap *: In the case of Spanish debt, each citizen owes around $26,637; if a Catalonian and his family declared "independence," the debts they owed would likely vanish. Similarly, in the U.S., the per person debt resides at $53,378; if a family could legally emigrate to another country, their share of that debt would disappear. While one would not now expect U.S. states to declare their "independence," (to rid themselves of the national debt) the ability to duck across a border to avoid the "national" debt could not be prevented, really, by federal authorities, or the federal government (even if they could put down a secession effort!))

As is, the frogs apparently believe they can survive the gently warming water now stoked by apparently un-payable and unsustainable debts. The longer they remain in the water the greater and greater sacrifices of autonomy and national identification they will have to endure; in Greece and other member countries, today, taxing and spending policy derives not from their own democratically elected leaders; but from outside technocrats threatening the member with financial Armageddon should they not tax and spend the way the outsiders say. In effect, Greek citizens are modern-day, debt slaves!

One wonders if the EU frogs will bolt from the cauldron at some set temperature, or stay put, to be boiled alive?Shock

Continued reliance on bailouts and avoiding default on their loans will mean member states remain locked into non-competitive economies, high unemployment rates, and rising social unrest if not revolutionary movements.

Word to the Frogs!

Default and dissolution of the EU monetary project may be the only way national identities can survive; if that burden is too high to bear, then acceptance of a permanent, dependent, "slave class," mostly in the southern regions of the EU, may become reality. (It would be a lot like it is ... already!)


*"Escaping debt" can involve several situations with several remedies; generally-speaking, I am talking about moves that can be made to "get out of" paying one's portion of a national debt; on the other hand, citizens, similarly, have moved away from bankrupt municipalities (EG, Jefferson County, AL) and bankrupt, or nearly so, states like California. It is this THREAT, really, that may goad national governments and central banks to obviate or mitigate the personal impact of national debts upon citizens; of course, doing THAT might actually make things worse (by devaluing the currency and causing hyperinflation and economic catastrophe). The threat similarly is likely to force different political factions towards compromise and fiscally sound governance. (When the alternative is dissolution, secession and out-migration.) Likely, governments are going to step-up border checks to slow or stop immigration. This will fail, of course, but not before most citizens finally realize WHO has benefited most of all from this last gasp of globalization, and the shiny, new techno-global economy!

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