STOCK MARKET WATCH -- Wednesday, 7 March 2012

[Demeter]

7. Spain's sovereign thunderclap and the end of Merkel's Europe

http://blogs.telegraph.co.uk/finance/ambroseevans-pritchard/100015432/spains-sovereign-thunderclap-and-the-end-of-merkels-europe/

The Spanish rebellion has begun, sooner and more dramatically than I expected.

As many readers will already have seen, Premier Mariano Rajoy has refused point blank to comply with the austerity demands of the European Commission and the European Council (hijacked by Merkozy). Taking what he called a "sovereign decision", he simply announced that he intends to ignore the EU deficit target of 4.4pc of GDP for this year, setting his own target of 5.8pc instead (down from 8.5pc in 2011).

In the twenty years or so that I have been following EU affairs closely, I cannot remember such a bold and open act of defiance by any state. Usually such matters are fudged. Countries stretch the line, but do not actually cross it. With condign symbolism, Mr Rajoy dropped his bombshell in Brussels after the EU summit, without first notifying the commission or fellow EU leaders. Indeed, he seemed to relish the fact that he was tearing up the rule book and disavowing the whole EU machinery of budgetary control.

He is surely right to seize the initiative. Spain’s economy will contract by 1.7pc this year under his modified plans and unemployment will reach 24pc (or 29pc under the 1990s method of counting). To compound this with manic fiscal tightening – and no offsetting devaluation – is intellectually indefensible.

There comes a point when a democracy can no longer sacrifice its citizens to please reactionary ideologues determined to impose 1930s scorched-earth policies. Ya basta.