Thursday, June 7, 2012

Rocco Rossi: The human cost of the eurozone crisis

Blaming workers for being greedy or selfish only goes so far. Wanting fair wages for honest work is not wrong.

The workers at GM in Oshawa wanted a decent living; the Stelco employees in Hamilton wanted a secure job. As Rocco writes, "Politics make little difference to Enrique — he lost everything under the socialist regime."

At age 50, his factory shut down and he lost his job. Two years later, his money ran out, and so did his wife and young daughter. At age 55, he was walking the Camino de Santiago in Spain. That's where I met him.

During the Depression, many "rode the rails" in Canada and the United States. Enrique, however, has been walking the Camino — a thousand-year-old pilgrimage route — continuously for over three years. His well-worn shoes, clothes and two carrying bags represent the sum total of his worldly possessions. He sleeps out most nights, and his favourite spots are cemeteries, "They are quiet," he explained. "No one bothers me there."

He looked for work for years, and still does. But he's largely given up hope he can return to the life he once had. He doesn't want to beg and can't afford a bus ticket or a place to stay, so he walks.

A proud man who values working to support himself, he does odd jobs along the way for food and the odd coin. He's picked apples and cherries in Bierzo; gutted fish in Galicia; cut and stacked hundreds of cords of wood in Navarre; harvested grapes in the Rioja; loaded potatoes in Palencia; weeded gardens in Castille; and milked cows, goats and sheep everywhere in between. For one week each month he can stay in a monastery in Santiago for 1.50 euro a day. That gets him a bed, a hot shower and three meals. He can only stay there for a week each month, though, because of the rules — and because he needs the other three weeks to raise the 10.50 euro.

When on the move, Enrique walks an average of 30 km a day. He's covered almost 27,000 km in the last three years — two-thirds the circumference of the Earth.

Politics make little difference to Enrique — he lost everything under the socialist regime. The "austerity" measures of the current conservative government have no relevance to him. Walking and sleeping out have not been any different under either government.


Koby said...

The notion that the Spanish "socialist" government spent Spain into recession is ridiculous. The Spanish were running surpluses prior to the down turn. Indeed, Zapatero's government ran a surplus and in his first 3 years in office and in 2007 a surplus of 23.2 billion Euro was the biggest in Euro zone. Spain's debt to GDP ratio was not a problem either. Spain's gross debt to GDP ratio was half of what it was in Canada.

Spain's deficit problem was not the cause of the crisis there. It was consequence of it. Spain had a massive real esate bubble and in 2008 it burst. This created the perfect storm. Hundreds of thousands quickly lost their jobs and began collecting unemployment insurance, government revenues collapsed and most important of all Spain's banks began to fail. Billions of euros private debt was transferred onto the public balance sheet. In fact, Spain's 4th largest bank is nothing but bad private debts backed by the government. To add insult to injury much of Spain's growth in boom years was fueled by huge influx of foreign capital from the center of European after 1999. Spain, like all of the so called PIIGS, ran a massive capital accounts deficit. When things began to go south and Spanish credit markets began to seize, that capital was repatriated.

Now, when the economy is in a crapper there are a number of things with respect to monetary policy governments can do. Most notably they can reduce interest rates, devalue their currency and above all they can print more money (so called quantitative easing). None of things things is open to the Spanish government. They surrendered their monetary sovereignty to the ECB and the ECB has done a terrible job managing the crisis. They were slow to rise interest rates and even tried to rise them last spring and they have only allowed one round of quantitative easing.

Given Germany's unwillingness to let inflation in Euro Zone and Germany in particular to rise above 2%, the only option open to Spain is deflate its way to competitiveness. The problem is deflation makes a debt crisis worse much worse.

It is thus not a surprise that Spanish yields are rising. The ECB is asleep at the wheel and more than anything else investors are worried that Spain is going to decide that things are so bad it might as well leave the Euro. This in turn would surely mean defaulting on its debts.

James C Morton said...

Thats a very fair point. What I liked about the piece was the human face on the economic collapse -- not necessarily the underlying economic analysis