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Jon Talton

Analysis and commentary on economic news, trends and issues, with an emphasis on Seattle and the Northwest.

April 17, 2012 at 9:35 AM

Europe’s getting sicker

A few months ago, the European Central Bank pulled out “the bazooka” and finally started acting as the lender of last resort to the continent’s ailing banks. Problem solved, no? No. It has deepened and spread. Spain has fallen into recession and the country’s borrowing costs have nearly doubled. Unemployment there is at a Depression level of nearly 25 percent; 50.5 percent of young people under 25 lack jobs. Investors are fleeing Spanish banks.

The government’s response, pushed Europe-wide by Berlin, is more austerity. The $35 billion in cuts contained in the latest budget are the most severe since Spain became a democracy 30 years ago. This won’t fix the problem, which is capital flight after a real-estate bubble popped (and pre-crash Spain was running a fiscal surplus) and debt that keeps resetting at higher interest rates. This is not Greece. This is the fourth-largest economy in Europe. Borrowing costs went down a little today. Don’t be fooled.

Even though the International Monetary Fund has raised its outlook for global growth to 3.5 percent this year, two percentage points higher than in January, it says if Europe can’t fix itself all bets are off. Well, all bets are off because Europe can’t fix itself with Herbert Hoover policies.

Washington exported only $115 million in goods to Spain in 2011. But the stakes of the continental recession are higher: Washington is the seventh-largest exporter to Europe among the states, with $12.5 billion on the table. While this won’t be felt as severely as a slowdown in Asia, local companies will get hurt.

What’s the answer? Increasingly it appears to be ending the eurozone.

And Don’t Miss: For two economists, the Buffett rule is just a start || NY Times

Today’s Econ Haiku:

The last space shuttle

Flies home on a jumbo jet

Did it get peanuts?

Comments | More in Eurozone

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