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Spain Joins the Mo’ Money Caucus

Walter Russell Mead

Spain thinks the Eurozone would work better if it spent… more money on Spain. Politico reports:

Spain’s conservative Prime Minister Mariano Rajoy has joined the ranks of those who are demanding a deep overhaul of the eurozone.

Madrid has submitted to the European Commission a proposal for deeper economic integration of the 19 countries using the euro, the economy ministry confirmed Monday. It calls for completing the banking union and implementing euro bonds, an anti-crisis budget, and a common unemployment insurance scheme. […]

A summary of Spain’s proposal by its economy ministry argued that the architecture of the eurozone has proven vulnerable to economic shocks and that the lack of absorbing mechanisms has resulted in “high unemployment rates in the countries most affected by the crisis.”

“It’s clear that we need to improve the governance of the eurozone,” the country’s foreign minister, Alfonso Dastis, told POLITICO last week. “The banking union will be the key test.”

Spain here seems to be aligning itself with Emmanuel Macron, who has already headed to Berlin for preliminary talks on Eurozone reforms. Berlin’s response to his reform agenda has so far been cool, but this suggests that pressure on Germany will grow after its elections, as the Spanish right wing joins the French center left and Italy in a clear call for Eurozone reforms that will tilt the system more in favor of its indebted southern members.

There is good reason to sympathize with all the parties in this—and to be skeptical of them all too. The Spaniards are right that the Eurozone in its current form does not work, and they are also right that a functioning currency union would have some of the features the Spaniards are proposing. But it would also have to include a more thorough reform that would address many if not all of Germany’s concerns.

The big problem now is that it appears that neither side, so far, is able to meet the minimum conditions of the other. Germany seems as unable as it is unwilling to make the concessions Spain and its allies want. And the Latin countries so far have not come close to the minimum reforms that the Germans insist must be the price. It is a slow-moving game of chicken, with the ECB working to stave off a real crisis using the limited but necessary tools in its toolbox.

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