Gored by the Debt Bulls

Much to this woman’s disgust…

Naked PETA Protester

…and, no doubt, to the exhilaration of those watching her and her furless activists parade the streets in PETA’s annual “running of the nudes,” the official Running of the Bulls again took place in Pamplona, Spain, this week. Actually, today was the last “run” in the eight-day event. And, as one might reasonably expect, the hemorrhaging did not issue solely from the bodies of the beasts. A few of our fellow bipeds also managed to spill a pint or two in the name of…ummm…“tradition”?

During Tuesday’s run, eight people sustained injuries, including two gorings. One man, described by AFP as a “daredevil,” was skewered through the right arm, an injury officials did not consider to be “serious.” Another fellow, an Aussie, went to the trouble of having his nose broken during the excitement. His mate dislocated an elbow, while others claimed “head injuries, broken bones, bruises and cuts” for their holiday photo collection.

Your editor has no particular opinion regarding what so-called “daredevils” choose to do with their own time, only that, so long as they are not harming anyone else, they be allowed to do it. Want to spend a Thursday afternoon waving your calzonsillos rojos inches away from the horns of an angry, half-tonne bull? Go right ahead…just don’t come crying when horn inevitably meets with flesh.

Returning to our usual beat…

A similarly ghastly fate now appears to be charging head-on toward Europe’s flailing peripheral governments, including Spain. Last week the Portuguese followed Greece into the financial thrill-seeker’s realm of “junk” sovereign credit status. Ireland this week joined them. That’s three of the five PIIGS down…leaving just two – Italy and Spain – still running for their lives.

Put simply, the Club-Med economies now find themselves facing a true Greek style dilemma, whereby impalement on either horn is sure to cause much pain and anguish.

On the one horn, governments may choose to impose “harsh” austerity plans in the vain hope their spending cuts will nourish confidence among foreign “investors” [Read: The ECB and IMF], leading them to believe the sun-drenched welfare states can keep their national balance sheets from bleeding any more red ink.

This plan of attack is not without its own inherent, immediate discomfort.

Greece got a taste of it when rioting welfare leeches and jilted public retirees took to the streets to protest “deep” cuts to their lavish benefits programs…programs the Spartans apparently thought their French and German cousins would be eager to sponsor forever and ever, amen. When Greek workers finally realized they weren’t going to get something for next-to-nothing, they ceased doing much of anything and immediately resumed doing slightly less than nothing. Consequently, the Greek economy has shrunk by almost 4% this year, though rising debt has continued to stain the national ledger. The IMF reckons this debt flow will reach 172% of GDP by next year. And, if jobless numbers are anything to go by, it looks as though the Olympians have little chance of “growing their way” out of their troubles. Currently, unemployment in Greece stands at 40.2%, an all time record. Youth unemployment, at 42.5%, is still worse.

On the other side of the Adriatic, facing a rampaging Bos taurus of its own, Italy’s upper house yesterday approved an austerity plan aimed at reining in that nation’s troublesome public debt, which, at approximately 120% of GDP, is already among the highest in the world (and the second highest, only to Greece, in Europe). A modern day fall of Rome would be of far graver consequence to the Euro-experiment than the demise of her historical nemesis. At around $2.11 trillion, Italy’s economy is more than six times the size of Greece’s ($330 billion). That’s a big bull.

As for the Spaniards, they are facing a fate not so dissimilar to those that fell before them. According to the IESE Business School, property prices in Spain have fallen 26% since their 2007 peak and, as yet, show no signs of stabilizing. All in, the housing bust has left Spanish banks holding about 614 billion euros ($868 billion) of outstanding residential mortgages, much of which is expected to turn sour. Currently 170 homes are foreclosed there every single day and rising unemployment may, according to some calculations, lead to 300,000 more this year and next. Banks, like Banco Santander SA and CaixaBank SA, now find themselves dealing with a five-fold increase (since 2007) in residential mortgage payments currently in arrears.

Unsurprisingly, pressure is mounting on the government to “do something”…to protect those who cannot afford the houses in which they live. National elections are nine months away. How will the politicians solve this dilemma?

Again, debt is a big, angry, charging bull.

In the end, a welfare state without welfare is not much of a welfare state at all. And their undoing might indeed be a good thing, were their political structures not still filled with hopeful, welfare recipients used to receiving their daily bread…gratis. Politically, austerity is a sharp horn to choose.

Alternatively, the beleaguered European states may opt to raise taxes in an effort to fill the gaping chasm between their mythical election-cycle promises and the reality of their underwhelming budgetary capabilities. This too proves a difficult, ultimately uncomfortable choice. Stealing from those at home may at first appear to be a superior alternative to borrowing from those abroad, but the consequences are, invariably, more or less the same. The problem with socialism – be it intra- or inter-national – is, as one former English prime minister remarked, that you eventually run out of other people’s money.

Each year, before the Spanish bulls are released into the winding cobblestone streets of Pamplona, groups of bull runners gather at the foot of the statue of San Fermin, patron saint of the Navarra region, to beg her protection during the event. Many of the runners manage to navigate the course with nary a graze upon their backside. Others are not so fortunate.

The astute reader may wonder here whether the best protection against impalement is to simply sit the run out, to watch it from the sidelines. For Europe’s PIIGS, non-participation in this deadly run is no longer a viable option. The bulls are out, Fellow Reckoner, and after years of taunting them, of over-spending and under-producing, these horns are bound to find their flesh…one way or the other.

Joel Bowman
for The Daily Reckoning