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El Mundo: Prisoners of the past populism

Apr 10th, 2012
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  1. Tweet from Faisal Islam (@faisalislam) of Channel 4 News:
  2.  
  3. devastating account by Garicano et al. of whats gone wrong in Spain... In Spanish, but translate on blog tomorrow: http://rsocial.elmundo.orbyt.es/epaper/xml_epaper/El%20Mundo/09_04_2012/pla_562_Madrid/xml_arts/art_9011104.xml?SHARE=6C23C0F29C6C4F158F7CA6264B486305588C7CA7574FA9C62423827D1DE175731EC3338EE29CC3B0DE276C511B5E4AE2501D4A8EF0A1F660B08F41B3619EC0EF5BA6893AE5ABDE786CB2903239A58899
  4. https://twitter.com/#!/faisalislam/status/189859371348529152
  5. 12:36 AM - 11 Apr 12 via Twitter for iPad
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  7. Source text URL:
  8. http://rsocial.elmundo.orbyt.es/epaper/xml_epaper/El%20Mundo/09_04_2012/pla_562_Madrid/xml_arts/art_9011104.xml
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  10. which for some unknown reason will not translate using Google Translate (though I suspect the problem lies in that it's served with an xml and not a htm or html file extension).
  11.  
  12. So saved to PasteHTML.com here:
  13. http://pastehtml.com/view/buckd9ok5.html
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  15. From there passed through Google Translate:
  16. http://translate.google.co.uk/translate?sl=es&tl=en&js=n&prev=_t&hl=en&ie=UTF-8&layout=2&eotf=1&u=http%3A%2F%2Fpastehtml.com%2Fview%2Fbuckd9ok5.html&act=url
  17.  
  18. Finally the translated text has been pasted below (for some unknown reason PasteHTML won't capture the output of Google Translate - I suspect PasteHTML is figuring it's an attempt to PasteHTML a page from PasteHTML).
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  20. ================================================================================
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  22. By JESÚS FERNÁNDEZ-VILLAVERDE, LUIS GARICANO AND TANO SAINTS
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  24. Prisoners of the past populism
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  26. Spain is at a key moment in its history. With debt markets has returned to nervousness, a Budget for 2012 that convinced few and an economy in recession, we approach a rescue to be avoided at all costs because the consequences would be dire.
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  28. First because we are our creditors intervene and therefore would not have our best interests as a target. Second, the bailout would impose an even deeper fiscal adjustment. Third, because these interventions is known how to enter, but not how it goes.
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  30. expel BAILOUTS to private capital and liquidity dried in a country. And fourth, because it does not work: IMF interventions are based on currency devaluations and subsequent external demand pull. As this is not possible in the euro area, the interventions of Greece and Portugal have not improved anything.
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  32. What went wrong? How have returned so quickly the clouds away temporarily after the performance of the ECB in December? The answer is simple but devastating: the new government, but has made a strong labor reform has failed to tackle the two fundamental problems that undermine our credibility: the financial and budgetary policy.
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  34. The situation of the financial system is critical. We have failed miserably to convince the capital markets to refinance our bank liabilities. Spanish banks, except for a couple of exceptions, can only issue with government guarantees and live plugged into the liquidity provided by the ECB. His logical reaction to the new capital requirements has been tightening credit, which has choked many companies. It speaks volumes about the management of this crisis which are not our problems unmanageable, as we are.
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  36. Fiscal policy has been for four reasons. The first is absurd dancing figures on the deficit that we have suffered from the fall and that has led observers to wonder what the real state of our public finances.
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  38. The second is the intolerable delay in presenting the budget. Not only has squandered the grace period of 100 days was granted to the new government but, at present just after the elections in Andalusia, have made clear that in Spain supeditamos urgency to politics.
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  40. THE THIRD is that these budgets are victims of years of opposition based on populism. As promised not to cut pensions and salaries of officials and not to raise the VAT to the budget he has no choice but to try to reduce investment and a tax amnesty that apart from demoralizing for those who met their tax obligations, complains about calculation whose revenue belongs to the genre of fantasy than of science of the Treasury. But markets are not deceived by juggled. They understand that these assumptions our fiscal situation deteriorate in the medium term and that demonstrate the incapacity of our rulers to address the problems.
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  42. The most acute example of this inconsistent fiscal policy was in December when it announced a two-year surcharge on income tax but recovered on housing relief. Not only aggravates a distortion-the marginal rate on income, but it reintroduces a new-relief. The discounted net effect on future revenues is certainly negative. In other words, more to distort our fiscal situation worse.
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  44. Finally the indentation of regional finance remains closed and no one believes that the regions will cut 27,000 million in 2012. The liquidity of the 30,000 million to suppliers should never be unconditional, but harsh conditions have required adjustment.
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  46. What to do? First, the Government forget the election, whether Galician, Basque and general and banish pollsters to other tasks. The absolute priority is to resolve our lack of credibility.
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  48. Second, restore credit flows as soon as possible. This will only be achieved if confidence returns to the banking sector and allowing access to capital markets without government guarantees or liquidity of the ECB. A clear alternative is to use the European Financial Stability Fund (EFSF, for its acronym in English) to recapitalize the financial system, which does not involve an intervention, as it could design a scheme that allows a consolidation of the banking system to Once you retain our autonomy in economic policy. Spain has sufficient reason to require a different treatment than they have received less responsible partners. And this recovery must be led by the new governor of the Bank of Spain, which has to be a person of international reputation, with experience in central banking, who speaks English perfectly and has excellent contacts with Frankfurt, that is, when call, Mario Draghi pick up the phone. Have been loyal over the years of opposition is, at best, irrelevant.
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  50. THIRD, develop a multiyear fiscal consolidation path credible, deliberate and systematic. As spending measures, this plan should cut the salaries of officials, to reduce them and freeze pensions (eliminating extra pay), while items of education, productive investments (not those of the AVE, which are mere waste) and R & D should be maintained where possible. As measures of income, this plan would eliminate the deduction for the purchase of homes and introduce a VAT rise staggered over the next five years, for example, a one point per year to bring the standard rate to 23% while minimizing goods and services subject to reduced rates. If the path of deficit was met, the increase in VAT would be offset in part by cuts to Social Security payments. As institutional measures, the plan should create an independent fiscal council and radically rethink the regional financing model to give us a rational state. It is unacceptable that the regulations discussed by the European Commission to give it more power to control the Government of Spain that it has with its fractious autonomy.
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  52. After four years of crisis in which the governments of Spain, this and the previous one, have been in tow of events may already be too late to change things. But still worth a try because we are, now, before which may be our last chance to straighten this interminable crisis. But we need a radical change of attitude that begins with the abandonment of populism wrong the last two years of opposition to the Zapatero government.
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  56. Jesus Fernandez-Villaverde is Professor of Economics at the University of Pennsylvania. Luis Garicano is professor of Economics and Strategy at the London School of Economics. Tano Santos is a professor at Columbia Business School.
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