WASHINGTONExperts watching the economic drama of the PIGSPortugal, Italy, Greece and Spainkeep telling us, reasonably, that you cannot have a Southern European economy and a German exchange rate. They mean that the euro, dominated by mighty and disciplined Germany, has become a straitjacket for deficit-ridden, debt-laden, unproductive economies that cannot devalue their way out of the crisis because they have ceded control over monetary policy to the European Central Bank.
But those experts are being too reasonable. I suggest the opposite. Precisely because a fixed exchange rate among economies so out of tune with each other is a nutty idea, the trap in which the PIGS find themselves is the only chance, however slim, that they will address their socioeconomic model.
As a citizen of Spain who has spent a third of his life studying or working in Europe, it has been painful to watch the Spanish economy, whose transformation in the 1980s and 90s was the stuff of legend, wake up metamorphosed into a Kafkaesque bug. With one out of every five adults and four out of 10 young people out of work, millions of mortgaged properties underwater, half of the savings & loan banks in a state of insolvency and a private debt almost twice as large as the size of the total economy, Spain is going through an existential crisis.
In record time, writes Lorenzo Bernaldo de Quiros in his recent book The Great Recession, the well-being and wealth of Spaniards achieved since the second half of the 1990s have evaporated and only exist today as a nostalgia for a Golden Age. Echoing a famous phrase by the philosopher Miguel de Unamuno, Bernaldo concludes that Spains Unamunean tragic sense of life runs the risk of becoming a deeply rooted state of mind.
Spains rude awakening is particularly cruel from a historical perspective. Cut off from its modern neighbors during the decades-long regime of Francisco Franco, the countrys accession to the European Union and its adoption of the common currency were more than a political or economic coming of age: They were acts of exorcism against Spains historical demonsthe decadence spanning from the late 17th century to Francos death. For Portugal and Greece, the EU was the jump from the Third to the First World; Spain embraced it as a spiritual transformation.
Which explains two things. First, Spains shock after realizing that being a member of the European Union entailed worldly costs and sacrifices. Second, and echoing similar sentiments in Greece and Portugal, the general refusal to even consider the possibility of giving up the euro.
In a situation in which its domestic currency was free to reflect its deficits, high labor costs and low productivity, Spains currency would have been naturally devalued by now. Without this possibility, Spain faces a double punishment if it wants to avoid a decades-long depression: the social dislocation that will inevitably result from efforts to become disciplined and competitive, and the cost of having to go through price and wage deflation in the absence of monetary flexibility in the short run. More profoundly, Spain will need to make a fateful decision. Does it want to become like Germany and accept that prosperity is the reward of effort, or does it want to drag the rest of Europe down?
It is a mistake to focus on the euro as the essence of the PIGS problems. The common currency contributed greatly to Spains delusional economy by giving it an unrealistic purchasing power and is making it doubly tough to overcome the recession by not allowing it, as the Nordic economies did when they ran into trouble in the late 20th century, to devalue the exchange rate. But the real cause of what is happening is that the nation mistook easy credit, subsidies and social protection for real wealth.
I have no idea whether Spain and the other PIGS will, as many predict, confront a couple of Japanese-style lost decades. But I do know this: If they dont relearn the basics of what it takes to be rich in a competitive world, Germany and a few others will eventually say goodbye to them.
Ortega y Gasset, Spains foremost intellectual in the 20th century, argued passionately for an integrated Europe. If Spain is the problem, Europe is the salvation, he proclaimed. His compatriots failed to understand that he was talking about a cultural, not merely a political or economic, space. It might be useful to bear that in mind in these troubled times.