The Power and the Money

It is hard to get Manuel Bartlett to understand things when his paycheck depends on him not understanding it

Manuel Bartlett is the corrupt head of CFE, Mexico’s state electricity company. He hates renewables. So he’s trying to kill it with the support of Mexico’s president. From the man himself: “Wind and photovoltaic (plants) don’t pay the CFE for the backup. Do you think it’s fair for the CFE to subsidize these companies that don’t produce power all day? That’s not a free market, it’s theft!”

Do his arguments make sense?

Let’s unpack them. The first argument is that any firm feeding electricity into the grid should pay to transmit the electricity. The second argument is that renewables aren’t on all the time, so somebody has to have backup generators in place and that somebody should get paid. 

The first argument makes little sense. Cenace, the organization that runs the grid (owned by CFE) charges rates to feed in power. Maybe they should be higher for everyone, maybe not, but it isn’t a reason to discriminate.  

There is a technical argument that intermittent power sources raise transmission costs. That technical arguments have been solved. First, the more intermittents you have on the grid, the more predictable it is. Second, weather forecasts are pretty good these days. Third, getting “reactive power“ into the grid when needed is not particularly expensive or difficult. ERCOT, the Texas grid operator, found that you needed capacity about 0.1% of intermittent capacity to maintain grid stability. Internationally, there’s no relationship between the penetration of intermittent power sources and grid stability. Why? Well ... natural gas plants go offline all the time! California’s crisis in 2015 was caused by a leak at a gas storage facility in Aliso Canyon. 

So that’s a nothingburger. But what about the fact that somebody has to keep the lights on when the sun isn’t shining and the wind isn’t blowing? 

That could be a problem. Dispatchable power sources (i.e., ones you can turn on and off at will) suffer cycling costs, the same way that turning a lightbulb on and off every few minutes will raise power use and lower lightbulb life. It’s certainly a problem for CFE! The good news for CFE is that CCGT natural gas plants have relatively low cycling costs. The bad news is that you’ll run them less because solar and wind will eat their lunch during sunny and windy times. CFE will be able to charge a little more but that won’t make up for the loss of business and there will be some increase in cycling costs. 

In short, Bartlett’s argument comes down to the fact that cheap solar and wind isn’t just cheaper than burning hydrocarbons, it also raises the cost of burning hydrocarbons.

But so what? 

Imagine: A cheap airline comes in on a popular route. It steals away passengers from legacy airlines. The legacy airlines’ costs rise b/c they have stranded assets (unused planes) and high fixed costs. So prices on routes operated only by the legacy carriers rise a bit. Would you for that ban low-cost airlines? Or throw a tax on them? Or limit their landing slots? If your answer is no, then you think Bartlett is full of it. 

Yes, CFE has a mandate to keep the lights on. No, it’s not like they’d just turn off their power plants at night if that mandate didn’t exist. They want to make money. Prices will go up for baseload power and CFE will stay in business. It is remotely possible that Mexican electricity consumers will wind up paying so much for baseload power that net electricity prices will rise. Well, remotely possible other than the fact that it hasn’t happened anywhere else. (A decade ago Spain and Germany ran into problems with rising electricity costs because they oversubsidized solar power. But solar power was a lot more expensive back then.)  

The whole thing makes me sad, because I thought AMLO could have been a great president. Instead he’s bad for the Mexicans alive today and very bad for everyone who will be alive in the future. Future generations will revile him. The only reason he won’t be reviled around the world is because Mexico is small and George W. Bush and Donald Trump will outshine him as historical global warming villians.

Once upon a time, back in 2008, I sarcastically joked that (then citizen) AMLO’s terrible energy policy would be good for the world because it would lead Mexico to produce less hydrocarbons and that’s a good thing. What I never expected is that AMLO wouldn’t just want to hobble private hydrocarbon production, he’d also try to hobble anyone who wants to produce electricity without setting anything on fire. 

Anyway, there you have it. Bartlett’s argument has nothing to do with Mexican consumers, who will benefit from cheap solar and wind. Nor does it have to do with keeping the lights on, which is easy to do. It’s just about keeping out cheap competition to benefit CFE. 

The real question is why he feels so strongly about helping CFE and burning Mexican oil. Any answers to that would be greatly appreciated .... 

Energía solar en la madre patria

Spain, you might have heard, is a sunny place.

Strangely, the designers of Spain’s early renewable policies did not realize this. They established a feed-in tariff, in which utilities have to buy all generated renewable electricity at a fixed price. They set the price based on German policy. But Spain, remember, is sunnier. And the cost of solar power was plummeting. The cost to utilities grew all out of control.

The Socialists pulled off the first walk-back in 2010, when they limited the feed-in tariff to the first quarter-century of a plant’s life and tossed in a  €0.55 per megawatt-hour grid access charge. They were sued, but the investment tribunals found for Madrid.

Then Rajoy gets elected. Rajoy’s gotta Rajoy, and subsidies had hit €3.5 billion, so in December 2012 he reformed the system again. He repealed the feed-in tariff, but made the repeal retroactive. Combine that with a 7% electricity tax, and he managed to push a bunch of solar producers into the red. Spain got sued again, but this time the investment tribunals forced the government to cough up damages. 

Lest you think that the People’s Party would relent, they went yet one better in 2015 and slapped a tax on anyone who installed solar panels. OK, not technically a tax, technically a grid access fee. But effectively a tax. In addition, the law banned anyone with solar panels over 100 kW from selling electricity at all. 

But now Rajoy is out and Pedro Sánchez is prime minister. Moreover, solar power costs less than one-sixth of what it did when Spain began subsidizing it. Noises are being made about repealing the sun tax. At the very least, the sunny country might let market forces rip. Solar costs are down 41% since 2013. (See left: the dotted line is 20¢ U.S. per kilowatt-hour.)

Still, low costs can be a problem for solar producers, especially in Spain, where most renewable producers need to sell on the spot market. When the sun is shining, solar installations can bid the cost down to zero if there are enough of them. They can even drive it negative, if conventional producers are willing to pay customers to take their electricity in order to avoid spinning down their plants. 

So market forces will not be enough without a market redesign making it easier for solar producers to sign long-term contracts with off-takers. It is not merely a matter of removing the burdens the People’s Party placed on the industry. I have no idea how much thought the Socialists have put into this problem or whether their rickety surprise coalition is prepared to enact reforms.

We can hope. 

National officials do not like to feel like imperial proconsuls

When we left the Catalan secession crisis last October, the secessionists had backed down. They decided that setting up a parallel state would come at too high a cost. But we warned:  “There is the possibility that the crisis will flare up again. Possibly of its own accord. ... Right now Madrid should let people calm down and vote against the nationalists in the next election.”

That did not happen. Parties in favor of an independence referendum won a majority. The party that organized the unconstitutional referendum nominated Quim Torra to be the new premier; two weeks ago he finally cobbled together a 66-65 majority in the legislature. Torra included indicted politicians in his cabinet, and so (then) Prime Minister Rajoy continued to exercise direct control over the territory via Article 155 of the Constitution.

Madrid finally lifted direct control yesterday and the new Catalan cabinet contains nobody under indictment. But the central government continues to control the purse strings in order to insure that Barcelona spends no money on secessionist activities. 

So far, so nothing. So why a blog post? Well, a Catalan political scientist pointed out a disturbing undercurrent: Spanish bureaucrats no longer want to serve in Catalonia. A full 40% of Treasury officials working in the province have requested a transfer out. (Only 13% have succeeded.) Of the last 200 national officials assigned to Catalonia, fully 86% had to be ordered to go. Judges are also requesting transfers, including from Catalonia’s superior court. I am told that all of this is new.

Two quotes, for whatever they are worth: “Catalonia was a cosmopolitan society, open, plural and respectful. People now live in an atmosphere of confrontation. It will be hard for us to make this attractive.” And, “The tension is obvious. Agents’ children are picked out if their parents don’t go to certain demonstrations called by the schools.” 

It is a bad sign if national bureaucrats feel alienated from the place where they work, more like imperial proconsuls than public servants. Obviously, I do not want to exaggerate these reports, and I do not have the sort of time series data that would let us know how seriously to take them. But as someone (newly) bothered by nationalism and (for a long time) opposed to secession from democratic states, it is brightly flashing yellow light on the dashboard. 

¿Aburrimiento en la madre patria?

Well, so far it looks like Rajoy’s bet is paying off. Catalan officials are obeying orders; Catalan ministers are leaving their posts. Puigdemont is in Brussels when he could be in Barcelona leading a revolt. Crisis over!

Except ... no.

This was a dumb game for Rajoy to play. As I said in comments three days ago, there are only three ways to rationalize his decision:

1. He did not realize that a strategy of restraint before the referendum would succeed. That, however, would also require him to be stupid, and the Prime Minister is most certainly not stupid;
2. Rajoy is playing an entirely different game;
3. Rajoy believes that the Catalan resistance will fold with probability 1 ... and he believes that his actions will lessen rather than increase the probability of future secessionist action in the future.

I can see why he would believe (3), but he is incorrect on both counts. Which isn't to say that the probability of the Catalans folding is zero! It ain't. It's high. But it ain't one.

His brinksmanship was stupid from the point of view of Spanish unity. Rajoy could have undercut the secessionists by playing it cool, leaving them looking silly. Instead he sacrificed certain success in the short-term in order to have a lower probability of success in the long-term. That is not a typo! The crisis could come roaring back. We are one crisis or stupid political stunt away from its return. 

Put that way, his decision is still a bit inexplicable. Even if the gamble pays off, why do it? Andrei Gomberg suggests that the answer is (2): Rajoy is looking to cement his position in Madrid by playing the patriotism card. It is not a bad card to play. 

But there is the possibility that the crisis will flare up again. Possibly of its own accord. But my real fear is that some overzealous Spanish judge will start arresting Catalan politicians. That would be exciting. But excitement is precisely what needs to be avoided. Thankfully Puigdemont has blinked twice now. Right now Madrid should let people calm down and vote against the nationalists in the next election. Boring. 

Catalonia: What is the game?

I have been trying to figure out the game Rajoy is playing. It is not immediately obvious. Backwards induction led Puigdemont to back down from declaring independence. Backwards induction should then have led Rajoy to accept Puigdemont’s “suspension.” Rajoy should have said, “Thank you for not declaring independence, note that doing so would be illegal, much obliged.” End of crisis, at least for a while, start of talks on constitutional revision.

But that is not what Rajoy did. Instead Rajoy refused to accept the out Puigdemont offered him. He pushed Puigdemont into a corner. Never push anyone into a corner.

Even after that, Puigdemont behaved rationally. (I must note that this has been a marked departure from Puigdemont’s behavior up until this point.) The Financial Times reported that Puigdemont tried to find a last-minute out but Madrid rebuffed him. 

So now we have a declaration of independence. Madrid will invoke Article 155 and take over the community. 

Why did Rajoy choose to go down this path?

There are three hypotheses.

1. “Never attribute to malice what can be attributed to stupidity.” There are governments to whom that adage applies. I do not think the Rajoy administration is one of them. Oh, they are incorrect, but I don’t think it’s because they are stupid.
2. Internal constraints. Rajoy may realize that he has been ineluctably creating a secession crisis, but he may also believe that a hard line is the only way to hold together his coalition. I do not believe this to be true, but it is a reasonable hypothesis.
3. Rajoy believes the Catalan opposition is unitary and rational. He has played down the game tree and backwards inducted. His (correct!) conclusion is that Catalonia is always screwed and screwed badly in the even of a contested divorce. He therefore assumes that his Catalan opponents will back down in the end. 

And therein lie his two errors. His first error is that he assumes that “less costly for Madrid” means “no cost for Madrid.” Accepting Puigdemont’s climb-down had no cost to Madrid. Engaging in economic warfare or (worse) fighting in the streets of Barcelona will be terribly costly for Madrid. The risk of either would have been zero had he reacted less strongly.

His second error is to assume that he is dealing with a unitary Catalan opposition. He is not. Puigdemont has already punted responsibility over to the Catalan legislature. Now it will be up to individual Catalans whether and how to resist. Catalan officials could choose to stay at their posts. Catalan police could refuse to obey orders from Madrid. There might be mass demonstrations, but that would be a sideshow to the real non-violent civic disobedience: bureaucrats continuing to stay at their posts but refusing orders from the Congress in Madrid. 

Here is what Rajoy should do, given where we are: show restraint. Fire recalcitrant bureaucrats but refrain from making arrests. Wear down the opposition. Take civil action, sue for breach of contract, insure that businesses keep paying their taxes. Essentially bore the Catalans into submission. Even if there is mass resistance from the bureaucrats, keep it civil. Reason being is that it is one thing to have mass walkouts by bureaucrats. It is quite another to have them actively set up a parallel state enforcing parallel laws and collecting parallel taxes. Once that happens, the jig is up, and the only responses Madrid will have on the table are (1) impose crushing sanctions or (2) break heads. 

Human nature being what it is, I do not think (1) or (2) will work, at least not at the level of pain that voters in Castilla and Andalucía and Aragón and Extremadura will be able to countenance. (I hope.) If we go there, then, Spain will disintegrate but with much human suffering along the way. So let us hope that Rajoy realizes that the only solution is boredom.

Demasiado largo, no lo leí: Catalonia needs Spain

Here is the TL;DR version of the last post.

Catalonia runs a budget deficit with the rest of Spain. That is disguised because Madrid kicks back a large chunk of Catalonia’s tax revenue in the form of soft loans. In other words, Catalonia has been taking debt owed private investors as it comes due and transforming it into debt owed to the central government. (This far to the tune of €52 billion.) That means that an independent Catalan state would need outside financing if it declared independence as its debt came due, to the tune of €4 billion per year; such financing would be impossible in a contested divorce. Even if Catalonia renounces its share of the national debt, Spain can lock it out of financial markets. The result will be crushing ... and that is before accounting from the trade shock that will come from Catalonia’s hard exit from the European Union.

(Note that tax revenues are lumpier than spending: even a state with a budget surplus needs access to short-term financing to make its payments. Losing access to finance will be crushing.)

Rough numbers for Spain:

Explanation: Spain in 2014 received a net transfer from Catalonia worth 0.8% of GDP. Losing the territory would cause an increase in spending of 0.3% of GDP, since the new smaller country would have to cover the same burden of fixed costs. (Defense, foreign affairs, regulatory authorities, public research, etcetera.) If Catalonia also renounced its share of the national debt, then the rest of Spain would also have to assume an addition 0.6% of GDP in interest costs. The total cost, then is either 1.1% of GDP or 1.7%, depending on what happens to the national debt. 

Rough numbers for Catalonia:

Explanation: with independence, the soft loans go away. Catalonia will be in deficit unless it renounces its share of the national debt or allows net taxes to rise substantially. Note, however, that Catalonia will still need access to short-term financing. Also note that these figures make no account for the inevitable trade shock that Catalexit from the E.U. will bring. That trade shock will depress revenues and raise spending, making access to capital even more critical. 

La economía de la secesión en la madre patria

We have moved down the game tree one step towards sensibility! Premier Puigdemont declared that Catalunya has the moral right to secede but will not declare independence. Relief!

Except, well, now the Spanish government needs to decide its response. The sensible thing, of course, is to do nothing. Either nothing nothing, or possibly a more active form of nothing where nobody speaks about secession but Catalan representatives in Parliament meet with other parties to see if they can hammer out an acceptable constitutional reform. Some politicians, like Socialist leader Pedro Sánchez, are doing just that. Prime Minister Rajoy, unfortunately, appears to be doing his best to push the Catalan leader into a corner by insisting that he loudly and unequivocally back down.

It is never a good idea to leave your opponent with no face-saving exit, especially when you have just won. I would bet on Puigdemont trying to give Madrid what it asked for without a full about-face.  (After all, Puigdemont has to keep his own hardliners onside.) 

Rajoy should accept the offer. 

But if he does not and we re-enter the conflict, it is worth discussing what is at stake. The answer: less downside than you might think for Spain, and rather more for Catalonia. 

First the figures for Spain. Catalonia is a net payer into the national budget. The reason that Catalonia is a net payer is that individual Catalans are richer than elsewhere.  

The baseline calculation is straightforward. Spain in 2014 ran a budget deficit of 3.5% of GDP. Excluding Catalonia , the Spanish state collected €305 billion and spent €345 billion, over a GDP of €840 billion. That implies a budget deficit of 4.8% without Catalonia .

Except, well, it seems plausible that Madrid would assume all of the fixed costs of the Spanish state: defense, foreign affairs, research and development, debt interest and the like. That would increase spending to €353 billion and the deficit to 5.7%. That is not comfortable, but it is far from an economic disaster.

So there you have it, a net cost of 2.2% of GDP ... with one more complication. Spain currently provides a fund to help the autonomous communities. The fund lends cheaply to the communities, as in at zero interest for three years and 0.834% thereafter. These expenditures do not count as part of the Spanish State’s budget deficit since they are technically loans: the central government increases its public debt in return for accounts payable given to the communities. That said, the account represents a flow of resources that somehow needs to be financed. Along with sundry other loans from the central government, Catalonia received €4.7 billion in such soft credits in 2014. If it seceded, Spain would no longer need to borrow that money. That said, this should probably not be counted as a benefit to Spanish taxpayers, considering as the costs are (in theory) borne by Catalan taxpayers. Of course, if you do not believe that the debt will ever really be paid back, then the calculation changes and losing Catalonia would cost only 1.6% of GDP.

What about the Catalan side? Total spending at all levels of government there currently comes to about €66.3 billion, while taxes amount to €70.4 billion. That would give the Republic of Catalonia an additional 2.1% of GDP. 

But it gets more complicated. The Spanish treasury assigns Catalonia a share of fixed costs and interest payments. Right now, that comes to about €2.6 billion in fixed costs and €5.0 billion in interest payments. 

The €2.6 billion share of fixed costs is about 1.3% of Catalonia’s GDP. That is less than the independent country would have to spend to set up its own army, foreign service, statistical agency, tax authority, additional courts, weather service, competition authority, securities regulator, and everything else now done by the central government. In the long-term, you are looking at a rise of about 0.2% of GDP (bringing it up to roughly what Spain spends). 

In the short-term, you are looking at much higher expenses as Catalonia ramps up, but I have no idea how to estimate that. So let’s run with a baseline saving of 1.9% of GDP. This is not small, but it is less than transformative. 

Except, well, those pesky financing operations from the central government. They give Catalonia about €4.7 billion every year. Even if you expect Catalonia to pay back the loans, they represent a liability that will need to be financed somehow. Which means independence would blow at least a temporary hole in the Catalan budget on the order of 2.4% of GDP. There go the cost savings!

So independence would cost 0.5% of GDP? Not exactly. What would actually be happening is that borrowing from the Spanish central government would need to be replaced by borrowing from other sources. In a mutual divorce, nothing would change save a small rise in the interest charged on the loans. 

But in a contested divorce, it would mean that Madrid has some substantial leverage. Rather more than the headline figures would indicate.

What about the national debt? If Catalonia assumes its share of the national debt, then Spanish expenditures rise to €348 billion: for an additional cost of 1.6% of GDP compared to the status quo. On other hand, if Catalonia dumps the entire current national debt onto Madrid, then (as calculated above) Spain’s fiscal burden will rise by 2.2% of GDP. 

Catalonia, on the other hand, would save €5.0 billion in interest payments. That is more than enough to cover the loss of financing from the central government. Hooray!

Except ... well ... this will get ugly. Spain can tie the new republic up in legal knots, made worse by the fact that the republic’s banks will have all moved their headquarters to Spain. Interrupted payments, attached accounts, you name it. The fiscal squeeze will be immense. 

The good thing, ironically, is that if its banks flee to Spain proper then they will still have access to ECB support. So that would slightly lower the pressure on Catalonia, since depositors will not have to fear an Argentine-style corralito. But they would still face corralónes: the Catalan government will likely limit withdrawals to prevent capital flight. And the new republic would also find itself unable to finance its current level of operations, and that would be horrendous.

Anything else for a Catalexit? Yes! Even assuming that Spain does not close the border, Catalonia will crash out of the E.U. with no WTO schedules and no trade agreements. In other words, Catalonia will suffer all of the effects that a hard Brexit would impose on the U.K., only with the added problems of having no independent currency and no way to access capital markets. Spain would also suffer a recession, of course, as trade fell with Catalonia ... but Spain will only have problems with Catalonia whereas Catalonia will have problems with everywhere. 

TL;DR: Both Spain and Catalonia will lose on the long-term fiscal side, even if independence is negotiated. But Catalonia borrows a lot more than people realize, and losing that in a unilateral secession will crush its national economy. The result will be a terrible financial crunch (even if the banks survive by relocating to Spain). Falling out of the European Union will add insult to injury. Spain will be battered, but as long as the ECB supports it the impact will be less than the 2008 crisis ... while Catalonia goes the way of Greece.

¿Qué sigue en la madre patria?

The Catalan election descended into utterly predictable chaos. The secessionists won, on poor turnout. But the Spanish national police idiotically decided to wade in wearing full stormtrooper gear, and now nobody knows what will happen. The Catalan premier, Carles Puigdemont, has been coy about whether he will issue a unilateral declaration of independence (UDI, to use the abbreviation first used in 1965). 

So what will happen? Last night, in a bit of insomnia, I jotted down a game tree to help me think this through. I present it below. You can click to enlarge it. I have colored the boxes with the flag of the party making the decision to make things clear. (I am sorely tempted to write, “time for some game theory.”)

Right now the Catalans are deciding whether to declare independence. Their other option is to begin negotiations with Madrid on the precondition that secession will not be on the table. If they take that option, we can breathe a sign of relief: what follows will be contentious but not catastrophic.

But what if they declare independence? The ball goes into Madrid’s court. The Spanish government will have three options. The first would be to agree to negotiations. With a UDI in the background, that seems unlikely ... but if they agreed would could again breathe a sign of relief. 

The other options, however, are more likely. One is to do nothing, the bottom tree on the chart above. The other is to invoke Article 155 of the Constitution and suspend the Catalan government. What if Spain does nothing? Literally, just lets Catalonia go ahead and declare independence but takes absolutely no positive steps to remove Spanish authority. Well, that would give the Catalan authorities two choices:

1. Do nothing as well. That would leave Catalunya in a sort of limbo, with an autonomous  community exercising nothing more than its constitutional authority as part of Spain while claiming to be independent. Weirder things have happened. Life would go on, taxes would be collected, services would be delivered. Eventually they would talk.
2. Organize a parallel state. That would mean having Catalan bodies and bureaucrats take over functions currently carried out by the central government. Eventually, of course, there would be a conflict: a firm would refuse to pay Spanish taxes, two police forces would quarrel, a court order would be ignored, something. 

That would throw the ball back to Madrid. Assuming that voluntarily acquiescing to Catalan independence would not be an option, the Spanish government would have two choices:

1. Crack down with the full authority of the state. We got a taste of that yesterday.
2. Uncooperative withdrawal. Pull out without recognizing Catalan independence. 

Here is where backward induction is helpful. In both cases, the Catalans would have to deicde: give in to Spanish pressure or hold their ground. Problem is, by this point backing down would be political suicide. People would be angry. But resisting a crackdown means civil war. Not necessarily a repeat of 1936-39, but sustained political violence. 

And resisting an uncooperative withdrawal means complete economic collapse. First, the banks would fail as their headquarters pulled back operations; without ECB support euros would become scarce. Second, all contracts would be tied up in legal knots, dropping a paralyzing web of uncertainty. Third, all transfer payments from Madrid would stop; Catalunya would have to replace them ... only Catalunya would not have euros. So it would introduce a proto-currency, which would plummet in value, fueling a wave of defaults ... and so on, until you have something that looks like Greece, at best.

Except, well, backing down by the point would end the career of any politician who tried it, Thus, the big X’s through that option.

The lower tree does not look good. What about the upper one, where PM Rajoy invokes Article 155?

Well, that would give the Catalans a choice: acquiesce and fight it out inside the institutions of the Spanish State or organize mass civil disobedience. The first gets us into a nicely talking world. The second put Madrid in the position of deciding whether to negotiate in the face of mass resistance or resist Catalan demands. If they resist we are ... back on that lower game tree. (The upper and lower tree are the same after that point.)

The implication is that this is a no-win situation for the Catalans. Resistance ends in civil war or economic collapse. (Ironically, the European Union makes it easier to impose that economic collapse: the ECB cannot support Catalan banks if Catalunya is no longer a member.) The smartest thing is to do nothing. If there must be a UDI, then nobody should do anything. Nobody speak, nobody get choked!

Meaning that nobody should do anything, even if the other side does something. Nothing is the  best option. Do nothing at all. Nada. Nothing. 

I am hopeful that in this case that strategy will in fact dominate. But, well, game theory does not really a good record in these sorts of situations. If it did, the morons in Madrid would have never gotten us to this point. (In fact, I suspect that the Catalan nationalists are surprised at their own catastrophic success.) But here we are, so we can only hope that the politicos backwards induct correctly.

Unless ... gulp ... unless the game tree missed something, some option or payoff that makes the bad state good for someone. In which case we are jodi ... thoughts?

Pendejadas en la madre patria

I am beginning to believe that PM Rajoy wants to push Catalonia into a unilateral declaration of independence. For he is snatching defeat from the jaws of victory and it makes no sense. 

Around the time of my last post, before the earthquake, the Spanish State was winning the battle. Public opinion polls were trending against as late as June. Local officials were negating support for the referendum. Madrid was in a perfect position to sit back, watch the vote, and shrug its shoulders even if happened. A few kind words in favor of autonomy would have killed the whole damned thing.

Instead ... and I am posting this only because I suspect some of you do not read Spanish news obsessively ... Spanish national police just raided Catalan government offices and arrested 13 officials. This is ... crazy. If I were Catalan that would not get me to support secession, but by God it would make me angry.

In that, I suspect I am pretty well normal. But in my absolute ideological rejection of secession I do not think that I am pretty well normal. Meaning that you could not do better to push people towards secessionism than to raid their government offices and arrest their politicians. 

Imagine this in an American context. Calexit, somehow, gets on the ballot. Instead of ignoring this bit of West Coast silliness, the Trump administration starts insulting everyone in the movement. This is followed by Jeff Sessions mobilizing the National Guard to confiscate all pro-Calexit posters and pamphlets, ordering USPS and Fedex to suspend sending out any California election material, and sending in the FBI to arrest Californian officials. They grab a bunch of high-placed people in John Chiang’s office, grab a bunch of Betty Yee’s advisors for good measure, and top it off by arresting Gavin Newsom’s right-hand man. 

That could turn a sideshow into a serious independence movement. But Catalonian independence is already more than a sideshow. Madrid should be very quiet right now. They should be quietly making an active case for Spanish unity, with no reference to the illegal referendum. Government spokespeople shouldbe quietly pointing out that independence would bring economic disaster, but they should only point that out when asked. They should put out short declarative statements that the referendum is nice but of no import, but again only when asked. And ... end.

Instead, we have what looks like, what, an attempt to have a second Civil War? What in the name of God and the madre patria are they thinking over there?

This is all beyond stupid.

Els límits de l’autonomia a la mare pàtria*

The impending mess in Spain would not be happening save the People’s Party’s decision to take the 2006 Statute of Autonomy to court and the resulting court decision. That is not to say that the current impasse was inevitable given the decision; it is to say that the decision was a necessary component.

So what did the Constitutional Court actually do? (The decision is at the link.)

Other than the fact that the above picture was taken in Barcelona three years before the 2010 court decision, it captures my reaction fairly well. I’ll start with the parts of the decision that were more-or-less if-you-squint reasonable:

1. The Court let Catalan keep its “preferential status” in the schools, but insisted that it had to remain co-equal with Spanish in “public administration.” This is pretty much exactly the way Canada treats French in Quebec. (Had the court gone further and given Catalan the same de facto status that Spanish has in most American states or that French has in the rest of Canada it would have done a lot to assuage secessionism. But they did not, and to be fair, there was not really any legal reason for the court to do that.)
2. The Court upheld a provision stating that the Statute could call upon the central government to spend a portion of its infrastructure spending in Cataluña “proportional to the percentage of Catalan GDP in relation to the overall Spanish GDP,” but it also stated that a law passed by an autonomous community would not be binding on the national government. 
3. The Court overturned the provisions creating a Catalan supreme court, pointing out that the creation of courts was not one of the powers that the Constitution let the national government devolve to the communities. Unlike the other two, this one was contentious (and seems silly to American, Argentine, Australian, Brazilian, Canadian, or Mexican observers). Still Articles 148 and 149 Spanish constitution place the judiciary among the reserved powers of the central government. 

If this had been the whole thing, then I doubt that the country would be in the current mess. (Although #3 is pretty drastic and the court could have gone the other way.) But, sadly, it was not the whole thing. It also:

1. Gratuitously re-wrote the Statute to state that Catalans were not a nationality and had no inherent right to self-government, even though silly little Navarra (the land of my maternal grandfather’s ancestors) is a “historic nationality” gets to call its agreements with the national government “treaties”);
2. Weirdly insisted that Cataluña cannot set up its own tax administration (unlike Navarra and Basque Country, Basque constitution in English)
3. Prevented Cataluña from chartering its own municipal or county governments;
4. Insisted that Cataluña cannot have a direct bilateral relationship with the national government, unlike Basque Country and Navarra;
5. Was written in a most obnoxious and confrontational manner. (Link to the English text, which manages to capture the tone in slightly watered-down form.) The court insisted on discussing every single objection raised by the People’s Party at long and sympathetic length, even when the ultimate decision upheld the Catalan position.

The whole thing was a massive WTF. The Court could have written a limited decision, mildly stating that some language had no constitutional meaning, striking down the disputed clauses, and leaving the rest alone. Hell, given the vagueness of the principles being invoked, it could have just said, hey, obviously Cataluña can enjoy any autonomy that Navarra enjoys, why discriminate?

Sometimes courts really do need to follow the election results. The Spanish constitutional court decided that it would not. And now the result is this illegal election barrelling down upon us, putting the whole of the Spanish State at risk. Has there been a bigger own-goal in a judicial decision since Dred Scott?

* Forgive my Catalan. I understand no Catalan. It is close enough to Castilian to puzzle out simple written sentences, but unlike Portuguese the spoken version (or writing of any complexity) is not comprehensible. In other words, linguistically speaking, Castellano is clearly a different language from Catalan, whereas Castellano is merely a dialect of Portuguese. ☺

The Spanish government is making a serious mistake

Cataluña ... Catalunya ... is going to vote on independence on October 1st. The vote is sanctioned by the Catalonian regional government but is illegal under Spanish law. A Spanish court, therefore, just blocked the referendum.

So far, fine. Spanish courts need to uphold Spanish law. More generally, as I have said elsewhere, I am opposed to secession from democratic states save when recent violence has made reconciliation impossible. In concrete terms, that would limit the historical cases of justified secession from a democracy to only three: Ireland 1922, Algeria 1961, and Kosovo 2008. Cataluña does not clear that bar.

But the above did not count on Prime Minister Rajoy’s unerring ability to alienate Catalans. He wasn’t satisfied to let the judicial system do its work. No, he had to order his attorney general to publicly announce that any Catalan legislators who voted to allow the referendum would be prosecuted. Get that? It is not enough for judicial review to invalidate an unconstitutional law. The people who voted for that law need to be thrown in jail. 

And this is a pattern. The only reason independence is getting this far is that Rajoy filed suit at the Constitutional Court to overturn Cataluña’s Statute of Autonomy. Some background. The Spanish State is not a federation. Article 2 of the Constitution maps out the powers that the Spanish State can devolve to the autonomous communities. Article 155 makes it clear that the central government retains power over the communities. In practice, Parliament has voted to devolve to the communities many more powers than retained by states in many genuinely federal countries. 

The Statute of Autonomy that kicked off this whole mess had to be approved by the Catalan parliament, the Spanish parliament, and a Catalan referendum. It passed the Spanish parliament with a 58% majority. So it had broad support inside and outside Cataluña. The People’s Party did not need to take a case to the Constitutional Court. It chose to, meaning that it chose to inflame Catalan public opinion.

The Spanish government should just sit back, let Cataluña have its referendum, and then ignore the results. Independence might not win. Even if it did, the Spanish government could just refuse to negotiate.

But even if PM Rajoy finds that unacceptable, threatening to arrest nationalist politicians is the absolute stupidest thing he could do.

Rajoy is not making sense on Scottish secession

What else would you talk about in Alabama besides Brexit?

Well, lots of things, actually. Like airplanes! But I did spend a lot of time talking about Brexit with the mavens at the Air War College here at Maxwell AFB. My big contribution to the discussion resulted in this tweet: 

Scottish secessionists need to watch Spanish politics very carefully if they expect to remain in the E.U.

— Noel Maurer (@noel_maurer) June 25, 2016

It seems as though the Scottish government is exploring ways to remain in both the E.U. and U.K. simultaneously, although European officials were reluctant to so anything as simple as declare England an overseas territory of the U.K. Their reasoning makes sense: it is early and they do not want to get drawn into an internal British dispute. 

Unfortunately, the Spanish premier, Mariano Rajoy, is dead set against letting Scotland remain. He is afraid of giving the Catalans more ideas. But that seems stupid. After all, Scomain is intended to keep the United Kingdom united, even if it results in a customs barrier running a little bit north of Hadrian’s Wall. Refusing to comprise on the issue raises the chances of Scottish secession, which is the real precedent that Rajoy should be refusing to set. 

I do not pretend to understand the People’s Party.  They started the current support for Catalan secession by opposing the Statute of Autonomy, going so far as to petition the Constitutional Court to declare it unconstitutional. (The court obliged.) I understand wanting to keep Spain together; I even understand refusing to countenance any sort of secession referendum. But I do not understand the resolute opposition to extending quite reasonable grants of autonomy ... and I certainly do not understand what Rajoy thinks he will accomplish by opposing any Scottish attempts to remain in the E.U. without formally seceding from the U.K.

Juan Linz was wrong

 I think I need to spell it out more clearly: Juan Linz was wrong.

(1) There are very few instances of democratic collapse in Latin America which involved partisan gridlock. The only one which clearly fits the bill is the Brazilian coup of 1964 ... except for the fact that Brazil tried a parliamentary system in 1960-63, which did nothing to resolve the country’s underlying political conflicts. Three others fit if you squint hard: the Argentine coup of 1966, the Honduran coup of 2009, and the Chilean coup of 1973. The latter, however, also involves a President who was in open defiance of the Supreme Court as well as Congress.

This is a small subset of the democratic collapses in Latin America. 

(2) Now, Latin America is all presidential regimes, save the 19th-century Brazilian Empire and that brief early-Sixties experiment. But Africa has a mix of presidential and parliamentary systems. And on that continent, both systems are equally-likely to break down.

(3) Postwar Europe has not had a lot of democratic collapses, but there have been a few close calls. They do not fit the Linz formula. Perhaps the coups in Czechoslovakia and Hungary should not count, because they both involved the Soviet Union ... but they nonetheless occurred in parliamentary systems. The collapse of the Fourth French Republic was not a coup per se but it was certainly a constitutional breakdown ... and the Fourth French Republic was a parliamentary system. The 1982 putschists in Spain launched their assault on a parliamentary government. Finally, the 1960, 1971, 1980, and 1997 coups in Turkey overthrew prime ministers, not elected presidents.

The U.S. may go into a crisis. We may develop a political culture most unsuited to our constitutional structure. Jonathan Chait explores that idea here. But if that causes us to go into crisis, it won’t be because of our constitution per se.

A sporting dilemma?

So I’m in Jerusalem, watching el Clásico. The Israelis find my Spanish cursing amusing. The Real fans from Spain, slightly less so, but only slightly. A good is had by all, not least because the good guys win it 4-3, albeit aided by a bullshit call against Real.

Which brought me to a thought. I am opposed to Catalan independence. Barça has become known as a symbol of Catalan independence. But no one descended from fighters on the losing side of the Spanish Civil War can support Real Madrid. Real was not politicized at the beginning of the war (its manager was in fact a Communist) but afterwards it became a symbol of the Francoist regime.

So I am a Barça fan. Regardless of the whole secessionist thing. Lo, lolololololo, lo lo!

Who won with Repsol and Argentina? Everyone!

We now have  a few more details about the deal. Reports are that the coupon on the bonds will be between 8.25% and 8.75%. It also looks to have been an intergovernmental negotiation brokered by the CEO of Pemex, Emilio Lozoya. President Fernández called President Peña to congratulate him on Lozoya’s role.

In short, it looks like something out of the 1970s. For more on what expropriation disputes looked like back in the day, go read this book!

So who won this old-fashioned intergovernmental natural-resource slugfest? Raul Gallegos at Bloomberg has a great analysis:

So, Repsol clearly lost this fight so far. But who has won?

1. Fernández: Argentina’s president can sell a deal to a domestic audience as a political victory. Forcing Repsol to accept less than half what it demanded and reportedly offering to pay the company in 10-year bonds makes the populist leader appear to be a strong negotiator. Coming close to ending the conflict not only helps counter critics who argued that the government stole YPF assets, but also suggests Fernández is serious about turning around the country's troubled energy business.
2. Carlos Slim: The Mexican billionaire, the world’s second richest man according to the Bloomberg Billionaires Index, controlled an 8.4 percent stake in YPF as of a mid-June 2012 filing. The price for YPF’s U.S.-listed shares has risen 192 percent since then and is now worth more than $989 million, according to Bloomberg data. YPF shares rose 13.3 percent from Monday through Wednesday, amid talk of a possible settlement between Repsol and Argentina’s government. Slim’s reported investment in YPF’s October bond issue suggests savvy investors buy when assets look scary and cheap.
3. Chevron: Chevron Corp.’s decision to strike a controversial deal with YPF last year gained the company a foothold in Argentina’s famous Vaca Muerta shale formation -- the world’s second-largest shale gas and fourth-largest shale oil accumulation. This may have earned Chevron a Repsol lawsuit, but the deal now looks well timed. Supporting a troubled Argentina also gained the company goodwill among leftist politicians who could remain in power after Fernández leaves office.
4. Pemex: Mexico’s decision to serve as a mediator between Argentina and Repsol is no disinterested gesture. Its troubled, state-owned oil company Petroleos Mexicanos, or Pemex, would also consider investing in the Vaca Muerta shale formation. Pemex’s 9.4 percent ownership of Repsol gave the Mexican company an incentive to help end the dispute that has hurt the Spanish company's fortunes. Bloomberg data show Repsol’s shares up 3 percent since talk of the potential YPF agreement became public.
5. YPF: YPF is the biggest winner from Argentina and Repsol’s decision to bury the hatchet. YPF plans to invest $35 billion over five years to turn business around in the energy-import-dependent country. To do that, YPF needs strong partners such as Chevron and the ability to tap capital markets relatively cheaply. Settling a major nationalization dispute gives the troubled company easier access to both.

I would, however, quibble with two of Gallego’s conclusions. First, it is not clear that Slim was really perspicacious in picking up YPF stock; rather, he got it because the expropriation prompted the Eskenazi family to default on its debt to him; debt which was collateralized with YPF shares.

Second, Repsol did pretty well. My financial analysis is summarized here. But there are other, deeper reasons to believe that Repsol did pretty well ...

Some more hints on the Repsol settlement

It looks as though the Argentine government will compensate Repsol via a marketable dollar-denominated bond. We know not yet the details, although Bloomberg suggests a ten-year term.

We do, however, know a little bit about Argentina’s two latest dollar bond issues. (I downloaded more detailed data from the Mecon website.) In 2010, the government issued $950 million in a seven-year bond issue. The coupon was 8.75%, paid twice a year. The bond currently trades at almost 93¢. (Although Puente states that it is currently trading at 97.8¢.) In 2011, the government issued a further $3.5 billion in 7-year dollar bonds, this time with a 9% coupon. (See below.)

At 8.75% over ten years, Repsol would eventually receive $9.38 billion on a $5 billion bond issue.  At a discount rate of 8.4% (the rate at which Repsol would be indifferent between waiting on its modal expected ICSID compensation and taking $5 billion now) the bond would have a present value of $5.11 billion.

Or Repsol could sell it for somewhere between $4.65 billion and $4.89 billion, although it should be kept in mind that the market is not particularly liquid, especially if the bonds are governed under Argentine rather than New York law. Repsol would have to take some time to unwind its position.

Either way, it looks like the fact that Argentina will pay in bonds is not a dealbreaker. Moreover, it is possible that the face value of the bonds will ultimately clock in a little bit more than $5 billion or that the coupon will be higher than 8.75%. As long as Repsol can sell its bondholdings within a reasonable amount of time, it should be protected.

YPF and Argentina inch towards settlement

One problem with blogging is that there are things that I do not post about, because it conflicts with teaching. Sometimes case method teaching involves laying out all the clues to a mystery and then letting the students solve it in class. That limits, obviously, what I can give away on the interwebs. The YPF nationalization has been loaded with those sorts of limits. 

The YPF saga, however, may be drawing to a close. We have growing indications that Repsol and the Argentine government may be coming to a settlement. The number being tossed around is $5 billion, which is a bit above the $4.4 billion that it would have cost to purchase 51% of YPF right before the expropriation. Now, $4.4 billion may not be fair. YPF’s price in New York peaked at $39.88 in January 2012 before sliding to $21.95 in the lead-up to the expropriation. $39.88 would imply that 51% of the company was worth $8.0 billion. In fact, the price was $28.41 as late as March 30, implying a value of $5.7 billion for a 51% stake. (By March it was clear to everyone that Repsol and President Fernández were at loggerheads, but it was not clear that she was going to expropriate.)

Repsol’s share of YPF, however, did not drop from 57.4% to 6.4% after the nationalization. Immediately after the takeover, the Eskenazi family defaulted on loans from Repsol that they had used to finance part of their share in YPF, which raised Repsol’s share back to 12.4%. Repsol, therefore, only lost 45% of YPF. 45% of YPF was worth $7.06 billion in January 2012 and ... wait for it ... $5.03 billion on March 30.

There were rumors that Sinopec (or CNOOC) was going to buy 57% of YPF for $15 billion ($13.4 billion for 51%) but those are unsubstantiated. Other sources report that the Chinese companies thought $10 billion was too high. Reports of a $12 billion sale to CNOOC later proved unfounded. (Click the first link in this paragraph.)

I doubt that the Chinese wanted to pay much more than the ~$9 billion that Repsol’s 57% stake was worth around the beginning of 2012, assuming that they really wanted to buy at all.

In short, if current rumors prove correct, Repsol will have taken a roughly $2 billion hit below a reasonable valuation of its stake. 

Will Repsol accept? Given that arbitration will take a very long time (with an uncertain outcome), taking $5 billion now seems reasonable. They could gamble on a favorable judgment, of course, but why? Rough calculation: say Repsol receives $7.06 billion in 2020, plus interest charges of $2.74 billion. (That uses the 4.188% rate that Occidental received in its dispute with Ecuador, compounded annually. See page 317 of the ICSID decision.) That means Repsol can choose between a certain $5.0 billion now and an uncertain $9.8 billion in seven years. As long as Repsol’s discount rate is above 8.4%, then it is better to take the cash now.

(FWIW, Bloomberg reports that Repsol has a yield of 5.2% and an inverse p/e of 6.7%. Those numbers imply a hurdle rate for new projects way above 8.4%. And waiting for an ICSID judgment against Argentina is at least as risky as other investment projects. This applies even though it is quite possible that ICSID would eventually award Repsol more than $9.8 billion; waiting is still risky.)

The Repsol settlement, if it happens, will not be an exception. Argentina has been recently settling its outstanding expropriation claims, even when the Argentine government has a good moral case. The reason for the sudden spate of settlements has been Argentina’s need for external credit combined with strong U.S. opposition to granting such credits unless the country settles with American claimants.

But why settle with a Spanish company? The American energy secretary announced that the United States supports Repsol, but that is not a reason to pay: the U.S. has already eased up on Argentina at the IADB. Even if the country feared ICSID (which in the long-run it should) there is no reason to pay now when you can pay in 2020 ... 8.4% is below Argentina’s borrowing rate!

But without a settlement, Repsol can throw wrenches into the Vaca Muerta development plans. Worse yet, there is the possibility that its legal actions could delay Argentina’s return to international capital markets. So that gives Argentina an incentive to settle. And if it can do so near the lower end of its plausible compensation (45% × $8.63 billion that YPF was worth the day before the expropriation = $3.88 billion) so much the better.

Not a terrible compromise, I do not think.

Spain’s population is dropping … but not by very much

There has been a lot of news lately about Spanish emigration, especially since the country’s population shrank in 2012 for the first time since the Civil War.

The thing is, net emigration is almost entirely driven by returning migrants. Net emigration of Spanish nationals is tiny. In absolute numbers, we are talking about a net emigration of 20,484 Spaniards in 2011 and approximately 34,000 in 2012. (Net emigration of foreigners ran about 149,000 in 2012.) Even the gross emigration is small: 62,611 in 2011 and approximately 73,000 in 2012.

The below chart presents the components of monthly population change (at annualized rates). They sum together for total population change. (That is the black line.) I have no idea why births are so lumpy in 2011. Since that was a census year, I suspect it represents some sort of adjustment to bring the vital statistics data in line with the census, but that is just a guess.

Until 2012, the biggest component was natural increase. It ran at 124,000 in 2009, 97,000 in 2010,  103,000 in 2011, and will come to 102,000 in 2012 at current rates.

(Data from here.)

Of course, even a small emigration could have profound social effects, depending on who they are. But these numbers mean that you should take stories about the wave of Spanish immigrants descending on Latin America with a giant grain of salt. Outside the wait staff at a few chic restaurants and perhaps some specialized trades, the Spanish second conquista is not big enough to be noticeable anywhere in Latin America. Setty already noticed the dearth of Spaniards in his examination of the Chilean census, but it looks like a generalizable result. Maybe the dam will break, but it hasn’t yet.

Ethiopia, North Korea, and Some Half-Formed Thoughts on Dictatorship

North Korean dictator Kim Jong-Il died late last year. He was promptly succeeded by his twentysomething son. Some observers questioned whether the son would be able to take over and impose effective personal rule, but nearly a year has passed and he seems to be doing just fine.

Ethiopian dictator Meles Zenawi died last month. He hasn’t been succeeded by anyone yet. (Formally, officially, the Deputy Prime Minister has stepped up. But nobody seems to be taking him too seriously. He’s a mild-mannered guy, not a member of the revolutionary generation, and the wrong ethnicity to boot.) Zenawi was a “slash the tallest flowers” kind of guy; years of life on the run as a guerrilla in the bush seem to have rendered him permanently paranoid. Anyone who seemed too popular or too competent got demoted. At best demoted. So there’s no obvious successor.

I think the odds of Ethiopia staying a dictatorship are pretty good. It’s a country that has never known democratic rule or any sort of pluralism. Since the Emperor Haile Selassie consolidated his rule in the late 1920s, Ethiopia has had exactly three rulers: Selassie himself, Stalinist dictator Haile Meriam Mengistu, and the recently deceased Mr. Zenawi. That’s just three guys in almost 90 years, all of them absolute rulers with little or no tolerance for dissent. The country has almost no liberal traditions. Civil society does exist — there are NGOs and labor unions and even a few lawyers who are willing to sue the government — but it’s young and small and weak. It won’t be too surprising if a new strongman emerges. But it may take a while, and Ethiopia may go through a period of oligarchic rule and jockeying for power before things sort out.

Regimes with clear lines of succession are generally stronger regimes. Part of the reason is that they’re slightly harder targets — you not only have to take out the top guy, you have to get rid of his designated successors as well. But I think the bigger reason is that everyone knows what’s coming next after the dictator. Even if the successor is a dubious character, he’s likely to seem better than chaos and uncertainty.

Traditional monarchs have known this for millenia. But the lesson applies to dictatorships as well. We currently have at least five extant examples of non-royal dictatorships that have been successfully transferred to a son or brother of the dictator: Azerbaijan, Congo, Cuba, Syria, and North Korea (twice). Gabon and Togo are authoritarian regimes run by sons of former dictators; if we include them, the club expands to seven.

Examples of transfer to a non-relative are much much rarer. There have been a couple in the past. (Ataturk hand-picked his successor; Mexico in 1934-94 had an extremely powerful president who chose his successor from the party leadership, but they did not meet the definition of dictator. After all, they had to leave after six years in office.) But not a single extant dictatorship fits this pattern! (Burma’s dictator chose a successor who is still in power, but the successor seems to prefer being primus inter pares to being a true lone ruler.)

Now, it’s a long established principle that old age is a dangerous time for a dictator. All three of the dictators picked off by the Arab Spring were in their golden years. (Porfirio Díaz in Mexico and Juan Velasco in Peru also went down in their dotage.) More generally, an old dictator with no clear successor is pretty clearly putting himself at risk. That said, some dictators do run the course and die, more or less peacefully, in office.

So what happens when a dictator manages to pull this off — grows old and dies without first being overthrown or losing an election or whatever? Well, we can sketch out a tentative typology.

1. A son or other close relative steps up. (Several extant examples, see above.)
2. A hand-picked successor takes over. (Rare; no extant examples.)
3. There is a party or other system independent of the dictator that chooses a new dictator. (Rare outside of the Communist world; Mexico in 1934-94 comes closest. No extant examples, though we might see one soon in Cuba.)
4. After a period of uncertainty, brief or prolonged, a new dictator takes over. (A couple of extant examples — Turkmenistan, South Sudan.)
5. There’s a shift to authoritarian but non-dictatorial rule, either by a single ruler, an oligarchy or junta, or a party system. (China, Vietnam, Ivory Coast.)  This seems to be the single most common outcome in the last decade or two.
6. There’s a relatively rapid shift to relatively liberal or democratic rule. (Portugal, Spain. In the former, it took six years and revolution to get democracy.) This happens, but it’s less common than we might like to think. A shift in the direction of liberalism is much more likely when the dictator has been overthrown, or has voluntarily stepped down (Indonesia, Tanzania, Singapore), or agreed to elections (Chile, Zambia, Senegal). A system that lets the dictator die in office seems less likely to produce democracy at first go.

Numbers 2 through 6 include the possibility of foreign intervention; the United States, France and the Soviet Union have all intervened in this manner at one time or another. We may call these 3a (party picks a new dictator, foreign approval makes the difference: the Eastern European model, 1945-1990), 4a (new dictator takes power subject to foreign approval) and so forth. There aren’t really any extant examples of these at the moment — the U.S. seems to have lost interest in installing dictators in Central America and the Caribbean — but I would not be surprised if Russia’s “near abroad” in Central Asia were to throw up a 4a or 5a in the next little while.

6a is damnably rare, actually nonexistant: Panama would be one of the rather few cases since WW2 in which foreign intervention replaced a dictatorship with a democracy. Iraq sort of maybe kinda if you squint really hard. The jury is out (to be charitable) in Libya. And all of those interventions happened when the dictator in question was very much still alive and in power.

Anyway. There are enough elderly dictators out there that we should expect to see some more examples in the next few years. I expect that (5) “a shift to authoritarian but non-dictatorial rule,” will continue be the most common outcome. Which means that some countries that are currently dictatorships will drop off the list! If the number of dictatorships is to remain constant, then new ones will have to emerge. How likely this is ... well, this post is long enough. In a bit.

Victory! For Spain ... and (we hope) for Mexico

 We know the result in the European Cup! Great game, and a most unexpected blowout. Poor Balotelli.

We won’t know the results of the Mexican election for a few hours yet. Absent a truly earth-shattering surprise, though, the details are for the Congressional vote: did the PRI win a majority or not?

In the meantime, here is some food for thought. Four things. First, Mexican face-to-face polling may be the future, as Americans give up land lines. (And, as importantly, become less eager to answer the calls that do come in.) Second, the Economist argues for political reform, but I encourage you to doubt whether the reforms being mooted will make any noticeable difference to Mexican governance. (If there is interest, I will explain my doubts.) Third, consider that the biggest damn difference that any Mexican government can make regarding any damn issue facing the country is to raise more public revenue. The PRI has floated the idea of higher taxes, and there are reforms afoot that might (might! maybe!) reverse the decline in Mexican oil output.

Finally, though, remember at the end of the day that politics exists for two reasons. First, to give us a way to decide on public issues that don’t involve violence. Second, to make the society a better place for its weakest members. And with that, I give you this picture of a little girl in Iztapalapa, D.F., in front of her home ... a home where the family puts out tarpaulins to capture rainwater, where the streets regularly flood, where wages are tiny, where crime is high, and where this brilliantly smart little girl will attend schools that are barely able to teach her any more than her heroic parents already have. None of that is fair, not by my lights.

It might be cheesy, but f--k that. It’s people like this family that make you remember why all this matters.

Uncertainty and certainty, European soccer v. Mexican politics

 Uncertainty involves the game that starts today at 2:45pm EST. My wife pointed out to me that my mother is probably spinning in her grave right now, considering her lack of attachment to the madre patria. (In a European competition, she would be have been more likely to root for the Netherlands than the land of our ancestors.) Me, on the other hand, I revel in the victories won by our distant cousins!

Of course, everyone in America who doesn’t think I’m Puerto Rican thinks I’m Italian-American. (Which, to be brutally frank, I am, if we abstract away from such technicalities as my ancestry.) And how could I not like the pair of Balotelli and Buffon? But I think the furia roja is equipped to keep Pirlo in a box ... and we have Llorente (from Navarra, where my grandfather was born!) and Soldado. Plus, Casillas is an awesome goalie, and Iniesta an awesome striker. (Yes, I know he plays midfield.)

It’ll be a great game no matter what, unless the two sides resort to a defensive fallback like Spain’s last game or that miserable Italy-England soccer Stalingrad. I want the furia roja to win, but it matters not.

Today’s election in Mexico, unlike the soccer match, involves almost no uncertainty at all about the result. Enrique Peña Nieto is going to win. The polls are unanimous on that point. On the other hand, there is a great deal of uncertainty about whether it matters. From looking at campaign ads, it all seems pretty inane.

But it is not inane. How much is at stake hinges on three known unknowns:

1. What does Peña Nieto want?
2. What power will he have to accomplish (1) above?
3. What will be the consequences of the subset of (1) and (2)?

Gabriel Aguilera summed up well the dilemma of question (1): does Peña Nieto want to be a great Mexican president, or does he want to be a great Priísta? That is, does he want to leave his country in better shape regardless of the consequences to his party, or does he want to leave his party more powerful regardless of the consequences to his country?

Of course, it isn’t really a dilemma but a continuum ... and sometimes, as it took the Obama administration way too damn long to learn, good policy is good politics. But that aside, the above really is the first question.

Here is a good essay on just how bad it could be if Peña wants to be a great Priísta. Jeffrey Weldon thinks that is his aim. The Economist does not. The writer of this graffiti disagrees with the Economist.

 And then there is question (2). The Mexican president, unlike his or her Argentine counterpart, really is a weak figure. Now, that is not true when seen from the North: they have two advantages over their U.S. counterparts and one advantage over their Democratic U.S. counterparts. First, only one two executive positions requires congressional approval: the attorney-general and the treasury secretary. Second, the Senate of Mexico has no filibuster and no holds and none of the other insanity that has accumulated around the Senate of America. In addition, the entire Mexican senate is elected at the same time as the President, which makes it more likely for the President to have a majority, as does the presence of the electoral list senators. Finally, Mexican parties are generally more disciplined than the Democratic Party, although not as disciplined as the Republicans.

(For a description of the Mexican Senate, see here. For those bothered by my use of “America” to mean the United States, go away.)

That said, the Mexican president is nonetheless weak as American presidents go. (For those bothered by the above use of “America” to mean the entire Western Hemisphere, go away. Consistency, hobgoblins, all that.) He or she has no true decree power, and cannot introduce bills into the legislature nor command the legislative agenda. On the margin the Mexican presidency is slightly more powerful than the president of the U.S. of A., but rather less so than most other presidents in this hemisphere. Therefore ...

... It will matter a lot whether the PRI has a congressional majority.

The wrinkle is that the PRI has lost a lot of its national discipline: the Priístas I spoke to over the past week have told me that the party has evolved into a series of state-level fiefdoms, where the governor effectively chooses the congressional candidates, and machines are perpetuated by having the governor switch offices with senators and deputies and then switch back. That means that the congressional PRI will want President Peña to be a great Priísta, and not necessarily a great President. In such a world it might be better for President Peña to lack a PRI majority.

As long as the PAN and PRD decide that they will not be served by a GOP-like strategy of automatic opposition (and I suspect that they will not be so served), a Peña who wants to serve his country could build cross-party majorities. Remember, Mexico has no filibuster; its Senate (unlike ours) functions as an ordinary legislature. In short, it will be good if the PRI does well in Congress, but not quite well enough to secure a majority in both houses.

Finally, there is question (3). The problem with it is that there is no way to tell until we have the answer to questions (1) and (2). In the field of security policy, I am with Patrick Corcoran (see part one and part two): there is unlikely to be much change. But in economic policy, there could be; ditto in political reform.

I will discuss more later about what I think the answers are to the above questions. Right now, I just want to say that every Mexican needs to answer (1), (2), and (3) for themselves, and then go out and vote. After which, root for the madre patria!

We been saying this for a while now

 Hey, my blog is a nothing and that is how I like it. So it’s a good thing that Matt Yglesias is pointing out that if Spain suffers lots of capital flight (or otherwise sees its money supply collapse) then the worst effect of ditching the euro will already have happened and there won’t be many reasons to stay in.

Just saying that Doug and I have already made that exact point. More than once. As have, of course, many others.

Presumably the German government will now decide that the E.U. needs a unified system of banking regulation and deposit insurance plus some mutualization of existing debt, wedded to a stability pact and new labor legislation. Obvious!

Or not.

A question for the readership

 How can the fact that Repsol was on the border of selling its stake to Sinopec be reconciled with the fact that it was contractually obligated to buy back the Eskenazi’s stake at $38 per share?

Play it again, Cristina!

 What will happen? Well, Setty pointed out that we have seen this movie before. In general, I think he is correct ... with a wrinkle. 

1. Nationalization;
2. Giant compensation claims from Repsol ... say, I dunno, $10.5 billion;
3. Long loud wait;
4. Long drawn-out arbitration;
5. Payment from Argentina ... well after Cristina’s term ends in 2016!

There is, however, a wrinkle. That wrinkle is that Argentina is the first country to try to stick it to ICSID. They have just said no. That has, shall we say, annoyed other countries. Consider that the Obama Administration has imposed sanctions on Argentina ... the first time that an American president has used the 1974 authority. The diplomatic reaction from Spain ... and Britain, and the European Union, and Mexico and Chile and (OMG!) Bolivia ... has been ferocious. This is looking much more like 1968 or 1938 than it is like more recent expropriation events.

It might play out quicker than we expect. The big if is the European Union. If it uses its muscle, regardless of legality, then Argentina is going to hurt. If it does not, then the Setty calendar will play itself out.

Either way, it will be a show.

La madre patria contra la Argentina

 War in the River Plate! Spain attacks Argentina!

OK, not really. But Spain and Argentina are really going into it over threats that the latter might nationalize Repsol’s oil holdings. In fact, things are so bad that the Spanish foreign minister needed to specify that his country’s position “is not bellicose.” But the minister also said, “Whatever attack on Repsol that violates the prinicipal of legal security will be taken as an attack on Spain.” 

Minister José García-Margallo then added, “[Spain] will take the measures that it considers appropriate and ask for the support it considers necessary from its partners and allies.” The deputy prime minister, Soraya Sáenz, upped the ante. “Spain will defend its interests with all means available.” Now the prime minister himself has threatened a boycott of Argentine soya and beef. The European Union has announced its support for the Spanish government.

The threats may have worked. President Fernández of Argentina had been expected to announce the nationalization on Thursday, but instead limited herself to an anodyne statement that she was “ready to pay all the prices that must be paid” to keep the economy growing. Se then added some words about the triumph of Argentine-made chocolate. YPF shares soared. Repsol shares, not so much.

So what is going on? Putatively, President Fernández wants YPF to invest more. YPF is reluctant, because of Argentine price controls and export restraints. In 2011, YPF’s net income was $1.23 billion, down from $1.46 billion in 2010. So the fight is over $1.2 billion per year. The move has populist appeal.

Can Argentina get away with expropriation? I suspect that most of the talk about trade boycotts is bluster. Perhaps Spanish law allows for unilateral boycotts, but it would create a mess. Spain and Argentina signed a bilateral investment treaty in 1991. It calls for arbitration; sanctions without following the process laid out by the treaty would be illegal unless Argentina categorically states that will not pay compensation ever. Moreover, Spanish consumers do buy 31% of Argentina’s primary product exports to the European Union, but without an E.U. boycott the Spanish government cannot do anything without kissing the single market goodbye. If sanctions are going to be imposed, it won’t be quickly.

Spain’s problem is that ICSID won’t be that directly effective, since Buenos Aires wants the company to increase production aimed at the domestic market. Unless YPF exports its production, enforcement efforts will be even slower than the already slow arbitration process. (The Argentina-Spain BIT slows things even more, since it requires some attempt at local remedies before going to arbitration.) Thus, I suspect, the blizzard of diplomatic threats.

On the other hand, there are some threats that Madrid can credibly make. It can push Argentina to pay its debts to other governments. It can add its voice to the U.S. against Argentina in multilateral lending organizations. It can threaten to support the U.K. in the Falklands. And it can try to eject Argentina from the G20. These are the threats that probably made President Fernández think twice.

Economically, expropriation does not make a whole lot of sense. Argentine needs $250 billion or more to develop the shale fields: tying yourself up in legal knots and wrecking your reputation for $1.2 billion a year is not worth it. Moreover, YPF is currently worth only $8.6 billion. It seems like a big risk to take for the $4.3 billion it would take to get control of the enterprise. In fact, Argentina could get control for even less by sticking to its plan to expropriate the 25.46% of the company owned by the Eskenazi family, which is Argentine. Since the Eskenazis borrowed heavily to finance their stake (at the request of the Argentine government), an expropriation for them would be a bailout ... and cost little of nothing. Of course, Argentina would also assume the Eskenazi’s debts, but half of those are owed to ... Repsol. (Default!) Argentina would still need to get the additional 24.55% needed to gain control of the enterprise, but that would cost only $2.1 billion. The central bank has $47.3 billion in reserves, and there are very few institutional barriers keeping the government away from that money.

It is not as simple as that, of course. The government would need to do some leaning on the Eskenazi family, in order to get them to refrain from exercising their repurchase agreement with Repsol. (Basically, if Repsol looses control of YPF, it has to buy the Eskenazi’s stake at $38 per share ... implying a market cap for the company of $14.9 billion.) The current share price is depressed.

What will happen? Argentina is going to nationalize: it makes political sense. The nationalization will be with enought compensation to keep Spain from going to the mattresses with sanctions. (Or going to war! Not. And not.) It might even be enough to keep Repsol out of court. Considering how Argentine provinces have been yanking concessions, Repsol will likely prefer to settle.

Caveat? President Obama met with President Fernández today. We do not know what was said, although they said that nothing was said. That may have settled things, although I would still bet on expropriation with negotiated compensation. (Yes, I just bought some YPF stock.)

This would be a painful way to end European union

 Over the last two months, family business has kept me away from blogging. Before that, I was in the throes of finishing a first draft of a book manuscript. The family business is over and I’m now in the far more relaxed process of fixing the manuscript, so this time I think I think we’re really back!

In December of 2010, I made a bet with Doug Muir and Omar Serrano that the eurozone wouldn’t make it to March 25th, 2013. If any of the big eurozone economies leave the single currency, I win. The bet is structured so that I will lose even if Ireland, Portugal, and Greece all abandon the euro; it has to be Spain or Italy. The loser will either fly across the Atlantic to meet the winner, or pay for the winner to fly to meet them, and then buy them a steak dinner, with port and cigars.

The big question, of course, is how a government could leave the eurozone. Now, Nick Rowe has proposed a way. “Eurozone governments and banks that cannot pay their obligations in euros may end up paying their obligations in a scrip that is not pegged to the euro. A scrip issued by each national government that is worth whatever people think it is worth. And if people start using that scrip as a medium of exchange, and medium of account, it becomes a new money. Sure, Greek supermarkets might prefer payment in euros, but if their customers can only pay in New Drachmas, then it’s either accept New Drachmas or let the vegetables rot on the shelves. And the supermarkets’ suppliers might prefer payment in euros, but it’s either accept New Drachmas or let the vegetables rot in the fields. And the workers picking the vegetables might prefer payment in euros, but it’s either accept New Drachmas or nothing.”

Sounds almost painless! Matt Yglesias implied so. But it wouldn’t be! It would be a mess and cause the economy to cycle the drain until the government defaulted on its debts anyway. Moreover, it would not cause the scrip to drive euros out of circulation.

Consider, for a moment, what Spanish obligations consist of. In part, they are debt payments. Spain’s debts, however, are denominated in euros and will remain denominated in euros no matter how many nuevas pesetas are printed unless the Spanish government withdraws altogether from the European Union. Rather, the obligations which the Spanish government can insist on paying in nuevas pesetas are the obligations that it owes to its own citizenry: salaries, pensions, unemployment benefits, etcetera. The nueva peseta would trade at a discount against the euro, of course, but that is the idea.

Except ... the incomes of Spaniards would drop in terms of euros. They would be increasingly earning in discounted nuevas pesetas. The problem, of course, is that they would then be paying less taxes in terms of euros. But the Spanish government owes debts denominated in euros! The debt burden would rise. The more the debt burden rises, the more the government needs euros to pay it. The government would, of course, trade nuevas pesetas for those euros. That would increase the discount on nuevas pesetas, further driving up the size of the debt burden, further increasing the discount on nuevas pesetas. (While this is going on, the interest rate on Spain’s euro debt would skyrocket, of course, unless it is by then owed to the European Union rather than private investors. In that case, however, it is very unlikely that Spain would be going around issuing scrip to pay salaries.) At the end of the story Spain’s income in euros falls enough to force the government to default on its euro debts, but only after setting off an inflationary spiral.

There’s a second problem. Rowe wrote, “Greek supermarkets might prefer payment in euros, but if their customers can only pay in New Drachmas, then it’s either accept New Drachmas or let the vegetables rot on the shelves.” That, however, isn’t correct. Government employees might be paid in new drachma, or nuevas pesetas, but they can exchange those pesetas for euros. The supermarket cannot be required to accept those pesetas unless Spain leaves the eurozone. If the owner insists on being paid in euros, then the customers will swap their pesetas for euros in the market and he or she will be paid in euros. This is a process that has occurred in many high-inflation countries, where people abandoned the local currency for the dollar ... and in most of those countries, the dollar was not legal tender! In short, the logic breaks down at that point: it is not clear why the pesetas would replace the euro as a medium of exchange ... except, of course, to make tax payments.

Of course, it isn’t clear that Spanish government employees (or pensioners, or students, or the unemployed) would want to receive devalued nuevas pesetas in lieu of euros. They would, quite rationally, perceive it as a pay cut. Anyone who owed money would be doubly hit: their debts would still denominated in euros.

Finally, such an action would be perceived (correctly) as a prelude to formally leaving the eurozone, precipitating the mother of all capital flight. Without leaving the eurozone (in fact the country would have to leave the European Union altogether) the government would have no way of combating that flight.

In short, introducing scrip would be a terrible way to exit the eurozone. It would run a high risk of triggering a depression, and it would certainly worsen the country’s debt burden. Professor Rowe is, I think, incorrect. History bears this out: the issuance of patacones (or créditos) in Argentina around 2000 did not result in the creation of a new Argentine currency or stave off default. Rather, they contributed to the depression, and quickly inflated away.

There are many ways in which the eurozone could fail. The issuance of a parallel currency for any length of time strikes me as one of the worse ones. Is there a hole in my logic?

La competitividad de la madre patria

 Edward Hugh brought my attention to the strange fact that Spanish export prices have risen 5.4 % in the past year, versus 4.3 % in Germany. This is not what should be happening in the middle of a brutal recession! Spanish costs should be falling, not rising. At the very least, they should be falling relative to booming export economies, like Germany.

But then Detlef Guertler ‎dug up some more detailed figures, which told a more nuanced story. Spanish export prices were rising faster than German ones in beverages, textiles, paper, chemicals, metals and metal products, pharmaceuticals, non-metal products, electrical equipment, machinery and furniture. The only places Spain was gaining was in food and cars. In food, Spanish prices rose 3.5% versus 9.0% in Germany, and in cars Spanish prices fell 0.7% while they rose 2.0% in Deutscheland.

It sounds grim, but I would venture that these numbers tell a positive story. Spain’s overall trade deficit didn’t budge last year — from €50.2 billion to €52.4 billion, for a small rise of €2.2 billion — but its trade surplus in food rose by €1.0 billion and its surplus in cars rose by €3.1 billion. (In percentage terms, the surplus in food rose 13% and the surplus in cars rose 48%.) That was not enough to offset a deterioration in the country’s energy trade balance of €7.5 billion, but that was driven by a big run-up in energy prices that hopefully won’t be continued.

In short, Spain seems to be gaining competitiveness where it has a comparative advantage. As long as its imports of the stuff in which it does not have a comparative advantage refrain from rising as quickly (which is what has been happening) then there is a positive chance that the country will be able to pull out of its slump into a cars-and-food driven recovery. (Plus, of course, tourism, which was not in these statistics.)

Or I could be wrong. Edward?

De tocho morocho, dice el IMF a la madre patria

 The IMF just published its report on the Spanish economy. It isn’t good. As for what to do? Well, the boffins at the Fund recommend a little of everything:

• Fix the wage-bargaining system ... the IMF thinks an agreement will be ready by May, not apparently realizing that it already is May;
• Lower severance payments to fired workers;
• Change to an “opt-in” rather than “opt-out” system for collective bargaining, whatever that means;
• Eliminate indexation;
• Speed up implementation of the E.U. Services Directive (although the madre patria has done pretty well on this tip;
• Liberalize more product markets (big boxes and power centers, here you come!);
• End the subsidies to homeowning over renting;
• Cut the deficit by 5 percentage points in 2010 and 2011;
• Cut tax subsidies and raise VAT and excise rates;
• Raise the retirement age to 67 right now;
• Do something to get spending by the Autonomous Communities under control — they recommend Belgium as a role model;
• Fix the damn banks, mostly via consolidation;
• Reform the savings banks, basically by eliminating them as a category.

Sort of like an evil twin version of Wilson’s Fourteen Points. It might even work. But it is a very full menu — the government is being asked to reform basically everything — and it will require a great deal of social solidarity. It is not clear to me that Spain has it. The unions don’t really trust the Socialist Party, and the People’s Party hasn’t been able to resist making political hay out of the eurocrisis. (I mean, really?) It is asking a lot of a government to try to alter the labor market, financial system, pension scheme, tax structure, and federal relations all at once. De tocho, indeed. Of course, presumably the consequences of doing nothing will be worse, but it is hard to sell people on stuff that will make them suffer by using counterfactual reasoning.

That said, Spain is in the lucky position of being able to get rid of its army if need be. How many other countries have gone into fiscal crises with that luxury? Maybe tis time to revisit that old EDC treaty ...

Llamamiento a las armas para todos los empresarios de la madre patria

 “They say this is not a crisis, just a deceleration. Deceleration? Let me know where the pedal is and you’ll see how I accelerate it.”

—Paco Fernández, madrileño cab driver

I am a believer in Delong’s dictum about Paul Krugman: “(1) Remember that Paul Krugman is right. (2) If your analysis leads you to conclude that Paul Krugman is wrong, refer to rule #1.” So let me speak as a modest man with much to be modest about: I do not think that Paul Krugman is wrong when he says that no country (and certainly not the madre patria!) can easily force wages down 20% in a reasonable amount of time.

What I want to suggest is that there is a second moving part: productivity. Spanish businesses are remarkably unproductive, and productivity growth has been flat for a decade. Last year, my colleague Diego Comín travelled there to write a case about the country. He asked why productivity was flat, and generally received boilerplate about professional oligopolies, retail regulations, and the high cost of starting a business ... all of which are problems elsewhere in Europe. But he received one very interesting answer from the head of the Comisión de Industria at the Confederación Española de Organizaciones Empresariales: “During the boom, there was no pressure to increase productivity because demand was very high anyway.” After all, building houses better is tough, but why bother when you could sell all you could build at whatever price? Moreover, the massive immigration of the period pulled in migrants who had an overall educational level similar to the native-born, but may have had less tacit knowledge (and, in the case of the 64% not from Latin America, less language ability) and therefore been less productive.

 

The implication is that in the new environment, with profits squeezed and less need to integrate new arrivals into the labor force, Spanish businesses may be able to get a lot more production out their workers. There is a lot of room for improvement. Freeing up labor markets would help, not by allowing for a big drop in wages, but by giving management more leverage to threaten workers and force them to work harder. That is not a good thing, of course, unless you believe in the value of labor for its own sake. But it is a necessary thing if Spain is to avoid an even more painful recession.

And given the low productivity of Spanish businesses, it may be a very possible thing, even without major labor market reforms. In short, the madre patria may be able to pull out of the eurocrisis with only a small  “internal devaluation,” when nominal wages and prices in a region or country drop relative to elsewhere. If Spanish businesses can rise to the occasion, then the euro will be more robust than we may imagine.

Am I underestimating the productivity challenge facing Spanish business?

The madre patria is in serious trouble

 I find the German response to the euro crisis irritating in the extreme. German taxpayers will not lose money in providing support to Greece, even when the inevitable haircut comes along. German exporters benefit from the eurozone. Avoiding competitive devaluations is a good thing; the single market is (I believe) unsustainable in the long-run without exchange rate stability. Etcetera. Sanctimoniousness gets you nowhere; they have become a country of Alfonse D’Amatos.

Truth is, the fiscal problems of the eurozone are small beans. They would be there even with flexible exchange rates, and Germany would still be making the (repeat: profitable) loans needed to tide the southerners through. See Mexico 1995.

But there is another truth, which is that Spain is in serious trouble. Why? Simple: wages far outran productivity over the past decade.

A bit more detail: Spanish wages are set under the 1980 Worker’s Act. Bargaining generally takes place at the industry and province level, with agreements covering all of a province’s firms in a given sector. (The provinces are smaller than the “autonomous communities,” which are what most foreign observers probably think of when they hear the word “province.” They’re the rough equivalent of a U.S. county, with the municipalities being more like eastern townships.) Such agreements cover about half the labor force; another quarter are under industrywide agreements negotiated at the national level. Details here.

Industrywide negotiation is already a problem. High-productivity firms like generous agreements, since they hobble the competititon. Low-productivity firms might prefer to negotiate on their own, but once they get locked in, they have less incentive to fight a generous agreement since they know that their competitors (good or bad) will be equally disadvantaged. Worse yet, if no agreement can be reached, the existing agreement (along with its escalator clauses) is automatically extended ... about a third of the labor force is covered by agreements that effectively last more than two years.

Labor economists have found (and found again) that completely centralized national wage bargaining often leads to wage restraint. So does decentralized firm-level bargaining (or, more accurately in the American case, an almost complete lack of collective bargaining). The worst outcomes appear in Spanish-style half-centralized systems. The (unsatisfying) explanation is that a national labor union internalizes some of the problems of national industry: killing troubled firms to benefit good ones does not benefit them.

In short, Spain is neither Florida nor Sweden. When there is a shock to Florida’s economy, wages plummet because workers are powerless. (Real wages fell 2.5% in 2009.) When Sweden has a shock, the unions (thinking nationally) accept wage restraints. Spain, neither.

Which means that it is going to be tough push wages down enough. In fact, it will be tougher, because Spain has such high levels of personal indebtedness: grinding wages down will smack Spanish banks right in the face ... and by extension the foreigners who have lent to them. (See Felix Salmon for more on this point: private debt is as big a problem as public debt.)

Now, Spain can adjust. But it will be hard. It would be nice to see the E.U. seriously thinking about the problem. Instead, we have posturing Germans. I am much more sympathetic to the Spanish governments ranting about speculators, because the truth is that Spain can bring its public debt into line even if growth grinds to a halt. But growth grinding to a halt is a bad outcome. Breaking up the eurozone still looks like a worse one, so in the absence of any kind of collective spirit, a grinding painful lost decade is what we are going to get.

Unless we grind along too long and a Spanish government decides that leaving the E.U. is a better option ...

Asustado

 OK, now I’m scared. If bank managers are cold-calling small depositors and offering 4% interest to convince them to keep their money in the bank, then Spain has a serious problem.

The worry seems to be exposure to sovereign debt. Or is it? Color me confused. 

The decolonization that wasn’t

 Spain holds two small enclaves on the Moroccan coast.  The twin cities are currently heavily-fenced enclaves of the European Union. Their presence causes occasional minor spats between Madrid and Rabat, but in general relations are very good. Neither government would gain any internal advantage from risking a conflict. The two countries had a brief spat over Perejil island in 2002, but war was never in the cards. (For a rather silly exploration of a 2002 Spanish-Moroccan war, go here.) If I had to bet, I would bet that Spain will still have control over Ceuta and Melilla 93 years from now, in the year 2103.  

It turns out, however, that if things had gone slightly differently 93 years ago, in 1917, the territories might indeed be Moroccan today. The British Foreign Office wrote a memo suggesting that it would make strategic and diplomatic sense to swap Gibraltar for the North African enclaves. The General Staff and the Air Ministry concurred; the Royal Navy, unsurprisingly, did not. Foreign Secretary Arthur Balfour concluded that “the difficulty of negotiating such an exchange (of Gibraltar for Ceuta) would be great, and that to raise the question at the Peace Conference would, therefore, only be justified if the naval and military advisers of His Majesty’s Government were in complete accord on the subject.” So nothing happened. Seven years later, in 1926, the Spanish government raised the possibility of making the swap, but this time the U.K. rejected it.

So what if Ceuta and Melilla became British in either 1919 or 1926? Well, given the history of British imperial retreat in the 1960s and 1970s, I’m having trouble imagining that London wouldn’t return the territories to Morocco. Why not? It buys goodwill with a strategic ally at no political, strategic, or economic cost. The Spanish inhabitants might or might not drift back to Spain (Britain certainly would not have allowed them entry) and that would be that.

OK, this is not a big change, as these things go. And it’s hard to see how the Royal Navy would have been convinced to change its position, or why Balfour would have decided to overrule the R.N. But it is an amusing little wrinkle in history; something I only noticed because of the earlier discussion of Britain’s proposal to “buy” an Indonesian island during the 1979 Vietnamese refugee crisis.

Thoughts? Not that I’m expecting any, but surprises are always welcome.

Teddy Roosevelt and Spanish labor unions save Barbados, hate Barbadians!

  I don’t have a whole lot of emotional attachment to the madre patria, not where it counts.  After all, the parliament has passed a law giving the descendents of Civil War refugees the option to apply for a passport.  Yet I have zero desire to do it.  No, I have a negative reaction to doing it.  In other words, at the level where it counts, my people are the people of the United States of America.

But sometimes I can’t resist borrowing a phrase from my good friend (and great American) Carlos Yu:  “Oh, my peoples.” The story of the labor troubles on the Panama Canal is one of those times.

 
In 1904, the United States began construction of the Panama Canal in earnest.  Problem was, it needed laborers.  Lots of laborers.  Preferably cheap laborers, which ruled out hiring Panamanians.  (The Canal labor force would peak at more than a quarter of Panama’s economically active population.  Wage rates would have skyrocketed, even had that many people been interested in killing themselves to dig a big ditch ... which they were not.)  So the U.S. turned to the same place from which the earlier French canal effort had got its workers:  Jamaica.  Problem was, the Jamaican government remembered the disaster that was the repatriation of Jamaican workers after the French canal effort collapsed in 1889.  The Crown Colony government insisted that the Americans guarantee repatriation costs for any and all workers.  That ended the idea of using Jamaican labor; ultimately, only 47 worked on the Canal.

At this point the Barbadians, and later the Spanish, enter the story.

With Jamaica out, the Isthmian Canal Commission began recruiting in Barbados.  The first groups of Barbadians to arrive, however, proved too malnourished to accomplish their assigned tasks. “Not only do they seem to be disqualified by lack of actual vitality, but their disposition to labor seems to be as frail as their bodily strength.”   Governor Stevens himself wrote, “I have no hesitancy in saying that the West Indian Negro is about the poorest excuse for a laborer I have ever been up against in thirty-five years of experience.”  This should not have been surprising to anyone who knew about conditions on the island at the time, but we’re talking about Americans.  (Insert the first “oh, my people.”)  After bringing in almost 10,000 Barbadians, the Canal Zone management was disappointed with the results.

The Isthmian Canal Commission now decided to turn to, in the words of a Commission official, the “semi-white foreigner (Dago).”  Between 1906 and 1908, the Isthmian Canal Commission hired 8,000 Spanish workers.  It paid them twice what it paid Barbadians.  Now, it would be entirely reasonable to conclude that this was due to racism, but the Americans running the show weren’t particularly enamored of “dagoes.”  Rather, the higher salary was what they needed to offer to get people to leave the madre patria for Panama, and the Americans were willing to pay it because the Spanish were physically stronger and more robust than the half-starved Barbadians. 

The Spanish, however, were also the heirs to Spain’s militant labor tradition.  (Here is where the second “oh, my people” comes in.)  Spanish workers started the first major strike on the Canal in 1907.  The United States tried to use Italians to break the strike, but it didn’t work; they could only attract a total of 1,941 in 1906-07, after which they received no more.  So the American managers used the Barbadians to restrain the Spanish.  As one foreman wrote, “I could keep them both on their metal by rivalry between the two.”  The result, unsurprisingly, was an all-out riot between Spanish and Barbadian workers in 1909.  

Spanish militancy led the Canal Zone to replace Spanish workers by any means necessary.  The Americans pretty quickly figured out that Barbadian productivity rapidly rose to Spanish levels with access to enough calories.  The head of the Canal effort, a racist Brooklynite named George Goethals, reduced the work day from ten hours to nine in 1907, which lowered exhaustion, and required all workers to purchase three full meal tickets every day.  Previously, many Barbadian workers had chosen to subsist on sugar cane in order to save more money to send home — understandable, considering that meal tickets cost 9¢ ($1.98 in today’s money) and they earned only 68¢ for a nine-hour day, but terrible for their health and energy levels.  Add to that the fact that American foremen (with some head-banging from higher management, regardless of their own retrograde racial attitudes) learned to treat the Barbadians with some modicum of respect, and you can predict the result:  by 1909, the Americans were able to get the same work for less cash from the Barbadians, and stopped hiring Spaniards. 

The Spanish did not go quietly.  A violent wave of strikes rocked the Canal Zone in 1911 and 1912.  But the result was predictable.  (Oh, my peoples.)  The strikes ended with the complete replacement of Spanish labor by West Indians, mostly from Barbados.   By 1913, the Isthmian Canal Commission had brought in 19,900 Barbadians, not including the many women who followed their husbands and a continuing (if less well-recorded) migration as construction work continued after the Panama Canal’s offical opening in 1914.  In fact, the Canal would not be fully open to commercial traffic until 1920.

The ultimate migration turned out to be much bigger than 19,900.  In 1901, Barbados had a population of 195,558.  In 1921, it had a population of only 156,744.  Extrapolating from existing birth and death rates, the population of the island should have been 220,412 in 1921, implying a net outmigration of 64,000 people.  This obviously had massive effects on Panama (which had a population of only 450,000 in 1921, not including the Canal Zone) ... but what did it do to Barbados? 

Truth be told, I do not know for sure, but I have a strong guess, which will have to wait for a later post.  While we’re waiting, what do you think?

Is the madre patria scamming the Républica Bolivariana? Probably not.

  Over at Caracas Chronicles, they’re perplexed by a deal just signed to build a combined-cycle gas turbine power plant in Cumaná, Venezuela.  The Spanish contractors, Iberdrola and Elecnor, want to charge €1.45 billion to build two 500-MW plants.  The cronologistas caraqueños have done some digging, and found that €1,450 per megawatt is a lot to charge for a CCGT installation.  The closest was a €1,225/megawatt project in Algeria.  The highest that I knew of before they started investigating was a UAE project that came in around €890. 

They conclude corruption.  Are they correct?

Well … maybe.  But to be fair, I suspect not.

Venezuela, you see, maintains exchange controls.  Official transactions need to be made at the approved exchange rate.  On the one hand, this shouldn’t bother the contractors all that much:  they’re getting paid in euros, and the price of imported equipment is the price of imported equipment regardless of the denomination.  The problem, however, is that the relative price of all of their domestically-sourced inputs will be much higher.

Think of it this way.  Imagine you imported €1000 worth of machinery to Venezuela in 2004, after paying Venezuelan tariffs (around 20 percent) and taxes.  In that same year, a manufacturing worker cost €7,388 to employ for a year at the official exchange rate.  You could buy a worker-year for 7 units of machinery.  By the middle of 2009, after several years of high inflation in Venezuela, that same worker cost €12,720 to employ — a worker-year now cost you the equivalent of 13 units of machinery.  Unless you figured out a way to use half as much labor as you did in 2004, your labor costs (in euros) have just doubled.  (All data comes from the Banco Central de Venezuela.)

In fact, the same problem applies for all domestic inputs.  According to the Venezuela central bank, the bolívar cost of construction materials (including taxes) rose 230% between 2004 and the middle of 2009, while the official exchange rate remained the same.  That’s going to further drive up your costs.  

If it turns out that the Bolivarian Republic has agreed to let the contractors use the parallel exchange rate to purchase bolívares, then this analysis goes out the window.  But if the contractors have to use the same exchange rate as everyone else when buying local inputs, then the price that they are charging for the plant seems entirely reasonable ... even without taking into account the political and economic risk.  (Will PDVSA pay everything up-front?  Will inflation in Venezuela accelerate?  Will there be labor trouble?)   

In other words, unless the contract exempts the Spanish companies from exchange controls, then I doubt that there is much corruption to be seen in this case.  Bad economic management yes, corruption no.   

Does anyone have more details about the contracts?

Brazil annexes Venezuela

 OK, not quite.  But our friend Chávez just did something that will put meat on the bones of his somewhat jokey promise not to expropriate Brazilian investments in his country.  What did he do?  He agreed to plonk around $4 billion into a refinery located in the Brazilian state of Pernambuco. 

Refineries are notoriously hard to liquidate.  The market is thin; prices for similar installations in the United States have jumped around by a factor of ten.  This is part of the reason why the big international oil companies continue to operate them, despite low margins and big liabilities.  It's also why PDVSA has been unable to unload Citgo for a reasonable price, despite the fact that President Chávez would clearly like to do so.  Add in the fact that PDVSA will be a minority shareholder with Petrobras, and there's no way it's going to get out of this investment easily.

Which means that the Bolivarian Republic just gave the Brazilians a big fat $4 billion hostage.  More so since (1) the only other reasonable outlet for Venezuelan crude is in the United States; (2) civil law, unlike common law, allows Brazilian companies to sign contracts that spell out a predesignated list of damages to be paid should the government take certain actions; and (3) Brazil is basically independent of foreign oil, and therefore well-positioned to exercise a threat to embargo Venezuela.  Viva the not-empire!

It is quite brilliant.  I stand in awe.  How did he sucker Hugo in that one?  Is the prize of Mercosur really enough?  Then again, our Bolivarian friend seems to have just signed a contract paying a Spanish company a ridiculous amount of money to build a CCGT plant, so who knows?

What? Already???

  This is not a political post.

As some of you know, I like zombie movies.  One of my favorite genres.  Don't ask me to explain it.  Dawn of the Dead got into my head when I was a kid, scared me to death, and I suppose I never got it out. 

I also have no problem with remakes.  Some, like Cape Fear, beat cold the original. 

But a remake of a movie that only came out last year?  What??  And a Spanish movie at that.  It doesn't even qualify as a foreign-language film.

So go rent Rec.  Don't see Quarantine. 

That's filmmaking.

Volando el avión el la madre patria

We managed to travel from Barcelona to Sevilla and back without showing any identification at all.  Travelling from Brussels to Berlin wasn't quite so easy, but the security check could best be called perfunctory.  Even returning to the U.S. of A. from Heathrow wasn't that bad ... it's amazing what a difference not needing to take out your laptop or remove your shoes will make.

I'm far from the first person to complain about airport security theater.  I'm certainly not the first person to point out that most of the measures don't seem to make flying any safer.  Hell, I'm not even the first person to point out that the TSA blog manages to consistently undercut it's own objection to the idea that most of the measures are just for show.  (Love the badges and blue uniforms!  Of course, that doesn't mean that the TSA people have police powers, but it sure makes it look like they do.  But it ain't theater, no.) 

I will, however, put in a brief for the defense.  Given that so many people have an irrational fear of flying, there may in fact be an economic return to security theater.  After all, if it makes people feel safer, they may be more likely to fly.  In theory, the return should even be calculable.

Has anyone tried to calculate it?

Piratas atacan la madre patria

Newsflash:   pirates just captured a Spanish fishing boat off the coast of Somalia.  A Spanish frigate has been dispatched from the Red Sea and Madrid has requested assistance from NATO countries with a naval presence in the area. 

Considering as I just posted about pirates, I figured that it'd be remiss not to mention that the French raid doesn't seem to had an immediate deterrent effect.  Not that there's anything surprising about that.

Estar de acuerdo con el sentimiento en la madre patria

The post after my next post will be about the Dominican Republic.  The next post will be controversial.  In preparation, therefore, I am going to resurrect something from the madre patria about which I am sure that we can all agree.

And we're all a part of the:

Although I'm not so sure about this:

UPDATE:  Here's a close-up of the above building, with the sign in question more visible.

Cuidando a los niños en la madre patria

I am a firm believer in the power of personal experience.  Of course, it’s dangerous on its own:  you never want to reason by anecdote.  On the other hand, some abstract hypotheses are just hard to accept in the face of personal experience.  When the data are ambiguous, I turn to my lying eyes.

There has been an increasing amount of discussion given to low European fertility in recent years.  One problem with the whole discussion, among many, is that there is low fertility and then there is low fertility.  Almost all of Europe is “low fertility” by historical standards, but some countries like France and Norway are certainly going to replace themselves, and others like Ireland and Denmark and the U.K. are quite likely to follow suit.

But there are the superduperultralow fertility countries, like España, where people seem to have given up on child-bearing as a bad deal.  As many people besides me have pointed out, TFR is a really bad measure of fertility, but for what it’s worth Spain clocked in at 1.4 in 2006.  Unlike some other countries, however, in Spain the pictures match the impression given by the TFR.

Some very rough thoughts below the fold. 

No saben lo que hacen en la madre patria

Okay, this had to rank up there among the things that we never expected to see in Sevilla.

It isn’t as bad the two clueless dudes wearing swastika T-shirts whom I ... what’s the word? ... accosted back in Mexico City around 2004.  (There was short-lived fad for the symbol among young chilango working-class wannabe rebels; no political significance whatsoever, except maybe to show up the abysmal state of world history education in Mexico’s public schools.  Thank you Mike and Tom and Pat, for protecting me from myself.)

But still, a Confederate flag?  Even if it was a souvenir shop, my negative reaction is visceral. 

ObMusic:  Jason Ringenberg, “Rebel Flag in Germany.”  Download it now.

Dando las propinas en la madre patria

Do Spaniards tip too much?

Of all the things that I never would have expected to be a public controversy, tipping too much had to rank up there with charity and motherhood.  But there it was, a major topic of discussion in a local Café de Indias.  (Spanish cafés, save Starbucks, serve lots of alcohol in their coffee drinks.  I happen to think that this is a Good Thing, but the Starbucks explosion bodes ill.)

Why?  Well, the Economy Minister, Pedro Solbes, told his countrymen that the reason they think inflation is higher than it is might be because they’re all too stupid to realize that a one euro tip is too high on, say, a €2.00 drink.

I took an utterly unscientific poll of Sevillana waitresses on the topic.  The reaction?  One snort, two guffaws, an eye-roll, and two exclamations of the word “puta.”  (The latter two were born in Honduras.) 

The idiocy wound down when reporters found out that the minister and his friends regularly dropped only four euros on a €60 lunch.  The fact that food prices have skyrocketed also helped.  Food prices jumped 0.5% in November (6.3% at an annualized rate), after a similar increase in October, and the Economy Ministry managed to stick its foot in its mouth again by recommending that people eat more rabbit to save money.

Anyway, this all begs the question:  how much should you tip in the madre patria?  I’ll be damned if I know.  Everybody gives you a different answer, ranging from “nothing” to “just like in the United States.”  Help!  Leticia?

Manejando el auto en la madre patria

Haven't driven a car in Europe since 1986, and that probably wasn't legal.  Closest I came this trip was taking a taxi from the Barcelona airport (which is less than necessary, since the train is quite good), and while the taxista made great conversation — “Both parties are the same.  But that's fine!  The country is going well, so why change anything?” — his driving was quite boringly professional. 

 

Same thing for Sevilla.  The most interesting thing that cabbie from the airport did was explain that the green-and-white flags we saw waving from all the buildings on the outskirts of town were either the Andalucian provincial flag (the striped one) or the flag of the Betis soccer team (the one that vaguely looked like Saudi Arabia's). 

I can, though, say something about being a pedestrian in the madre patria, which is:  good, but frustrating.  Good, because this is one of those countries where drivers don't seem to want to kill you.  (Well, unless you're a jaywalker in Barcelona.)  Frustrating, because Sevilla (Barcelona, not so much) is one of those places where pedestrians will stand and stand and stand and wait for the light to change, regardless of oncoming traffic.  Now, I'm from New York, so on my own I made like Eminem and just didn't give a ****, but when I was with Amma we hewed to local customs ... it wasn't easy.

And I can say something about scooters.  Don't.  Ride them.  Vehicular craziness in Sevilla seems to be reserved for motor scooters.  And Barcelona leaves me at a loss for words, but thankfully still with my life. 

On the whole, I found car-people interactions to be far superior to Boston, where the f****** drivers honk at pedestrians.  That says more about Boston than Barcelona, though, because cars don't routinely honk at pedestrians anywhere else in the United States. 

What's the matter with Boston?

Tomando el tranvía en la madre patria

There are two types of rail transit systems in the United States.  The first are actual genuine rail transit systems, you know, that get people around and without which their cities would collapse.  Or at least not work very well.  New York’s subway, Chicago’s El, Boston’s T, Philadelphia’s SEPTA, San Francisco’s much-hated Muni, even (after many years in the second category) Washington’s Metro.

And then there’s art.  Take Miami-Dade’s Metrorail.  In fact, the county went so far as to deck the tracks out in neon tubing, just in case you missed that the point was public art, not public transportation.  And there are others.  How many people would notice if San José’s light rail shut down?

Barcelona’s Metro (above) falls into the first category.  It’s incredibly efficient:  never did we have to wait more than two minutes for a train.  It’s got these signs that tell you when the next train will arrive, and it does.  The old trains are comfortable, and the new trains have arrived out of the future, with open articulated connections between the cars and bright video screens.  There’s even this bitchen feature that you first think is stupid until you realize that it really speeds things up:  to get the doors to open, you got to push a button.

One of the things that Amma and I like to do when we’re in a strange city is grab a public conveyance and take it to the end of the line.  You can learn a lot that way.  And Sevilla has a futuristic streetcar that runs along the pedestrianized downtown.  So ...

... we got on.  And a minute later, we got off.  Along with everyone else.  Was there a criminal in the train?  A police check?  Should we be smelling something?  Nope, just the end of the art exhibit. 

The thing runs a whopping 1.4 kilometers, all within the historic center, between the “New Plaza” near city hall and the bus stop at Prado de San Sebastián.  (See below.)  You can walk its whole route in less than 15 minutes. 

Then again, they’re building a rather extensive metro, so maybe it won’t always be art.  But right now?

All I can say is that when we first saw the strikers blocking the train, we thought that they were pretty damn militant.  And after riding the thing, we think they’re pretty damn mild. 

Leyendo los archivos en la madre patria

I’ll try to keep up the slack while Doug’s in Germany this holiday season.  This one goes out to Carlos’s paternal grandparents. 

The Republic of the Philippines is unique in Asia in how well it’s assimilated it’s Chinese population.   Chinese-Filipinos have served their country in every position from private to President of the Republic, and nobody seriously questions their Filipino-ness.  As a result, for all their communal solidarity Chinese-Filipinos consider themselves Filipino first, Chinese-Filipino a rather distant second, and Chinese-Chinese not at all.  (I have a sneaking suspiscion that future Chinese governments will find themselves unpleasantly surprised by that fact.)  This didn’t happen in Burma or Thailand or Vietnam or Malaysia or Indonesia. 

So why did it happen in the Philippines, and what does any of this have to do with the madre patria? 

Amma and I were in Sevilla because I was looking for tax and budget data on the Spanish Philippines.  The first place to look for that is the Archivo de Indias.  You can see the main building behind the beautiful woman in the above photo.  The reading room is across the street behind the main building:  look for the sand-colored edifice to the right of this group of Sevillano pedestrians.

In 1864, Madrid decided to modernize the Philippines’ tax system.  Since specific taxes laid on Chinese generated about 7 percent of the islands’ revenue, the Crown commissioned some fascinating reports before deciding on the specifics of the reform.  Extracts below the fold:

Comiendo los alimentos en la madre patria

Somebody ... probably my mother ... once described Spanish food as “letting the ingredients speak for themselves.”

“Hearty peasant food,” Amma says.  “Solid presentations of uncommon meats.  Satisfying to the stomach, but not so much to the tongue.” 

I wouldn’t call it bland, exactly.  But comida andaluza does, I think, explain the Philippines.  The Philippines got the full force of a cuisine that liked to “let the ingredients speak for themselves,” only without the ingredients.  Philippine food is, perhaps, Andalucian food before the conquest of Mexico brought the ingredients to the peninsula.   

Or not.  It’s a hypothesis, anyway. 

Anyway, Spanish cuisine is just plain food — alimentos — more than a “cuisine.”  Maybe I’m just too used to it, having grown up on a faintly Americanized version of the stuff.  Meat-heavy fried food with very light seasoning. 

Overcooked venison is actually pretty good once you get used to it, and I’ve already mentioned croquetas.   

Plus, tapas are fun, although much better in America (or Catalunya, for that matter) where the substance comes from Mexico and Southeast Asia but the style is español.

Imitando a la iglesia en la madre patria

How is Starbucks like the Catholic Church?

In América, and especially in Mexico, the Catholic Church sited its cathedrals on the former sites of indigenous temples.  That way, the local populations faced a minimal change in their daily habits, making (in the view of the prelates, at least) their conversion easier.

In España, and especially in Andalucía, Starbucks locates its branches right next to the former (or soon-to-be former) sites of the Café de Indias chain.  It’s new enough that you can actually spot some of the dead old branches, and you never see a Café de Indias without a corresponding Starbucks.  It’s not just downtown:  we saw the same phenomenon in a most unfashionable section of Avenida de la República de Argentina on the other side of the Guadalquivir.  It was too dark to get a photo of that Starbucks, unfortunately, but here you can see a dead Café de Indias on the far right of the picture. 

One sure-fire way to make a Sevillano crack-up with uncontrollable laughter is to paraphrase this story.  Just be sure to mention the giant robots.

Mirando la tele en la madre patria

I came to Barcelona in order to present “Gunboats and Vultures” at a conference on sovereign debt. 

I was having some trouble figuring out what I could say about Spain or Catalonia or Barcelona, until I turned on the television in our hotel room. 

I used to think that Florida had the most lurid news programs in the world.  Not after seeing Gente on TVE-1, I don’t. 

The first story involved a woman killed by her husband in a long-term abusive relationship.  Marital abuse is a hot issue in Spain (even if it is unclear whether the problem is any worse than anywhere else in Europe), and the story certainly sounds newsworthy.  The second story was about a man who tortured his wife to death over a three-day period.  A little surprising, but it was the same topic, and perhaps TVE was making a political point. 

The third story covered a man who’d burned his wife alive, provoking his children to renounce their last name, followed by a bit about a father who killed his daughter’s boyfriend, a little girl crushed by rubble falling off a construction site, a fatal automobile accident, another fatal automobile accident, a decision not to prosecute a participant in yet a third accident under the country’s Good Samitaran law, and a fellow who shot his dog. 

Finally, after a bit about a calendar for homeless puppies, we got to hear about a woman who takes care of her completely incapacitated father and (perhaps in compensation) a final piece about “in-shape grannies.” 

Dulce María.  I’m going to shoot myself.  I mean, Primer Impacto back home isn’t the best news program on the planet, but this makes it look like Sixty Minutes.   

Adelante, Juan Carlos, Adelante

I am not a fan of monarchy in general.  And with grandparents who fought on the losing side of the Spanish civil war, I certainly find it difficult to be much of a fan of the Spanish monarchy in particular.  Similarly, and for much more concrete reasons, I am no fan of José María Aznar. 

But I am a fan of José Luis Zapatero.  And King Juan Carlos did good facing down that coup back in '81. So much as I enjoy Hugo Chávez's bluster, I gotta give props to the King here.  It might almost be enough to make me a monarchist, were I not just so bloody American at heart.