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Home Publications Blogs Beat the Press Spain Is Not Too Big to Save

Spain Is Not Too Big to Save

Friday, 07 January 2011 07:32

The Planet Money segment of Morning Edition wrongly told listeners on Friday that Spain might be too big to save, implying that the country is too large for the European Central Bank (ECB) to cover its debts. This is not true.

The ECB, with the approval of the European Union, could easily cover the debts of Spain and any other country for the simple reason, to take Ben Bernanke's line, that it has a printing press. It is possible that the ECB will opt not to save Spain, either because of concerns about inflation or simply out of a desire to teach Spain a lesson (i.e. it was stupid to join the euro) but this would be a choice. Spain could be saved if the euro zone countries want to save it.

It is also worth noting that Spain may well be better off if it is not saved. Its unemployment rate is currently over 20 percent. The austerity being demanded by the euro zone countries will prevent the unemployment rate from declining any time soon. By contrast, if Spain were to default on its debt and leave the euro it would be immediately be free to take steps to boost growth and employment. This could lead to a sharp turnaround and a rapid move back toward full employment.

This is exactly what happened in Argentina. It had a sharp 6-month plunge after its December 2001 default, but then had 7 years of solid growth until the world economic crisis in 2008 brought Argentina's economy to a near standstill.

Comments (10)Add Comment
written by wp, January 07, 2011 7:09
not sure of this most questionable notion of a floating ccy does either cut unemployment or sparks exports either - just look at the US ? Even zero interest rates and huge debt as opposed to little debt does not help - agn - the US and Japan are living proof?

Is it not time by now to finally accept that competitive devaluation is a most sorry concept og one-dimensional thinkers in a three dimensional world ?

Gene Sperling
written by bailey, January 07, 2011 7:22
Surely, if the Democratic Party weren't beyond resuscitating, couldn't we find one "Liberal" we elected to at least feign minor discomfort @ Sperling's appointment?
written by foosion, January 07, 2011 7:48
Sperling is actually a good guy. Look at his writings over the years.
written by bailey, January 07, 2011 8:35
Sperling's just one more of the way-too-long line of amoral, short-sighted Rubin acolytes. Gotta love Sarbanes–Oxley, right? Who could've known, right?
written by PeonInChief, January 07, 2011 9:17
Sperling is just one of the many people who do things while in power and then suggest, gently, that they be undone when it's too late. President Bill, for example, apologized for having wrecked the Haitian rice market, once it was too late to do anything but provide increased profits to American rice growers.
written by liberal, January 07, 2011 9:54
wp wrote,
not sure of this most questionable notion of a floating ccy does either cut unemployment or sparks exports either - just look at the US ?

Is the USD really a floating currency, given that e.g. China manipulates its currence to the extent that some commentators say China has a USD peg?
Let the PIGS join us!
written by PAUL, January 07, 2011 2:16
Give me your tired, your poor,
Your huddled masses yearning to breathe free,
The wretched refuse of your teeming shore.
Send these, the homeless, tempest-tost to me,
I lift my lamp beside the golden door!

We did it before, we can do it again: let Spain, Portugal, Ireland and Greece abandon the euro and adopt the dollar. Integrate them into our economy (along with Canada & Mexico).
The Printing Press.
written by Ralph Musgrave, January 08, 2011 8:37
For the ECB to “cover the debts of Spain” and other PIGS by resorting to the printing press would amount pretty much to a straight gift by responsible EU countries to the irresponsible ones. Not a good idea. And it won’t happen.

There is however a more sensible “printing press” option, namely to do an annual distribution of some newly created Euros to EVERY Euro country. This solves some problems and not others. See:


written by Jennifer, January 12, 2011 11:05
Most asian people eats rice and its part of their primary diet. Find out nutritional facts that you can get in eating rice at www.rapidorg.com and there are also guidelines and rice recipes to follow.

written by Latest Tech News , January 14, 2011 1:09
Great info!
I found your web page on google and it seems to have what I've been looking for. Here's another source that worth a look about this also. Thanks for sharing!

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.