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The Spanish Memorandum is a Traitor’s Deal
by David Lizoain
13 July 2012

Soon newspapers will be reporting that Spain has finally requested a bailout for its financial sector, which will be accompanied by very strict conditionality. Strict is an understatement. The terms agreed in the leaked Memorandum amount to an unconditional surrender. The Troika will be given free rein to impose its agenda. The Spanish government has betrayed its citizens. In exchange for this sacrifice of sovereignty, all Spaniards are promised in return is unending sacrifice. Never mind that this has already been tried and has failed miserably elsewhere.

When we read in the press that “Spain is being bailed out,” remember that they are obliged to observe certain norms of propriety. Imagine a more vulgar term, and obtain a clearer picture of the Spanish reality. Today we get cuts to unemployment benefits, cuts to pensions, a raise in the VAT, etc. Tomorrow will bring more of the same, just worse. These endless, self-defeating cuts are not a growth strategy. The Spanish Memorandum is an immoral document that will be impossible to implement. The whole exercise is pointless, which makes it all the more tragic. Millions of lives are being ruined on account of immense stupidity. More children will be going hungry and more adults will be living in the street in order to bailout a reckless financial sector.

The bank bailout itself will be a colossal swindle. European money will be used to set up a bad bank, an “Asset Management Company” (AMC). This bad bank will then purchase garbage mortgages from the banks that have been intervened, in exchange for cash, shares and bonds. These bonds will have the backing of the Spanish state. The junk assets purchased by the bad bank will be valued according to the “real (long-term) economic value (REV) of the assets”. This is understood to mean a price somewhere in between the fictitious price on the books and the market price. Translation: Spanish citizens will end up overpaying for these junk assets.

Prior to the bailout, the government was stuck with a dilemma: either it could swallow the losses associated with the real estate boom or it could trigger a meltdown of the financial sector. The bailout-capitulation has not even resolved this dilemma. To value Spanish assets at market prices would trigger a further meltdown, which would then eat into the balance sheets of even the strongest of Spanish banks.

The distribution of the costs is totally obscene. In the midst of the crisis, countless Spaniards were talked into converting their savings into “preferred” shares, so that banks could improve their balance sheets. They were promised, of course, that this operation contained no risk, never mind the small print. Now the Memorandum suggests that these victims of financial fraud shoulder the burden. Small savers will be wiped out so the big bankers can sleep soundly.

Mariano Rajoy and his Partido Popular have been shameless. They lied in 2004, desperate to hang onto power. They lied systematically while they were in opposition. They lied systematically during the 2011 election campaign. They lie systematically now that they are back in government. To disrespect the truth in such a manner implies a profound disrespect for the citizens of Spain. Rajoy holds the electorate in contempt. Now we get to live through the boot of austerity stomping on our faces over and over again.
How is tightening the screws on a country with staggering unemployment supposed to ease tensions in the euro zone, let alone fix its banking crisis? The Memorandum is terrible for Spain and dangerous for European unity. It should be repudiated, not renegotiated. There is plenty of discussion in Spain about the need for socialists to conduct a “responsible” opposition, given the dire economic straits. But Rajoy’s only strategy consists of lying openly to the electorate. The only “responsible” course of action would consist of opposing him directly. There can be no common ground with a President who has just sold us into bondage.

David Lizoain