Money talk - Reflections on a golden ball

Edward Hugh is a British Barcelona-based macro economist. In this column, he explains some of the current ins and out of the local economy.

So Leo Messi and not Xavi Hernandez or ‘Don’ Andres Iniesta won this year’s Ballon d’Or award. An insult to Spain or a tribute to Argentina? I really don’t know, but what I do know is that one prominent culé, who also doubles up as Spain’s Prime Minister, didn’t have to decide whether to laugh or cry, since he was busy at the time with other matters.

In fact Mr Zapatero was preparing what is surely a path-breaking interview with the Financial Times, in which he offered a glimpse into the hidden details of his 2011 agenda. On the table are a further attempt at labour market reform, a new and much larger bailout for the troubled caixes/cajas, and a major reform of the devolution system which regulates the country’s autonomous communities.

There was only one snag: he described to the international press, and through it to the international investment community, a series of proposals he had still to mention to the people who actually voted (or didn’t) him into office. In so doing he simply underlined what was already evident to most informed observers, namely that it is no longer possible to take any significant decision with financial implications in Madrid (and thus in Barcelona) without the prior consent of Brussels, Washington (home to the IMF), Berlin and Paris. Such is the fate of countries and governments who have large external debts that the international markets are no longer willing to freely finance.

Needless to say, all of this has produced a right royal row, not least here in Catalunya, where the Generalitat has not only distinguished itself in recent years by the size of its fiscal deficit, but also by its longer term ambition (widely shared by the majority of Catalans) for a good deal more autonomy and financial control. This ambition has effectively been kiboshed by Mr Zapatero’s timely announcement. He is going to press the rewind button.

So while we all start to contemplate the implications of the kind of political punch-up that might ensue now that the punch bowl has finally run dry, we should remember, all news is not bad news: the troubled network of caixes and cajas is finally going to be given a large injection of public capital to clean up the toxic part of their balance sheets. The bad news is that Mr Zapatero’s government may need a credit line from the IMF to be able to do it. Ah, well, despite all the austerity at least we’ll still have all those brilliant and spectacular goals from Leo and company to keep us entertained.