Thoughts from Pontevedra, Galicia, Spain: 4 October 2020
Night’s candles are burnt out, and jocund day stands tiptoe on the misty mountain tops.
Spanish life is not always likeable but it is compellingly loveable.
- Christopher Howse: 'A Pilgrim in Spain'*
Covid
Italy: I don't know the details but it's said to be the only country now where 'the dial is shifting'. Which seems to mean: There, even without symptoms, it’s easy to get a test, local tracing works, while public health messaging is clear and consistent. Brits - and very possibly Spaniards - can only look on in astonishment at a government which knows what it's doing. And is successful at doing it. As in Sweden, it seems.
Living La Vida Loca in Spain/Galicia
A Madrid-centric overview from the Times: Spain had Europe’s strictest lockdown rules in the spring and the government is starting to impose restrictions almost as severe on Madrid again now. Covid infection rates are by far the worst in Europe and in Madrid they are by far the worst in Spain. Isabel Díaz Ayuso, the right-wing president of greater Madrid’s regional government, has been at war with the socialist central government and in a bitter personal feud with the health minister, Salvador Illa. Ayuso is almost a lone voice in Spain in pressing for priority to be given not to fighting the pandemic but to the defence of the crumbling economy. After 2 weeks battling to prevent them from being implemented, she was forced on Thursday to bend before the law of the land but then vowed angrily to take her case to the courts “to defend the legitimate interests of the Madrileños”. Interesting - and confusing - times. My daughter is planning to return to Madrid on Wednesday but wonders what awaits her and her toddler.
Ourense - up in the Galician hills - has become the first city in Spain to ban meetings of ‘non-cohabitants', though it seem those in the education, transport, and dependent care fields are excepted.
Next year is Un Anó Jacobeo/Ano Xacobeo, when the feast of St James (Santiago) falls on a Sunday and all sorts of holiday/commercial activities are indulged in. Pre-Covid, camino numbers were expected to be well up on the previous record, and in their hundreds of thousands. Which won't now happen. So, naturally enough, the President of the Galician government has asked the king to help him get the special year moved to 2022. Which doesn't seem quite right to me. Is it a Holy Year or a Money-to-be-Made Year? I think we know the answer to that . . .
María's Falling Back chronicle Day 19.
The EU
See the article below on its possible economic future.
Nutters Corner
In contrast to intelligence, there really is no limit to stupidity: Advocates of the popular QAnon conspiracy theory, who believe that Donald Trump is waging a heroic war to defeat a secret ring of Satanic pedophiles who control the world, claimed to have decoded Mr Trump’s tweet announcing his infection and concluded it was part of a brilliant plot “TO GET HER” – that is, to arrest Ms Clinton.
The USA
I've heard it all now . . If you wanna know the truth . . From the mouth of Donald Trump.
Someone other than Trump: If the events of the past week don’t make Americans wake up, what will?
Pseudo Trump.
English
Thanks to an article on a book called Word Perfect: Etymological Entertainment for Every Day of the Year, I’ve become aware not only of lost words such as mumpsimus(someone who insists they're right despite clear evidence to the contrary) and ultracrepidarian (someone who holds forth on subjects they know absolutely nothing about) but also that these were the positive antonyms of what are called 'orphaned negatives' - those in the brackets - for all these words:-
pecunious (impecunious),
toward (untoward)
ruth: (ruthless) Ruth was to be full of compassion, obliging and hopeful.
wieldy: (unwieldy) Wieldy was to be handy with a weapon.
mayed (dismayed)
ept (inept)
flappable(unflappable)
peccable (impeccable)
bridled (unbridled)
descript (nondescript)
promptu, (impromptu)
petuous (impetuous)
shevelled (dishevelled)
chalant (nonchalant)
nomer (misnomer)
plussed (nonplussed)
couth (uncouth). To be “couth”, back in the 4th century, was to be affable and agreeable
kempt (unkempt) Kempt is from the German for “combed”, and is a useful byword for being neat and tidy.
gormful (gormless). ‘To gaum’, for the Vikings, was to take heed; to be gaum-like was to have an intelligent look about you.
gruntled (disgruntled)
ruly (unruly).
Finally . . .
Can it really be true - as said to be rumoured - that Queen Letizia's 2004 wedding dress by designer Manuel Pertegaz cost around $8 million???
THE ARTICLE
Deepening deflation pushes southern Europe closer to a debt spiral: Eurozone slides further into a debt-deflation trap, risking a protracted economic depression in the south and slow-motion insolvency crisis: Ambrose Evans-Pritchard
The eurozone is sliding further into a debt-deflation trap, risking a protracted economic depression in the southern countries and a slow-motion insolvency crisis.
Headline HICP inflation dropped to minus 0.3pc in September, reaching minus 2.3pc in Greece, minus 1.1pc in Ireland, minus 0.9pc in Italy and minus 0.6pc in Spain. The core rate fell to an all-time low of 0.2pc.
“The European Central Bank has completely lost control of the inflation process. It is very serious,” said Professor Ashoka Mody, the International Monetary Fund’s former deputy director in Europe.
The downward lurch comes as a second wave of Covid-19 threatens to truncate the fragile recovery before it has reached "escape velocity". Madrid is back in quarantine. Paris is on “maximum alert” after the ratio of coronavirus patients in intensive care reached the danger threshold of 30pc.
The North-South divergence is toxic for the eurozone’s one-size-fits-all monetary regime. By twist of fate, those countries with the highest debt ratios have suffered the greater economic shock from Covi-d-19, pushing debt dynamics towards the point of no return. “Our concern is that Italy and Spain will be left behind,” said David Owen from Jefferies.
Large areas of the eurozone are at risk of debt deflation, a term used by Irving Fisher in the 1930s for when falling price levels cause real debt burdens to deteriorate in a vicious circle. It is extremely hard to break out of such a self-feeding process. It ends in mass default.
The OECD’s worst case scenario sketches debt-to-GDP ratios next year reaching 229pc in Greece, 192pc in Italy, 158pc in Portugal, 152pc in France, and 150pc in Spain. “Unfortunately, this is becoming plausible,” said Owen. “We’re seeing a storm building up that may come to a head over the next six months,” said Mody. “Debts have to be repaid and a lot of new debt has been guaranteed by governments that can’t pay.” “The ECB has already bought 25pc of Italy’s debt and they will have bought half by next year. They will own Italy and they will own Spain. There may be no technical limit but the ECB is not a normal central bank: it is a bank for a confederation of states, so there is a political limit.”
Mody said lenders have been pushed into buying government bonds and are now enmeshed in an even more dangerous doom loop than in 2012. “They are highly stressed. Their value-to-book ratio - the best gauge - tells you the market thinks debts on their books are worth just 20 or 30 cents on the dollar. The ECB is trapped into having to buy up everything to stop the banks blowing up. How is this story going to end?”
Bank of America said the eurozone will soon be flirting with core inflation rates of zero. “There is no reflation. Markets seemed to be waking up to a weak recovery. A reality check is probably in the pipeline for year-end,” it said, predicting that the ECB will be forced to double down on stimulus in December.
Robert Sierra from Fitch Ratings says the pandemic has left a “negative output gap” roughly four times the shock from the Lehman crisis, leading to permanent scarring in the labour markets and holding down prices whatever the ECB does. “We expect headline inflation to fall to -0.6 by the end of this year,” he said.
The ECB has played down the slide in inflation as a temporary distortion from falling commodity prices at the outset of the pandemic but its narrative is rapidly being overtaken by events. Copper and iron ore prices have been slipping for weeks. Brent crude has fallen 15pc since late August and is back below $40.
Christine Lagarde, the ECB’s president, told the ECB Watchers forum this week that the central bank would follow the US Federal Reserve and allow inflation to overshoot the 2pc target, effectively letting the economy run hot for a while. Such rhetoric is academic at this juncture since the ECB has no means of achieving it. The key policy rate is already minus 0.5pc.
Mrs Lagarde insisted that it could go as low as minus 2pc before hitting the "reversal rate" where it does more harm than good. Her claim has raised eyebrows since the Bank of Japan’s foray in negative rates is widely viewed as a failure, and deeply negative rates would in any case be viewed by Washington as an attempt to drive down the euro.
A further €500bn of pandemic bond purchases in 2021 is now almost certain. This may lift asset prices and keep indebted corporations afloat but such QE no longer has traction on the real economy.
Markets have invested much faith in fiscal stimulus from the EU’s €750bn recovery fund. However, leaked plans from the Italian Treasury show how disappointing this is likely to prove once the money is spread across 27 countries and stretched to 2026.
Italy is the biggest recipient, yet net grants will be just €10bn in 2021 and €15bn the following year. It will eschew loans from the fund because they come with troika-like conditions. Portugal has rejected loans as well.
Nor is it clear when the Recovery Fund will see the light of day since Poland and Hungary have threatened to block approval over a "good behaviour" clause, and Finland and The Netherlands may be heading for referenda.
In the meantime, rating agencies warn that there could be a wave of defaults when furlough schemes and debt holidays expire. Most cliff-edges hit in December. Banks are already tightening credit terms pre-emptively.
Paul Watters from Standard & Poor’s said blue chip companies increased net debt by 8pc in the first half of 2020, mostly to build cash safety buffers, not for investment. These precautionary savings have flattered the money supply but they may contract again as these firms repay loans.
The worry is the surge in "fallen angels" - companies degraded to junk status rated B- or lower. Numbers have doubled since early 2019 and reached a record high 32.6pc at the end of August.
A disturbing number entered the pandemic with both poor cash flow and a debt-to-earnings ratio of five or six times. Watters said negative rates can no longer protect these walking dead once their revenues shrink. Deflation will push them to the wall even sooner.
* A terrible book, by the way. Don't be tempted to buy it, unless you're a very religious Protestant.