Hamish McRae: If Spain goes under, we'll have to bail out our expats

Share

The long march of Europe's fringe towards greater austerity continues. This week the focus has shifted to Spain, with its Economy minister yesterday defending the additional €10bn cuts in its health and education programmes agreed on Monday, on top of the €27bn in cuts and tax increases announced last month. Luis de Guindos justified these on domestic grounds – essential for a sustainable healthcare system, rather than the need to bolster international confidence. He ruled out Spain needing an EU bailout.

We will see. The financial markets are not yet regarding a Spanish bailout as inevitable but fears for both Spain and Italy have returned. The gap between the interest rates on both Spanish and Italian debt and the equivalent German debt has shot up, though it is not yet back to the crisis levels of last November. Ten-year yields on Spanish bonds were yesterday just below 6 per cent, still well clear of the 7 per cent level that has generally triggered need for a rescue. But governments always deny the need for a bailout until they are forced into a corner. Already people are talking of Greece needing yet another support package, the third, only a few weeks after bailout number two was agreed.

That leads into the debate as to whether it is actually possible to impose such austerity on sovereign democratic nations, and if not, what the consequences might be. At one end of the spectrum, some maintain that what might be dubbed "northern European austerity" is the best way out, and others believe that several southern European countries, including Spain, need a devaluation. That devaluation would, of course, mean leaving the eurozone.

What is beyond dispute, though, is that one way or another austerity will be forced on to the whole of southern Europe for several years to come. That in turn raises the issue of the consequences for this country. We cannot affect the future of the eurozone; we can seek to protect the interests of our people – indeed our Government has an obligation to do so.

Spain is particularly important because the UK has roughly a million people living there. Now you may say that if people choose to emigrate they must take their chances: if the situation in their new homeland deteriorates, that is their problem. The reality is otherwise. For every Briton living in Spain there will be several more family members in the UK and those people vote. And if things get really bad, then many may seek to return to the UK anyway.

To make these points is not to scaremonger; it is possible that people will react to austerity across southern Europe with sullen depression more than serious civic unrest. But we are kidding ourselves if we think it won't affect us.

So what can we do? Actually we are doing two things already. One is contingency planning: and thanks to not being in the single currency, the Government has more freedom to make plans for disruption than members of the eurozone have. There has been some sketchy thought about this: as one official told me, how do we get emergency funds to people in Spain if the cash machines fail?

The other is how we choreograph a rebalancing of our trading relationships. People tend to see this in politicised terms: should we have a trading agreement with Europe rather than EU membership? One effect of the problems of Europe's southern fringe is to tilt trade away from Europe, irrespective of the politics. Exports to Europe are stagnant not because of any policy but because much of Europe does not have the money to buy our stuff. We buy a lot from Spain but we don't sell nearly so much – and I am afraid in the months ahead we will sell even less than we do now.

Nothing to write home about, but your holiday money is going further

If you were abroad over Easter and noticed the exchange rate, you may have been surprised to see that sterling is not as weak as it has been of late. The pound yesterday was at its highest since mid-February 2011. The rise has been particularly against the euro but even against the dollar it is back to $1.58, way better than the $1.38 it touched in 2009.

So what does this say about the British economy? Two things: one negative, one positive. The negative is that the global outlook has deteriorated somewhat. There is a bit of a safe-haven status about the pound but that is a function of concerns about other currencies. The pound is not winning any beauty parades; it is merely less unattractive than some other contenders. The positive is there are little bits of information about that are slightly encouraging. These include stats from the Recruitment and Employment Confederation and KPMG suggesting full-time employment rose in March, while part-time employment declined, suggesting rising confidence in businesses. There were also OECD lead indicators suggesting growth in the first quarter. That made the suggestion that Britain was back in recession seem a bit odd. And there have been decent expectations of growth from UK service industries. While none of this is at all conclusive, at least a slightly strong pound would uplift our spirits when we go abroad.

h.macrae@independent.co.uk

React Now

Latest stories from i100
Have you tried new the Independent Digital Edition apps?
SPONSORED FEATURES
iJobs Job Widget
iJobs General

Recruitment Genius: Project Assistant

£17000 per annum: Recruitment Genius: They are a leading company in the field ...

Recruitment Genius: DBA Developer - SQL Server

£30000 - £35000 per annum: Recruitment Genius: This is an exciting opportunity...

Recruitment Genius: Office Manager

£26041 - £34876 per annum: Recruitment Genius: There has never been a more exc...

Recruitment Genius: Travel Customer Service and Experience Manager

£14000 - £17000 per annum: Recruitment Genius: The fastest growing travel comp...

Day In a Page

Read Next
A pack of seagulls squabble over discarded food left on the beach at St Ives on July 28, 2015  

Number of urban seagulls in Britain nearly quadruples: Hide food and avoid chicks to stay in gulls’ good books

Tom Bawden
 

Blairites be warned, this could be the moment Labour turns into Syriza

Andrew Grice
Turkey-Kurdish conflict: Obama's deal with Ankara is a betrayal of Syrian Kurds and may not even weaken Isis

US betrayal of old ally brings limited reward

Since the accord, the Turks have only waged war on Kurds while no US bomber has used Incirlik airbase, says Patrick Cockburn
VIPs gather for opening of second Suez Canal - but doubts linger over security

'A gift from Egypt to the rest of the world'

VIPs gather for opening of second Suez Canal - but is it really needed?
Art of the state: Pyongyang propaganda posters to be exhibited in China

Art of the state

Pyongyang propaganda posters to be exhibited in China
The male menopause and intimations of mortality

Aches, pains and an inkling of mortality

So the male menopause is real, they say, but what would the Victorians, 'old' at 30, think of that, asks DJ Taylor
Blairites be warned, this could be the moment Labour turns into Syriza

Andrew Grice: Inside Westminster

Blairites be warned, this could be the moment Labour turns into Syriza
HMS Victory: The mystery of Britain's worst naval disaster is finally solved - 271 years later

The mystery of Britain's worst naval disaster is finally solved - 271 years later

Exclusive: David Keys reveals the research that finally explains why HMS Victory went down with the loss of 1,100 lives
Survivors of the Nagasaki atomic bomb attack: Japan must not abandon its post-war pacifism

'I saw people so injured you couldn't tell if they were dead or alive'

Nagasaki survivors on why Japan must not abandon its post-war pacifism
Jon Stewart: The voice of Democrats who felt Obama had failed to deliver on his 'Yes We Can' slogan, and the voter he tried hardest to keep onside

The voter Obama tried hardest to keep onside

Outgoing The Daily Show host, Jon Stewart, became the voice of Democrats who felt the President had failed to deliver on his ‘Yes We Can’ slogan. Tim Walker charts the ups and downs of their 10-year relationship on screen
RuPaul interview: The drag star on being inspired by Bowie, never fitting in, and saying the first thing that comes into your head

RuPaul interview

The drag star on being inspired by Bowie, never fitting in, and saying the first thing that comes into your head
Secrets of comedy couples: What's it like when both you and your partner are stand-ups?

Secrets of comedy couples

What's it like when both you and your partner are stand-ups?
Satya Nadella: As Windows 10 is launched can he return Microsoft to its former glory?

Satya Nadella: The man to clean up for Windows?

While Microsoft's founders spend their billions, the once-invincible tech company's new boss is trying to save it
The best swimwear for men: From trunks to shorts, make a splash this summer

The best swimwear for men

From trunks to shorts, make a splash this summer
Mark Hix recipes: Our chef tries his hand at a spot of summer foraging

Mark Hix goes summer foraging

 A dinner party doesn't have to mean a trip to the supermarket
Ashes 2015: With an audacious flourish, home hero Ian Bell ends all debate

With an audacious flourish, the home hero ends all debate

Ian Bell advances to Trent Bridge next week almost as undroppable as Alastair Cook and Joe Root, a cornerstone of England's new thinking, says Kevin Garside
Aaron Ramsey interview: Wales midfielder determined to be centre of attention for Arsenal this season

Aaron Ramsey interview

Wales midfielder determined to be centre of attention for Arsenal this season