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?
iJobs Job Widget
iJobs General

English Teacher Thetford Secondary

£110 - £150 per day: Randstad Education Cambridge: An Academy based in Thetfor...

Secondary Teacher Great Yarmouth

£115 - £140 per day: Randstad Education Cambridge: Randstad are currently work...

Teaching Assistant to work with Autistic students

£60 - £65 per day: Randstad Education Leicester: Randstad Education Leicester ...

Special Needs Learning Support Assistant

£60 - £65 per day: Randstad Education Leicester: Randstad Education Leicester ...

Day In a Page

Read Next
Jules and Delaney  

Disney needs a princess with Down's syndrome

Keston Ott Dahl
JK Rowling is releasing a new Harry Potter story about Dolores Umbridge  

Step away from Pottermore, JK Rowling. Your new Harry Potter stories are driving me mad

Caspar Salmon
The drugs revolution starts now as MPs agree its high time for change

The drugs revolution starts now as MPs agree its high time for change

Commons debate highlights growing cross-party consensus on softening UK drugs legislation, unchanged for 43 years
The camera is turned on tabloid editors in Richard Peppiatt's 'One Rogue Reporter'

Gotcha! The camera is turned on tabloid editors

Hugh Grant says Richard Peppiatt's 'One Rogue Reporter' documentary will highlight issues raised by Leveson
Fall of the Berlin Wall: It was thanks to Mikhail Gorbachev that this symbol of division fell

Fall of the Berlin Wall

It was thanks to Gorbachev that this symbol of division fell
Halloween 2014: What makes Ouija boards, demon dolls, and evil clowns so frightening?

What makes ouija boards and demon dolls scary?

Ouija boards, demon dolls, evil children and clowns are all classic tropes of horror, and this year’s Halloween releases feature them all. What makes them so frightening, decade after decade?
A safari in modern Britain: Rose Rouse reveals how her four-year tour of Harlesden taught her as much about the UK as it did about NW10

Rose Rouse's safari in modern Britain

Rouse decided to walk and talk with as many different people as possible in her neighbourhood of Harlesden and her experiences have been published in a new book
Welcome to my world of no smell and odd tastes: How a bike accident left one woman living with unwanted food mash-ups

'My world of no smell and odd tastes'

A head injury from a bicycle accident had the surprising effect of robbing Nell Frizzell of two of her senses

Matt Parker is proud of his square roots

The "stand-up mathematician" is using comedy nights to preach maths to big audiences
Paul Scholes column: Beating Manchester City is vital part of life at Manchester United. This is first major test for Luke Shaw, Angel Di Maria and Radamel Falcao – it’s not a game to lose

Paul Scholes column

Beating City is vital part of life at United. This is first major test for Shaw, Di Maria and Falcao – it’s not a game to lose
Frank Warren: Call me an old git, but I just can't see that there's a place for women’s boxing

Frank Warren column

Call me an old git, but I just can't see that there's a place for women’s boxing
Adrian Heath interview: Former Everton striker prepares his Orlando City side for the MLS - and having Kaka in the dressing room

Adrian Heath's American dream...

Former Everton striker prepares his Orlando City side for the MLS - and having Kaka in the dressing room
Simon Hart: Manchester City will rise again but they need to change their attitude

Manchester City will rise again but they need to change their attitude

Manuel Pellegrini’s side are too good to fail and derby allows them to start again, says Simon Hart
Isis in Syria: A general reveals the lack of communication with the US - and his country's awkward relationship with their allies-by-default

A Syrian general speaks

A senior officer of Bashar al-Assad’s regime talks to Robert Fisk about his army’s brutal struggle with Isis, in a dirty war whose challenges include widespread atrocities
‘A bit of a shock...’ Cambridge economist with Glasgow roots becomes Zambia’s acting President

‘A bit of a shock...’ Economist with Glasgow roots becomes Zambia’s acting President

Guy Scott's predecessor, Michael Sata, died in a London hospital this week after a lengthy illness
Fall of the Berlin Wall: History catches up with Erich Honecker - the East German leader who praised the Iron Curtain and claimed it prevented a Third World War

Fall of the Berlin Wall

History catches up with Erich Honecker - the East German leader who praised the Iron Curtain and claimed it prevented a Third World War
How to turn your mobile phone into easy money

Turn your mobile phone into easy money

There are 90 million unused mobiles in the UK, which would be worth £7bn if we cashed them in, says David Crookes