Spain's perverse spiral: catastrophe ahead

As usual, Ambrose Evans-Pritchard provides a cogent and rather scary analysis of the death spiral into which Spain is locked - and by extension, the Euro, the EU and all creditors thereof, including Britain.

While we are in a marginally better place than the PIIGs, with more room to manoeuvre, their economic demise will have a catastrophic effect on our finances.

The question is, does the Treasury understand the nature of the problem and does it offer the correct solutions?

David Goldsby, a frequent DT Finance commenter who is seldom wrong, responds to AEP's assertions:

They do not have time to amend the EU treaties. What they need to do is the FED, BoE, and ECB sweep up all government, mortgage and corporate bonds to prevent the insolvency of major financial institutions when they announce that the inflation target is being changed to 5%.

Governments then need to start borrowing from the central banks on overdraft at 0% interest and use the cash to dramatically slash income and consumption taxes to boost demand and get people back to work, instead of pouring wealth down the drain as miilions of people are idled.

Whatever it takes, de facto or not, the system is reaching melting point with all this farcical talk of austerity, which as Fitch says, is a certain downward spiral that will just make fiscal positions worse.

Cameron suggesting the BoE might have to raise interest rates to counter imported inflation. What a farce.

Talk of the need to rebalance with Germany and China become the borrowers and consumers. That can only be done very slowly over a decade or two in Germany's case and a century or so in China's case, or are we going to somehow transport all their factories over to the big spenders and importers.

For God sake, get real. Nothing I hear them saying is real. 'We are irrevocably committed to price stability' they chant. Dream on, from here prices either go up steadily and keep going up steadily or go down fast and keep going down fast until we are all reduced to the poverty line and there is geopolitical hell.

Some people say AEP is endlessly alarmist, but in fact he just sees the dangers clearly and spells them out in the least alarmist way that will make people sit up and take notice before it is too late. This is now becoming deadly serious.

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