May 28, 2012 5:41 PM GMT
Of course there are some leftists who would have us believe that the problems with the Euro have nothing to do with bad government policies and overspending. What they so willingly ignore in pointing to successful states is the local debt that has ballooned.
Local debt is the big untold story of the Euro crisis and, if that was not apparent before, it became glaringly so when Catalonia’s President this week told the world his autonomous Catalan Government would struggle to meet its bills at the end of this month. [...]
But local indebtedness in Europe should come as no great surprise either. Germany and France both have large local debt problems that are anything but transparent. In fact in the case of France much of the local debt was inherited from the central Government, which “delegated” the debt to localities where national funds were spent, effectively reducing the national debt headline figure. French finance Minister during this process was Christine Lagarde, now head of the IMF.
In April last year the Economist also warned of all the mini-Greeces in Germany: Germany’s 11,000-odd municipalities had a deficit of €7.7 billion last year, the second-highest ever…. in NRW( North Rhein Westphalia) local social spending rose by 274% between 1980 and 2006, whereas revenue went up only by 104%.
Local debt refinancing in Spain this year, though, is Euro 36 billion with Euro 13.5 billion of that falling to Catalonia. The reality is that, at this local level in Catalonia, the failure to refinance debt will lead to real wealth destruction and impair Spain’s prospects for years to come. When a success story like Catalonia hits the skids like this, you know the problem runs deep, very deep, but Catalonia also symbolizes something about Europe right now. It is not just a financial crisis but an existential one.