MADRID | Berlin is utterly bewildered, according to official sources, by the clumsy way Madrid is running its current crisis. A high ranking government representative stunned his German counterparts by openly declaring that Spain would be ready to find its way out of the euro if that was the prize to avoid intervention. He wasn’t bluffing. On Monday this week he presented PM Rajoy and ministers in charge of economic matters an emergency plan to get the country out of the common currency. Some colleagues around the table could not believe that a mere bout of instability in the markets may spark such a reckless idea.
Even if the proposal was temporarily shelved, a severe cut in regional expenditure being approved in exchange, extensive damage to the chance to survive the crisis has already being inflicted. Leakages to the media portrait this bold stand as proving government determination to fend off any attempt by European partners to drive Spain into intervention. But such a fuss over an extremely sensitive issue can only fuel mistrust on Spain.
Furthermore, no one seems to have measured its ultimate consequences. Should Spain leave the euro, how on earth could it honour its external debt currently running at three times its GDP? Supposing a moderate 30% new peseta depreciation, the loss incurred by highly leveraged firms would push many of them into bankruptcy. Most banks and big companies may collapse. Extensive disruption in the economy would entail massive employment destruction and a steep fall in production.
Being forced into intervention looks an inconceivable scenario if only because there is no war chest at hand to finance a sizeable economy like the Spanish one. If it implodes, the euro as we know it would blow up. Germany is already making plans to salvage its wreckage by introducing a northern common currency. It may accelerate this move should Southern partners show reluctance to abide to established rules. Spain risks being driven to unsheltered territory before it can materialise its threat to find the exit door. It is playing a most dangerous game that is bound to backfire.