This is about the travails of Spain (and Ireland) that are the gravely wounded victims of the German narrative that it´s all about “fiscal irresponsibility”. And while this narrative keeps being pushed to the point where it is understood that becoming “fiscally responsible” is the only road to salvation, “lost time” will never be found.

Forget about Greece, the very small “poor cousin” that took the opportunity to “free-ride” on the euro project coattails.

Let´s take a look at the so called “profligacy” of Spain and Ireland. The charts below show debts and deficits of Spain and Ireland relative to Germany´s.

Note that both Spain and Ireland were more “austere” than Germany, and unlike Germany never disrespected the Maastricht 3% limit for the Public Deficit/GDP ratio.

Now, look at what was going on with private capital flows, reflected in the current account – GDP ratio of the three countries.

So what would seem natural? If Germany´s CA surplus was the counterpart of Spain´s and Ireland´s CA deficit, now would be the time to reverse roles. Yea, keep wishing!

And what happened to growth and employment when the “music stopped” and there weren´t enough chairs to go around for “people to sit”?

What a nasty turn! And to “correct course” Spain and Ireland have to pursue “internal devaluation”. Meanwhile Germany should strive for some internal inflation. Again, keep wishing! The next chart shows how prices have behaved in the three countries.

Ireland has managed some deflation – but at what cost – while prices in Germany are behaving as it were Germany that had to strive for some internal devaluation! And the same pattern (not shown) can be seen in labor costs.

An imagined political imperative created the euro. Now real world political disillusionment will likely bring its downfall.