Dateline Spain! Friday was a bad day for Spain as it’s government passed a $15 Billion Euro (about $18 Billion dollars) cut in spending, forced to do so by the Debt Contagion. Within moments, the bond rating agency, Fitch, knocked Spain down to a AA+. This is still just the beginning of austerity measures that Spain must now take, following suit as Greece has. Three-way talks between the government, business leaders and the unions have yet to reach an agreement on cuts in wages and benefits. If a negotiated settlement is not achieved tomorrow, Monday, then the government may issue a royal decree and make the cuts themselves.
Meanwhile, in France, it’s government announced on Friday it was increasing the retirement age. Several major French banks came close to defaulting earlier in May, as they hold some $700 Billion Euros worth of bonds from other troubled nations. Even with the $1 Trillion dollar bailout fund recently negotiated, an official of the European Central Bank, Bini Smaghi, said, “Just look at the screens and you’ll see the contagion under way, spreading not only to peripheral countries but also to the largest Euro area countries and through the financial system.”
Labor unions across Europe are bracing themselves for a fight. Decades of high wages, full benefits and early pensions are coming to an end. Most of the riots and protests seen in Greece the past few months have been organized by their public employee unions. Should the Spanish government go through with it’s threat of a royal decree on Monday, their equivalent of “putting the boot to the throat”, we can expect to see a series of general strikes launched by unions. The government of Jose Zapatero only managed to pass Friday’s austerity measure with a single vote! Polls in Spain already show that if an election were held now, Zapatero’s Socialist Party would lose by 10% points or more!
In Ireland, union leaders have restrained their memberships from taking action against the austerity measures imposed there, unlike in Greece, where the unions have vowed to fight to the end, fearing that global investors would flee. Italy is seen as another powder keg where union protests may turn ugly. Strikes on Thursday in France failed to stop their government’s actions, despite some 400,000 participating, shutting down airports and much of the public transit systems. German unions hardly made a peep when their government raised the retirement age from 65 to 67.
The Debt Contagion is no longer confined to just Europe. The fight between unions and employers is heating up in America. States like California, New Jersey and Michigan are all forced to make cuts due to their debt loads. While the Obama administration may be doing what they can to benefit union supporters, do not be surprised when the White House pulls ‘a Clinton’ and throws unions under the bus as when the Democrats passed NAFTA. The realities of the economic situation are growing larger. The Dow Jones and S&P 500 Indexes just had their worst month since February 2009, signaling that a possible double-dip recession is at hand.