From friend of Alhambra, Brian Cronin:

The first rule in politics is that you never believe anything until it’s officially denied. “The euro is irreversible and is not in danger of collapsing” said ECB president Mario Draghi as the central bank left rates unchanged last week. He said they will come up with more measures over the coming weeks to support the euro. That’s probably the kiss of death but we shall see. How you rescue somebody in debt by making them even more indebted is something I must have missed in my studies.

Italian PM Mario Monti also said last week that all the powers that be in Europe should see to it that the euro does not fail and become a cause of disintegration. He says he sees a light at the end of the tunnel, which could either mean it is on fire or there’s another train coming towards him. Either way, the two Super Marios may be whistling past the graveyard.

Germany, quite rightly, wants safeguards and guarantees for any money it is expected to commit and wants such sums to actually do something to cure the problem rather than simply buying time. Finance Minister Wolfgang Schäuble shot down talk of a new scheme to bail out Spain even as varying Spanish ministers have called for a sort of Marshall Plan to help them out.

The Marshall Plan, or the European Recovery Program, was instituted after the Second World War to rebuild a Europe devastated by RAF Bomber Command and the US Army Air Corps. But it was a Europe that did not include Spain, so the choice of words by Spanish ministers is ironic to say the least. And the main recipient of that aid, Germany, is now expected to be the banker. It demands conditions whereas the Marshall Plan effectively had no hard and fast conditions attached to the monies disbursed.

But Spain has not been devastated by war, but by “prestige” projects where vast sums were spent but with very little in the way of ensuing revenue to offset the expenditures. Let us count the ways:

Spain is the eurozone’s fourth largest economy. It is a country with a complex cultural and linguistic diversity. It has 17 autonomous regional governments. A number of the regions of Spain, like the Basques and the Catalans, have nation status under the 1978 constitution, put in place after the 36 year rule of Generalissimo Francisco Franco which ended with his death in 1975. It had a dynamic economy based on tourism and a booming construction industry. But the global downturn of 2008/9 hit hard and has caused alarming levels of unemployment and underwater loans.

The regional governments all spent lots of money to varying degrees. Those on the Mediterranean coast wanted to make sure that people could get to the newly constructed villas and holiday homes by the sea. But the infrastructure expenditures on roads, bridges, hospitals and the like did not bear fruit as the recession got a grip. “If you build it, he will come” said the disembodied voice in “Field of Dreams” (1989) to Ray Kinsella (Kevin Costner).

Well, the Spaniards built Castellon airport in the province of Valencia – and nobody came. It was completed in March 2011 and has not had one commercial flight yet. Its art center is the archetypal symbol of white elephant building excess, started in 1998 and going three times over budget according to reports. And so Valencia was the first region to ask for a bailout from the central government this July.

There is another airport in Ciudad Real to the south of Madrid in the region of Castillia-La Mancha built at great cost (€1.1 billion) in 2009 and it closed down for lack of use in April 2012. It also had not received any flights since last December. This region, home to Don Quixote, Dulcinea and Sancho Panza, owes about €6.5 billion. Talk about tilting at windmills!

Catalonia is the biggest region in Spain economically. It is home to Spain’s second city Barcelona and the Costa Brava. The Catalans do not regard themselves as Spanish per se, having a separate culture and separate language. But it also got into the biggest trouble with the construction boom and they are in debt to the tune of over €40 billion. Last week it said it cannot pay its social services bill (hospitals, nursing homes etc.) and will join Valencia, which owes about €20 billion and Murcia, which owes a mere €3 billion in asking for help from the central government. The only problem is that they don’t know what the terms will be and what targets they will have to meet.

The government of Mariano Rajoy made no friends in the hinterland when it passed legislation that Madrid could and would take over the finances of the regions which failed to meet deficit targets of 1.5%. There’s a lot of grumbling in Catalonia which is fed up with bailing out the poorer regions of Spain, one of which is Andalucia and the most populous region of Spain. Despite its being relatively poor economically, it is home to the storied cities of Cadiz, Seville, Malaga, Cordoba and Granada (which, of course, contains the Alhambra fortress!) and the Costa del Sol. But it owes about €14 billion and has perhaps the highest unemployment rate in the whole country, over 30%.

All this has aggravated the tensions between the central government and the autonomous regions and separation is never far beneath the surface. To which Madrid suggests that because of the regions’ mishandling of their finances, it is time for the so-called special autonomous relationships to come to an end.

Prime Minister Rajoy recently declared that the country had no choice but to make painful cuts if it wished to survive. His comments are worth quoting exactly because it is precisely the dilemma that others in Europe and cash-strapped cities and towns across the US are also facing: “Los españoles hemos llegado a un punto en que no podemos elegir entre quedarnos como estamos o hacer sacrificios. No tenemos esa libertad“ – “the Spanish people have reached a point where we cannot choose between staying as we are or making sacrifices. We don’t have that freedom.”

That, essentially, is where all of the beleaguered nations are. You either play by the rules of the people with the money, or you don’t play at all. Greece has just agreed to more cuts demanded by the troika bankers. It had to. Finance Minister Yannis Stournaras: “The prime minister said that it must be accepted, as a necessary condition for our country to remain in the eurozone and to be able to negotiate further, to cut public spending by another €11.5 billion. That position was accepted.” In a classic understatement, he said that the government would seek to “minimize the social effects”. So expect more riots as benefits and pensions are cut further.

The storyteller in “The Man of La Mancha” is Miguel Cervantes. In order to save himself, he tells the tale of Don Quixote. The point is that Cervantes was in prison, jailed by the Spanish Inquisition, and was doing whatever he could to stay alive. A perfect metaphor for the PIIGS who also find themselves trapped and spinning a plausible yarn if they can. The other thing to bear in mind is that Don Quixote is the quintessential dreamer who sees life as it should be, not as it is. You can’t blame the Spaniards or any of the other southern Europeans for wanting to dream. The reality, unfortunately, turned out to be vastly different and the dream became a nightmare. Things change. That applies equally to the EU as a whole and to the southern Europeans in particular.

The probability of a full scale bailout for Spain draws inexorably closer despite protestations to the contrary from the government. What it may require for sovereign, banking and regional needs, is likely more than what is currently available from the emergency funds. The Impossible Dream to be sure.