Ah, the wages of public expenditures… Standard & Poor’s cut Spain’s debt rating to BBB- one step above junk status, and lowered the long term rating to A3 this week. As with Greece, the Spanish government is begging for 100 billion euros from the European Union to shore up the creditworthiness of their banks. Germany, the Netherlands, and Finland — the highest rated nations of the EU — are reticent to recapitalize the Spanish financial institutions, and with good reason: the Spanish economy is in slow-motion freefall, the state budget is short 7.4% of GDP, and their debt is near-fatal making their government bonds near worthless.
This is the problem when you take away the natural punishments for bad economic policy the free market provides. When you shelter banks and other companies from their ineptitude, you place higher risk and cost on the public, and the perpetrators neither learn their lesson, nor stop their terrible actions.
