As Europe stumbles toward debt crisis, Spain is trying hard to distance itself from countries like Greece, Portugal, and Ireland in the hopes that investors make a permanent distinction between itself and the countries that will be forced into default. Spain wants to be considered among the virtuous countries that work hard and save, and not among the vicious ones that consume too much and are unable to repay their debts.
But this strategy is wrong for three reasons. First, Spanish leaders can pretend all they want that Spain is different, but the truth is that the problems afflicting Spain are the same as those afflicting Greece, Portugal, Ireland, and all the other despised countries. And like them, Spain will almost certainly be forced to leave the euro and default on its debt, or else suffer many years of crippling unemployment, rising debt, and economic stagnation.
Second, the problems afflicting Spain and the rest of peripheral Europe have nothing to do with virtue or vice. They are the consequences of many years of bad policy, driven in large part by German policies. These problems cannot be resolved without a German adjustment at least as serious as the adjustment in peripheral Europe. In fact, the less the Germans adjust their policy distortions, the greater the cost to Europe overall and the greater the share of that cost must be borne by countries like Spain.
Third, the only solution that can minimize the pain for Spain—and even minimize the cost of adjustment for the rest of the world—requires that the countries that have suffered most from the unbalanced growth of the past decade band together and insist on adjustment policies across Europe. The natural leader of this group is Spain, but if Spanish politicians pretend to be different, rather than to acknowledge their similarities, they will forfeit
