The Truth and Beauty of Madrid and Lombardia (Down and Out)

Summary: The fate of Europe depends on many factors, not least on the support of the people in Europe’s periphery for the European Union. Today we have an excerpt from Truth & Beauty that gives an accurate picture of conditions in this pivotal region, with a comparison to Russia’s time of troubles.

“Labor reform means slavery”. AP photo by Emilio Morenatti


This is a follow-up to Social unrest coming to Europe? If not, why not?, 21 March 20013.


  1. A missing element in our world
  2. Down and Out In Madrid &  Lombardia
  3. About Truth & Beauty
  4. About the author
  5. For More Information about Russia


(1)  A missing element in our world

As the long economic crisis continues — with stability maintained in the developed nations only through unsustainable levels of fiscal and monetary stimulus — one barrier to change becomes ever more obvious: the lack of alternative ideas for organizing the political and economic machinery of society.  That is, finding new modes of social organization that are attractive to some combination of the our elites and the mass public.

Without new alternatives we might remain locked in a crisis with no exit. Our only hope lies with the eventual success of conventional economic policies — and the political apparatus that implements them. Or the ability of our societies to recover (ie, heal themselves), eventually.

To illustrate the abyss into which this has plunged the worst affected nations, today we have an excerpt from “A Hard Rain (’s a Gonna Fall)“, the April 5 issue of Truth & Beauty, by Eric Kraus and Alexander Teddy. They shine the clear light of common sense on the world, cutting through the fog of misinformation emitted by the western news media. This is reprinted with their generous permission.

(2)  Excerpt from T&BL “Down and Out – In Madrid and Lombardia”

T&B has been on the road in Southern Europe. We find nothing remotely encouraging to say – this year, not even the weather was significantly better than Moscow – and the employment situation far, far worse. If the situation were not so grim, there would be something funny about the governments of a continent in deep recession (or depression, in its South/ Western corner) lecturing Russia – with its slow–but positive growth and 5% unemployment – about the virtues of a liberal economic policy.

Perhaps surprisingly, nowhere in Europe is the popular mood one of rebellion or of any longing for a violent overthrow of the existing order – there is no Marxist revolution anywhere on the horizon; rather, one senses a quiet despair, escapism and cynical pessimism. Unemployment is endemic and systematic, in Spain and Portugal the unemployed do not even hope to find a job. People find ways to cope – the welfare state, the informal economy and family structures provide some support – but in terms of building a career, family and future, the prospects are grim.


Only small riots, so far. By Andres Kudacki / AP

One is seeing a situation of “internal default” which would be eerily familiar to long – time Russia jockeys. In Italy, the State is in arrears to enterprises to the tune of some 80 bn Euros; with everyone starved of credit, some 1000 small companies go out of business each day, while a substantial proportion of the remainder are zombified, living from day to day, while wage arrears of three months or more have been reported . This month, the company running the Roman peripheral bus system has paid its workers only a small fraction of their salaries – after the municipality omitted to pay them. Companies in the North are reportedly resorting to barter.

The situation is familiar to anyone who lived through the 1997 run-up to the Russian default. Spanish accounts payable are an amazing 5% of GDP.  Italy is close. The system is starved of liquidity. What money there is does not circulate. Companies are run for cash, investment stops, the State becomes insolvent, and non – cash equivalents are increasingly employed.

Of course, unlike Russia of the time, Italy still has a functional social safety net and tax system, while the degree of social misery, although serious, is in no way comparable with that of Yeltsin-era Russia. An entire generation is being sacrificed – the most energetic will emigrate, the remainder will sink into an embittered and impoverished middle age. Were such sacrifices to be compensated for by some reciprocal gain for the countries in question, it could be argued that they were painful but inevitable. Alas, we see no signs of improvement – only further decay and ever – increasing debt loads. It seems obvious that at some point something else must be tried.

Given the imperatives of monetary union and the North-South political divide, in extremis that “something else” can only be one of two things – either rapid inflation to reduce the debt load, or an exit from the Euro followed by some sort of sovereign debt restructuring, as well as a major hit to the banks. We note in passing that Italy, with a small primary budget surplus , but 2 trn Euros in sovereign debt, is far better able to exit than would be the primary-deficit countries – Greece and Spain, which are dependent upon financial inflows to maintain a functioning state.

We have no predictions as regards the timing – and expect a series of minor crises before something finally gives way, but we see no reason to be particularly optimistic on the ultimate outcome.

© Eric Kraus

(3) About Truth & Beauty

Truth & Beauty was born 14 years ago on the eve of the Great Russian post-Soviet Financial Meltdown – which, in fact, marked the beginning of the Russian Resurrection under President Vladimir Putin.

Seeing the need to counter the widespread disinformation in the Western Media, and to guide investors interested in accessing what were to prove to be the world’s best-performing bond and equity markets, Eric Kraus and collaborators rode out against the windmills – bent oligarchs, hypocritical neocons, and lazy journalists. Today, we continue to do battle with those who would intentionally mislead Western perceptions of the complex and ever changing Russian reality.

Since 1997, T&B has endeavoured to shine the clear light of common sense on the irregular world of Russian finance, geopolitics, sociology and night-life – which fascinate and frustrate to equal degrees. Of course, as Russia has gradually normalized and integrated with the global economy, local markets are increasingly moved by the global macroeconomic context – to which we now give far greater attention.

With this website, T&B seeks to encourage not only a greater readership, but also to develop greater intellectual debate on both Russia and the wider macro environment.

(4) About the author

Eric Kraus is a French expatriate living in Russia. He’s worked in several investment-related capacities for investment banking firms. He started publishing Truth and Beauty in 1997.

Please join Eric Kraus and Alexander Teddy at the Truth & Beauty website, where you will find back issues, articles of interest, and some lively debate. Readers are encouraged to contribute their views, or suggest articles or research to post.

El Aeph at sail
El Aeph at sail

In addition to his main activity as pundit and asset manager specialised in global macros and EMD, Eric built and operates a 40 meter all-wood traditional-design luxury yacht cruising the Indonesian archipelago:  El Aleph, available for charter.

(5)  For More Information

(a) Other posts with excerpts from Eric Kraus’ Truth and Beauty:

  1. Truth and Beauty: on the collapse of the world’s other monetary zone, 28 July 2008
  2. Big changes loom before us; why are they invisible to most experts?, 29 July 2008
  3. Rumors of financial war: Russia vs. US, 22 September 2008
  4. The evil of socialism approaches!, 22 October 2008
  5. A free lesson from Russia: how to manage a banking crisis, 6 February 2009
  6. A different perspective on the US and China, seen by an Frenchman living in Russia, 23 March 2009
  7. A view of the world from Russia, 30 May 2010
  8. Something obvious about today’s world that’s seldom mentioned by our journalists, 21 April 2011
  9. The Truth and Beauty about the Pussy Riot, 26 September 2012
  10. The Truth and Beauty about Russia, 1 October 2012

(b) About Spain:

  1. The bailout of Spain’s banks shows the heart of our problem, 12 June 2012
  2. Spain’s’ only three options for recovery, 17 November 2012

(c)  Posts about Europe – on the road to division or unification


1 thought on “The Truth and Beauty of Madrid and Lombardia (Down and Out)”

  1. Liberal economic policy in Spain? If every time there is a change in color of the ruling party, the new government changes the direction of leading multinationals by people related to political ideology in question. These multinationals (bank, energy and telecommunications) that were privatized in the years after the fall of the dictatorship that have continued to maintain a monopoly (hindering the entry of foreign competition) through a political oligarchy that allowed boards of directors appointed by confidence and well-paid, with protectionist legislation and financial aid (grants, bonuses, etc) constant for period of democracy. Is it a liberal economy policy?

    The problem of our country is not the currency or debt, which is also. Is productive factory based on a service model closed to tourism, which is depleted and overexploited (on the Mediterranean coast there is no space to build), an industry lacking (dismantled in the 80), except for auto assembly factories (second source of GDP after tourism and despite the sharp fall in domestic sales since 2007 (from 1.6 m units in 2007 to 790,000 units in 2012)), agricultural and fisheries production cut by European policies (called PAC) since Spain entered the Union in 1986 and with construction sector that led the country’s economy during the bubble that is pricked. Moreover no oil or mineral resources. If this context is joined by the low international profile of these multinationals, his little innovation in technologies, and mainly oriented to Latin America, make Spain a gloomy future. And I almost forgot, with a negative birth rate counteracted by the entry of more than 7 million foreigners in the last decade (after the United States, the country with the largest influx of immigrants in that period in the world) with unemployment rates in those around 50%, and that despite the crisis this flow is not cut immigration, especially from Central Africa.


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