Procyclical squeeze...

Non-sovereign currency issuers are powerless to counter-act pro-cyclical exogenously induced austerity measures.

The Friedman/Keynes false dichotomy is dead. Power, survival, and pecking orders are the issue here.

Threats of a general strike in Spain intensified this weekend
following Friday's decision by the credit agency Fitch Ratings to
downgrade the country's debt from AAA to AA+.

The latest blow to Europe's fourth-biggest economy comes just days
after a series of austerity measures scraped through the Spanish
parliament by a margin of a single vote. Designed to rein in a deficit
behind Ireland and Greece in the eurozone, the measures to passed
thanks only to a series of abstentions.

Any feelings of optimism following the ultra-close vote were quickly
dented by the bleak statement from Fitch on Friday.

But Spain's deficit is far from being its only economic headache:
unemployment, for example, stands at over 20 per cent, double the 2007
level.

Social unease at the austerity measures, which includes a freeze on
pensions, is also on the rise.

Spain's two largest trade unions have threatened a public-sector
strike next week over the austerity measures, due to cut €15bn off the
Spanish budget, which would see a 5 per cent cut in civil service pay.

Fitch's head of Europe, Brian Coulton, said: "The process of
adjustment to a lower level of private-sector and external
indebtedness will materially reduce the rate of growth of the Spanish
economy over the medium term," he said

It could hardly have been a more cheerless message for a country that
has only just limped out of its worst recession in 50 years with a
growth rate of 0.1 per cent in the first quarter of this year.

Fitch's downgrading also comes barely a month after Standard & Poor's
had cut its own rating for Spain to AA, with only Moody's retaining an
AAA rating for the country.

Spaniards are now bracing themselves for a VAT rise of 2 per cent next
month, while the government has warned that growth will slow in 2011,
from 1.8 per cent to 1.3 per cent because of the austerity programme.