European Council: Spectre of Spanish bailout
19 October 2012
El Periódico de Catalunya
The banking union agreed by European leaders on 18 October is just one of a set of measures that also includes supervision of national budgets and a greater role for the ECB. And the goal of these manoeuvres is to determine if, and how, Spain will ask for help.
Will President Mariano Rajoy decide to ask for the second bailout of the Spanish economy at the new European summit that started yesterday in Brussels? That’s the million-dollar question. At the risk of having to correct myself tomorrow, my feeling is that he will not.
The reason is not, in my opinion, as is often said, that Mariano Rajoy is indecisive, constantly plucking petals off a daisy. The most plausible reason is that he has grasped that the bailout has a lot in common with a poker game, which is a game where you have to learn how to hide your cards and play them well and force other players to show theirs. And, at this summit, he is surely not going to learn what hands they are holding.
Spanish debt and the Franco-Prussian tiff
Many people in Spain, notably the financial elites, believe that there is no card to play and the best thing to do is ask, once and for all, for the bail-out. Leaving aside the fact that many of them are backing the bailout because they are faring very well in their businesses and know that they will not be paying for the terms of a bailout, the fact is that Spain does indeed have a card to play.
Although there are reasons to criticise the government for the way it is handling the crisis, let me raise a voice in its favour. Mariano Rajoy has grasped that the bailout card does gives him some wriggle room, but before showing his hand he has to force the other players to reveal their own: the European banking union, the new rescue fund, intervention by the ECB, or supervisory power over national budgets.
Germany does not want to play the banking union card (possibly because its banks are like Swiss cheese) and prefers to play the card of Europe-wide supervision of national budgets by a European Union super-minister. France opposes that, as it has no desire for German hegemony and is demanding that the banking union be in place first. In this new Franco-Prussian war, the kicks the combatants are meting out to each other are falling on Spain’s behind.
In fact, the high premium on Spanish debt, i.e. the additional costs that the Spanish Treasury has to pay to finance itself, are not down solely to the Spanish disease, but to the Franco-Prussian tiff that is threatening the euro. Part of this excessive cost is caused by the fears of investors that the euro will end up collapsing. As we have seen, ever since Mario Draghi declared that the ECB would do everything it took to save the euro the Spanish premium has been going down, which is a clear sign of the contagion effect of the euro.
Game of poker
Although the ECB says it is willing to intervene, however, that requires being requested to intervene by the interested parties. It's as if a public hospital, whose function is to act on its own initiative in cases of contagious infection, were to demand that it be asked to do so by those infected. It’s senseless. On the other hand, we do not even know how the new European rescue fund will take action and what kind of firepower it can muster.
That said, we’re looking at a complex game of poker. Spain should not show its card until the others have flourished theirs. This won’t happen, though, not even at this summit.
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Translated from the Spanish by Anton Baer