Spain: Relief and concern in Europe
11 June 2012
De Volkskrant, Les Echos, Die Welt & 2 others
For weeks the European press has been speculating, not about the possibility of a bailout for Spanish banks, but about the date when such an initiative would be announced. On 9 June, the government in Madrid finally submitted a request to the EU for assistance in recapitalising Spain’s financial sector, which is struggling to cope with bad property loans.
In the Netherlands, De Volkskrant ironically remarks on the number of countries that now need help with a front-page headline – “The lifeboat is now almost full”. The Amsterdam daily argues that the request for 100 billion euros for the Spanish banks can not be compared to previous bailouts. This time around, the stakes are much higher –
The request for assistance from Madrid is in a different league to the bailouts already granted to Greece, Ireland and Portugal, which can be viewed as solutions to minor peripheral problems. For the first time, a major Eurozone country stands on the brink. […] The European response to the crisis is not too little and too late, it has been generous and timely. [...] At the same time, the positive news is that shared initiatives to establish a common economic policy, undertaken over the last two years, are now beginning to bear fruit. [...] However, it is not certain that the assistance to the banks will also be enough to save Spain. And there are two other potential time bombs in the Eurozone: the first of these is Greece. [...] The second is Italy. [...] The storm is still not over at a time when more and more passengers are already on board the lifeboat or headed in that direction.
In France, Les Echos enthusiastically points out that “the tools devised by Europe will be sufficient to manage this type of emergency.” Thanks to the intervention “of a mechanism that did not exist up until a few moments ago,” Europe “will be able to avoid an overall collapse of its financial system, which would have been much more costly.” At the same time, the business daily’s deputy editor, Nicolas Barré, wonders about “the acceptability to public opinion” of both the Spanish rescue plan and the bailouts which preceded it: “How many European citizens are aware that the bill to Europe for the various initiatives to aid states in difficulty now stands at 500 billion euros?” Barré goes on to argue that the bailouts cannot compensate for the lack of a real plan for the Eurozone –
For three years, we have responded to emergencies prompted by the fundamentally unstable structure of the Eurozone. The succession of costly bailouts can only be acceptable if Europe’s leaders show that they now have a viable long-term plan for the Eurozone. If that is not the case, the centrifugal force that is threatening to break up the Eurozone will inevitably prove too much, and Europe will not only lose a lot of money, but also much of its capacity to influence world affairs.
In the German press, the award for the most pessimistic comment goes to Berlin daily Die Welt which argues that every new bailout is contributing to a widening gap between European countries –
We can already rule out any possibility that this 100 billion euros will lead to an enduring change of atmosphere. This might have been the case if the bailout could be interpreted as evidence of European determination, but the opposite is in fact the case. The management of the crisis in Spain has highlighted the breadth of the gap in Europe between, on the one hand, a Spanish government that vacillates between selfishness and dilettantism, and on the other, a community of countries that is exerting more or less brutal pressure. How can we have any confidence of reaching agreement on the rules that should prevail in a future fiscal union when we have such trouble hiding the friction generated by a plan to save bad banks?
In Portugal, Diário Económico dismisses any hope that the Spanish request will pave the way for an easing of the terms of the Portuguese bailout. The daily points out that –
… the European Commission insists any review of Portugal’s bailout terms will be ‘very difficult’, while the Lisbon government has decided not to take request any further renegotiation. The Portuguese bailout was based on three pillars: public finances, the recapitalisation of the banks and structural reforms. The conditions in the Spanish agreement will only concern the financial sector.
In Corriere della Sera, economist Federico Fubini worries that European intervention may not only fail to reassure the markets, but might in fact have the opposite effect: in particular because the European Stability Mechanism (MES), which is to fund the rescue plan, will insist on being repaid first before any other creditors. It follows that investors owed money by Spain will now have to take on an even greater risk. Fubini continues –
… an ESM loan will contribute to Spanish public debt, pushing it up to a level in excess of 100% of GDP within the next five years. This will add to the fears of investors in a scenario that has yet to be studied by any of the international banks. […] We should also bear in mind that intervention to save the banks will only be the first of the bailouts needed by Madrid. […] In the meantime, Italy remains the only country in trouble that has yet to request a bailout, and this may continue to be the case. If the interest rates demanded for Spanish debt stabilise ... in the wake of the allocation of aid to the country’s banks, the rates demanded of Italy will probably fall. Between then and now, a European agreement on the continent’s banking system could also help calm the situation. However, if Spain comes under further pressure, there will be a very high level of uncertainty in financial markets which will be increasingly wary of Italy.