As a result of a lengthy (2 1/2 hour) 'conference call' yesterday afternoon between the finance ministers of the 17 Eurozone countries, it was agreed that Spain could borrow upto 100 billion Euros (about GBP 80.7 bn, or USD 125 bn) to shore up its shaky banking sector, specifically its 'savings bank' sector, hit particularly badly by the property crash.
Spain will be deciding over the next week, once an 'audit' has been carried out, precisely how much funding to ask for.
Assuming this plan goes ahead, it will undoubtedly put off the 'day of reckoning' for some time, but whether it will provide any long-term solution is less clear (to me at least), unless the productivity of the Spanish economy (just like the much smaller Greek) can be 'pole-vaulted' up much closer to German levels. It remains also to be seen how the German electorate will react in their elections next year. I fear all this latest scheme is doing is to 'kick the can down the road' a little farther. I think the Euro has fundamental flaws in its design which only stand a fair chance of being resolved either by:
- some of the weaker economies in the Eurozone leaving it and starting to use other currencies (presumably their former currencies or near relatives) and allowing them to find their own value against other currencies, including the Euro; or
- by the Eurozone countries agreeing, sooner rather than later, to pool their fiscal (and in reality their political) sovereignties into what would effectively be one unified political unit. Mrs Merkel broached this subject a few days ago, qualifying the process as 'gradual' - whether that would be good enough, even if the other countries (*) agree to go along with this idea, is anyone's guess, but their resolve would certainly be tested ferociously by the money markets along the way.
(*) - for example, both the French and the Dutch electorates already rejected the EU Constitutional Treaty in referenda, which effectively invalidated that idea then, although it was later resurrected under another name, the Lisbon Treaty.
Well it is warm and sunny here and the food and wine are good, so I suppose like most people who can I will simply carry on at least for the present enjoying myself. What will happen, though, should the music stop on the 'musical chairs' game being played trying to reconcile the irreconcilable?
Sources (just a few from amongst the hundreds, because this is a very major issue):
- El Mundo
- BBC Mundo (in Spanish)
- Wall Street Journal
(This article is cross-posted from my Spanish blog, because of the importance of this issue)