“It was the credibility of the euro that won,” said Mariano Rajoy, Spanish prime minister, introducing the €100bn bailout of Spain’s banks over the weekend. “This shows the euro area is ready to take decisive action,” proclaimed Olli Rehn, European commissioner, at the same time.
These statements are worrying. Does anyone on the planet think that problems surrounding the credibility of the euro have been solved by this emergency action? Does any overseas investor believe that a corner has been turned, when the German government continues to set its face against the mutualisation of debt?
We can only hope that Mr Rajoy and Mr Rehn are, as politicians are wont to do, treating the public with contempt in trotting out these bromides. The alternative explanation, that they really believe the problem has been solved, is far more worrying.
Of course the deal is a step forward. For once, the scale of the funding put in place is above the worst market estimates. After months of denial, the Spanish government has obeyed the first law of holes – when in a deep one, stop digging. They have accepted that they cannot resolve their banking problems unaided. But the Spanish system still needs a fundamental overhaul. The old system of political cronies running regional savings banks, channelling savings into politically driven development projects, has hit the buffers. It is only weeks since Rodrigo Rato was removed from the chairmanship of Bankia. Will the government have the courage to clean out the other stables? This raises difficult national/regional issues, always fraught in Spain. There is a brand new Bank of Spain governor who will need to assert himself quickly.
And at European level the picture remains clouded. The Germans say they will only envisage debt mutualisation, and other key aspects of a banking union, if there is a decisive move to political union. The French government rejected German chancellor Angela Merkel’s proposals at once. There is still no consensus about what concrete steps need to be taken to solve Europe’s banking problem and in which order. The European Commission is working hard to produce a package by the end of the month. It is a tall order. There is only one clear consensus view to be found among the Treasuries of Europe: the less the British government says on the subject, the better.
So the next few weeks will be fraught with danger. It seems probable that, in Greece, fear of the unknown may prevent a Syriza-led government emerging. Voters will hold their noses and vote for New Democracy and Pasok in sufficient numbers to avert calamity. But the Greeks are, nonetheless, unlikely to be able to meet the terms of their latest bailout and, Oliver Twist-like, will come back for more. Will the troika be sympathetic? If so, on what terms? And if they decline, is there a plan B in place for a eurozone departure?
So the victory declarations this weekend look as misplaced as Manchester United’s premature Premier League victory celebrations a month ago. There is much more to do and very little time in which to do it.