It’s now apparent that Spain’s ailing banks, and not the government, will be thrown a lifeline in the form of European Union help, to the tune of $100bn. This is a move that has to be done and has seen everyone from Obama to the country’s economic minister, breath at least a partial sigh of relief. But, it also signals more smouldering resentment towards Germany, and an increasing pressure on Merkel to change her policies.
A pointed article appeared in Fortune magazine recently, and listed quite bluntly, what Germany has gained throughout the eurozone crisis: their exports continue to soar, making them second after China globally, and they continue to benefit throughout the mess by being the proverbial ‘safe port in a storm’ for investors: “The big surge in buying lately has come from Spanish and Greek depositors who are frantically withdrawing their life savings and putting them in German bonds on fear that their respective governments will leave the eurozone and destroy their savings through devaluation,” the article said.
All of this, and France’s new socialist government, is twisting Merkel’s arm to create a eurobond – or way to consolidate the region’s debts tidily – to help ailing countries. In theory, it would be great for those nations like Spain and Ireland to borrow at a cheaper rate, but it will see Germany potentially lose its credit rating and export power in trying to absorb the difficulties. A complex situation, and one that any self-serving politician (and they all are) would be inclined to sit on as long as possible. Meanwhile, the chorus of eurozone bloodhounds is baying ever louder.
The other option is the pooling of eurozone debts, to be paid by all the participating nations over a finite time. Again, as the Fortune writer, Cyrus Sanati presciently pointed out, this only puts salve on the wound but doesn’t deal with the real problems of increasing budget deficits and no consolidated approach to financial control. In the end, it might be better for Europe’s pauper nations to let Germany really run the show, ceding sovereign power to her demands, because it doesn’t look like the country will give an inch on eurobonds or debt re-structuring, no matter how loud the dissent.
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