If the rallying call of Mariano Rajoy, the Spanish Prime Minister, is right – that “the credibility of the euro won” – then let’s hope we never have to experience a loss. It’s more a case of the first rule of politics – when you capitulate, declare victory. The Spanish deal cooked up over the weekend may serve for the moment to soothe their nationalist susceptibilities, but but it hardly solves anything.
Like every previous cry of success, it’s no more than kicking the can further down the road. None of the fundamental structures for a euro ‘solution’ are there at all – no firewall to stop the contagion, nothing about eurobonds to accept shared liabilities in exchange for fiscal union, no mention of a banking union, etc. This is yet another finger in the dyke spun as a great achievement.
The fact that it is bailout-lite – a cheap loan with none of the draconian penalties attached to similar bailouts of Greece, Portugal and Ireland – says it all. Whilst the other weak brethren can be subjected to the harshest penalties in order to impose discipline in the erring euro ranks, Spain which is twice the size of the other three put together has to be handled with more tenderly care.
If a country with that economic weight within the eurozone were forced to accept humiliating terms which could well cause (in the home country of the indignados) serious social unrest, the knock-on effect could strike the next link in the chain, Italy, and that finally could prove fatal. So the generous terms afforded to Spain, with a requirement to pay little more than the interest due on the €100bn loan, is actually an implicit admission of how desperately fragile the euro structure has now become.
In fact the deal will actually cause the euro to unravel further, for two good reasons. One is that it will certainly provoke Greece (particularly on the cusp of a decisive re-run of their general election), Portugal and Ireland to demand similar terms and to re-open thie bailout packages. The other is that, even if it hasn’t told to the Spanish people by the politicians, it is they who in the end will have to pay for this £81bn loan. That’s quite a tough call in a country where unemployment is already at 25% and where austerity continues to be thrust down their throats with the same spending cut frenzy as in Britain. The euro hasn’t won: it’s just moved past another milestone towards its demise.