A WAIT DESTINED TO LAST, by François Leclerc

Guest post. Translated from the French by Tim Gupwell.

The European Commission in Brussels is getting ready to unveil a project aiming to prevent and cure the banking crises, destined to enter into service in 2014, certain procedures being foreseen for 2018. There is a certain sense of timing, but certainly not a sense of urgency.

The Spanish are now appealing for help, admitting that they have been cut off from the markets, ready to sell off whole swathes of their banking system to save it, calling for direct aid so as not to fall into the clutches of the Troïka. At the end of the G7 finance ministers’ conference call only one important piece of news could be gleaned: the Europeans are committed to a ‘rapid response’ to the crisis, revealed the Japanese finance minister, Jun Azumi. All the other participants endeavoured to play down its importance, which indeed had led to nothing concrete in the short term.

The rest is in keeping. There will be plenty of time to analyze the Commission’s propositions in detail – as long as there are some. What has already come to light, however, is without ambiguity: the project carefully avoids tackling any of the difficult questions. It leaves great latitude to national regulators, in spite of them being suspected of all kinds of leniencies, and it clearly avoids tackling all the financial aspects. Its vagueness allows us a glimpse of the possibility that under cover of relieving states from the costs of banking bail-outs, it leaves the door ajar which will allow them to be asked to contribute in future.

For its part, the German government has just published an eight page synthesis of its conception of the stimulation of growth. This has two intentions; firstly, to serve as a basis for discussion between the SPD and the Green Party, in order to secure the vote of their elected representatives and thus get the Fiscal Discipline Pact and the European Stability Mechanism (ESM) ratified by the Bundestag; secondly, to emphasize their conception of boosting growth, which does not require an additional mobilization of financial resources but rather the carrying out of structural reforms. Drawn up by the Liberal minister of the economy, Phillip Rössler, the documents relies heavily on the idea that “sustainable growth cannot be bought by public spending programmes, nor by state interventions which distort competition, nor by over expansive monetary policies”.

If Angela Merkel gives the impression of a certain tentative, diplomatic open-mindedness, this is limited to showing a polite interest to José Manuel Barroso (the European Commission’s president) in his ‘banking union’ project, whilst at the same time pointing out that it remains a project for the long term. Steffen Siebert has, for his part, explained that the introduction of Eurobonds cannot be envisaged “for many years…at the end of a process of political integration in Europe”. Amidst this context of close-mindedness, it was revealed that François Hollande is going to visit Mario Monti on the 14th June, well in advance of the informal meeting he had organized before the European Summit on the 28th and 29th June.

After the announcement of Portugal that it was going to inject 6.5 billion Euros into its banks, of which 5 billion are to be drawn from its bail-out plan, it was also revealed that the banks in Cyprus urgently require at least 1.8 billion Euros as a result of the recession which has hit the country and the losses incurred from Greek debt. A quick fix is being actively searched for, since it is Cyprus’s turn to assume the presidency of the European Union on the 1st July…….It would seem that the banking system is more vulnerable than it has ever been; any presentation of a divide between the banks of the struggling peripheral countries and the robustness of the others is misleading, as it does not take into account the exposure of German and French banks to private Spanish debt.

The Greek elections may end up passing by virtually unnoticed due to the tensions that the Spanish crisis are arousing. Disappointed by the discussion at the G7, the markets are now awaiting the outcome of Thursday’s meeting of the ECB, as if it may result in a miracle. Will the crisis need to become even more serious to allow a last minute stopgap solution? Which one of the German and Spanish governments, both overcommitted to their point of view, can now back down? For how much longer will it be possible to make the pleasure last in Spain and Greece?