Tuesday, 12 June 2012

Spain... a way out of the mess at last?


So I'm back! Hold the excitement in the cheaper seats, please. So... Where we we? Ah, I remember. While I was getting drenched in the Brecon Beacons (not as bad as it sounds, since you ask) the world economy was still drifting onto the rocks.

Things have been looking up a little bit this week, with the 100 billion euro bailout of Spain's banks. Some of the European Financial Stability Facility's cash has been fired out of a medium-sized bazooka; the markets rose on the news; since it's not a bailout of Spain's government, per se, there's been less talk of the absurd conditions and crazy beggar-my-neighbour 'adjustment' policies imposed on Greece. Doubt still clouds the exact conditions, but they're unlikely to be as silly as those imposed on Ireland and Portugal - to those countries' enormous displeasure, of course. There's even been excited talk of a 'European Banking Union', which would at least collectivise some of the risk that's been piling onto the back of Europe's financial structure.

So is it two cheers for Angela Merkel (above) and the so-so highwire act of her austerity politics? Well, not really, no. Spanish bond yields have continued to rise. Although investors now seem prepared to buy the stuff, since Euromillions are pouring into Spanish banks' coffers, they're still wary. And the reason why contains a highly-revealing lesson about the future of Europe.

It's that there's not enough of it. As my old tutor Niall Ferguson pointed out on Radio 4's Start the Week on Monday, there has to be a European President, a European Council and a European Budget within the Eurozone's core (at least) before risk is credibly spread, and before the funding is credibly pooled. Unless that happens, no-one really believes that the Germans are going to ride to the rescue of states they've (wrongly) come to regard as a bunch of embarrassing layabouts.

The odds are still on that happening, leaving Britain sitting on the sidelines - for there is no way that Prime Minister David Cameron could get a new treaty through Parliament without conceding a referendum that he could do with like a pistol pointed at his head. This would at least be a reflection of democracy - that the 'outer' European Community member states and their peoples want to be 'in', but not members of the new core country called 'Fiscal Europe'.

Though it might be a tight-run thing. Upcoming elections in Greece, and especially next year in Germany itself, will stifle immediate progress towards that end.

Chinks of light are starting to appear within the Euroepan elite's clouded collective mind. But make no mistake: it's fiscal union and a federal state, or it's bust.

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