Yves here. This article by Daniel Gros highlights a potentially insurmountable obstacle in dealing with the escalating Eurocrisis. Germany is insisting that agreements be made on medium term measures, such as implementing European banking supervision, as a condition of any further loosening of its purse strings. While Germany isn’t necessarily wrong to insist that policy makers not lose sight of the need to agree on how to achieve more integration, the emphasis seems a bit cart-before-the-horse-ish. There won’t be a medium term if the Eurocrats don’t deal with the immediate problems more decisively.
Gros points out that one matter that will need to be resolved before implementing a banking union is how to deal with existing losses, particularly those of Spanish banks. That is an issue no politician is likely to want to touch.
By Daniel Gros, Director of the Centre for European Policy Studies, Brussels. Cross posted from VoxEU
The EZ crisis – born as a debt crisis (Greece) – has grown up into a banking crisis (Ireland, Cyprus, Spain, …). This column argues that Spain is symptomatic of larger banking problems, so the EU Summit decisions on banking union are welcome and critical to any long-term solution. Yet someone must pay for Spanish bank losses. Spanish politics is shielding Spanish creditors, European politics is shielding EZ taxpayers, so the Spanish government will pay – and in doing so may go the way of Ireland. This crisis is far from over.
Banks were “international in life, but national in death” in the first couple years of the Global Crisis. Large, internationally-engaged banks had to be rescued by their home government country despite the rescue being in the interest of many nations.
How times change. European banks are now “national in life, but European in death”. In Spain, for example,