Leading article: Spanish brinkmanship just delays the inevitable

Thus far, Madrid's response to the banks' problems has been marked by confusion

Share
Related Topics

There were three different options available to the European Central Bank at yesterday's monthly meeting. It could cut interest rates; it could make another slug of cheap loans available to the eurozone's struggling banks; or it could re-start its bond-buying programme to ease the strain on the bloc's distressed governments. In the event, Mario Draghi chose to ignore both the latest figures pointing resolutely towards recession and the crisis threatening to bankrupt Spain, and do nothing at all.

There are strong arguments in favour of concerted action from the ECB. With the very existence of the single currency at stake, the euro's problems need all that can possibly be thrown at them. But, as the central bank president noted last week, monetary policy alone is not enough. The ECB cannot "fill the vacuum" of inaction by governments. And what a vacuum there is.

Spain's banks need a capital injection of an estimated €40bn, money that Madrid can neither find itself nor afford to borrow. The Spanish government wants a change in the rules so that the European bailout fund can recapitalise banks directly, avoiding the political humiliation of a sovereign bailout. Germany, however, is unwilling to allow euro-area taxpayers' money to be disbursed without the conditions that a fully fledged government rescue would entail. Until an agreement can be reached, the black hole in the Spanish banking system will only widen, with all the fearsome implications for Spain, for Italy, for the euro, and beyond. Yet days go by with startlingly little progress.

In so inauspicious a climate, Mr Draghi's reluctance to squander the ECB's monetary firepower – which might, unaided, buy Spain a few weeks at best – is understandable. Over the course of Europe's slow-burning crisis, it has been too easy to point the finger at politicians, as if there were a simple solution to be had if only they would take it. There is, alas, no one right answer and no course of action that does not come with massive costs for all concerned. In this latest three-way face-off, however, the immediate solution is, for once, relatively straightforward. But someone must blink first. And that someone must be Spain.

Thus far, Madrid's handling of the situation has been anything but helpful, marked by exactly the confusion and disingenuousness to which investors are most averse. Even now, the incoherence continues, with one minister warning, on Tuesday night, that Spain's "door to the markets" is not open, only for another to declare that there were no plans for a bailout on the following morning. The claim that the government will judge its next move on the basis of an audit establishing the extent of banks' losses – which may take until the end of the month – is no more credible. With the €2bn bond auction scheduled for today already in question, a comprehensive figure on how much is needed may be useful, but it is hardly material. Neither would there be the time to wait for it, even if it was.

Painful or not, prime minister Mariano Rajoy must make a formal bailout request as soon as possible. Delay will only add to the difficulties, both in Spain and across the eurozone. Only with movement from Madrid will the German Chancellor have space for compromises of her own, as regards either the conditions attached or longer-term proposals such as the pooling of excess debt. And only then might the ECB president sanction further monetary action.

Europe has two, overlapping problems: a sovereign debt crisis and a banking crisis. Although both must be solved, the banks must be dealt with first. The European Commission President is right about the need for a unified banking system, with euro-wide regulation and deposit insurance. But such measures take time. Spain needs help now. A full bailout, including both Europe and the IMF, is the only answer.

React Now

Latest stories from i100
SPONSORED FEATURES
iJobs Job Widget
iJobs General

Recruitment Genius: Accounts Assistant - Part Time

£10500 - £14000 per annum: Recruitment Genius: A Part Time Accounts Assistant ...

Recruitment Genius: Accounts Assistant

£18000 - £21000 per annum: Recruitment Genius: This company supply, install an...

Tradewind Recruitment: Reception Teacher

£120 - £140 per day: Tradewind Recruitment: An excellent three form entry scho...

The Green Recruitment Company: Commercial Construction Manager

£65000 Per Annum bonus & benefits package: The Green Recruitment Company: The ...

Day In a Page

Read Next
BoJack is the walking embodiment of why-the-long-face  

BoJack Horseman - the most depressing cartoon on TV - is thankfully back for a third Netflix series

Edmund Cuthbert
 

The world's population has reached 'peak youth'. This should be a wake-up call to world leaders

Perry Maddox
Mullah Omar, creator of the Taliban, is dead... for the fourth time

Mullah Omar, creator of the Taliban, is dead... again

I was once told that intelligence services declare their enemies dead to provoke them into popping up their heads and revealing their location, says Robert Fisk
Margaret Attwood on climate change: 'Time is running out for our fragile, Goldilocks planet'

Margaret Attwood on climate change

The author looks back on what she wrote about oil in 2009, and reflects on how the conversation has changed in a mere six years
New Dr Seuss manuscript discovered: What Pet Should I Get? goes on sale this week

New Dr Seuss manuscript discovered

What Pet Should I Get? goes on sale this week
Oculus Rift and the lonely cartoon hedgehog who could become the first ever virtual reality movie star

The cartoon hedgehog leading the way into a whole new reality

Virtual reality is the 'next chapter' of entertainment. Tim Walker gives it a try
Ants have unique ability to switch between individual and collective action, says study

Secrets of ants' teamwork revealed

The insects have an almost unique ability to switch between individual and collective action
Donovan interview: The singer is releasing a greatest hits album to mark his 50th year in folk

Donovan marks his 50th year in folk

The singer tells Nick Duerden about receiving death threats, why the world is 'mentally ill', and how he can write a song about anything, from ecology to crumpets
Let's Race simulator: Ultra-realistic technology recreates thrill of the Formula One circuit

Simulator recreates thrill of F1 circuit

Rory Buckeridge gets behind the wheel and explains how it works
Twitter accused of 'Facebookisation' over plans to overhaul reverse-chronological timeline

Twitter accused of 'Facebookisation'

Facebook exasperates its users by deciding which posts they can and can’t see. So why has Twitter announced plans to do the same?
Jane Birkin asks Hermès to rename bag - but what else could the fashion house call it?

Jane Birkin asks Hermès to rename bag

The star was shocked by a Peta investigation into the exotic skins trade
10 best waterproof mascaras

Whatever the weather: 10 best waterproof mascaras

We found lash-enhancing beauties that won’t budge no matter what you throw at them
Diego Costa biography: Chelsea striker's route to the top - from those who shared his journey

Diego Costa: I go to war. You come with me...

Chelsea's rampaging striker had to fight his way from a poor city in Brazil to life at the top of the Premier League. A new book speaks to those who shared his journey
Ashes 2015: England show the mettle to strike back hard in third Test

England show the mettle to strike back hard in third Test

The biggest problem facing them in Birmingham was the recovery of the zeitgeist that drained so quickly under the weight of Australian runs at Lord's, says Kevin Garside
Women's Open 2015: Charley Hull - 'I know I'm a good golfer but I'm also just a person'

Charley Hull: 'I know I'm a good golfer but I'm also just a person'

British teen keeps her feet on ground ahead of Women's Open
Turkey's conflict with Kurdish guerrillas in Iraq can benefit Isis in Syria

Turkey's conflict with Kurdish guerrillas in Iraq can benefit Isis in Syria

Turkish President Erdogan could benefit politically from the targeting of the PKK, says Patrick Cockburn
Yvette Cooper: Our choice is years of Tory rule under Jeremy Corbyn or a return to a Labour government

Our choice is years of Tory rule under Corbyn or a return to a Labour government

Yvette Cooper urged Labour members to 'get serious' about the next general election rather than become 'a protest movement'