Economic Crisis in Euroland: Deal to Bail out Spanish, Italian banks
by Stefan Steinberg and Barry Grey
July 1, 2012
The two-day European Union summit concluded Thursday with an agreement, reached after 14 hours of acrimonious talks, to provide short-term relief to besieged Spanish and Italian banks by allowing the EU bailout fund to directly aid euro zone banks. Previously, the rules governing the 500 billion-euro European Stability Mechanism (ESM), slated to come on line next month, restricted EU lending to national governments.
With the banking systems of Spain and Italy, the fourth and third largest economies using the common European currency, under increasing pressure from the financial markets and credit rating agencies, and interest rates on the two nations’ government bonds climbing to unsustainable levels, the government heads of Spain, Italy and France, backed by Washington and the International Monetary Fund, were insistent on the need for immediate measures to shore up the banks. There was no time, they argued, for the protracted negotiations and bureaucratic delays involved in official state bailouts, such as those carried out in Greece, Ireland and Portugal.
Going into the summit, Germany had reiterated its resistance to any such short-term measures until agreement had first been reached on a new political structure for the euro zone, in which national governments would subordinate their budgetary and taxing powers to an overarching authority in Brussels, tasked with policing euro zone member-states to enforce strict limits on budget deficits and national debts.
In practice, Germany, as the strongest economy and biggest donor to regional bailout funds, would dominate the new “fiscal and political union,” and behind Germany the major international banks would exert their influence more directly than ever.
German Chancellor Angela Merkel had also repeated her opposition to calls from French President Francois Hollande and his southern European allies for euro bonds or other measures to spread debt liabilities across the euro zone, and had roundly denounced before the German parliament a proposal submitted to the summit by European Council President Herman Van Rompuy to move toward euro bonds along with a banking union and centralized fiscal authority.CONTINUE: [link to globalresearch.ca]