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June 30, 2012
It looks as if members of the eurozone are starting to move closer to a full fiscal and political union in response to the crisis of a Spanish bailout engulfing the single currency. It was a small step---at the summit EU leaders agreed to use the permanent bailout fund to support ailing European banks.
Martin Rowson
The European leaders at the summit agreed that a supervisory system for eurozone banks that will form the first step towards full banking union, scrapped the requirement that governments get preferential status over private investors in the event of a default, and eased the stiff terms for future bailouts. However, a banking union cannot work without a eurozone fiscal union.
Slowly the Eurozone is accepting that the core problem is the feckless banks, who no longer need provisional liquidity. They are insolvent and need serious amounts of hard cash. As The Guardian's editorial points out:
The Spanish property market is still in collapse, as are the value of their bank loans. Nothing in the bailout addresses the Spanish economy. The property market may not recover for a decade; if so, the banks will continue to be sick, and Europe's fourth-largest economy will languish.
Up to now it has been the states who borrow money from the centre of Europe in order to give to the banks and banks borrow to give to the state and both banks and states are sort of locked into a deadly embrace with another sinking very fast. That has happened with Greece, Portugal, Ireland, Italy and Spain.
On the ABC's 7.30 programme Yanis Varoufakis, the Greek economist, says that there is a need to break this nexus between insolvent banks and insolvent states. The best way to do this is to unify the banking system, to Europeanise it in the European Union and have it being funded directly not through national governments.
The reality is that the eurozone is still crashing and burning, while the European politicians are steadfastly refusing to adopt a systemic solution. Nor is a New Deal style economic recovery on the policy agenda.
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But so far at least, commitment to the united Europe ideal seems to be holding; the people of Europe can only hope that it remains so. There are enough lunatics and extremists in various political groupings there to produce some very ugly outcomes if the genies of rabid nationalism and xenophobia are once again allowed out of their bottles.