European politicians always need “a certain sense of crisis to act”, as a senior official quoted on Reuters.com puts it. But “the state of urgency we had over the summer is just not there”. Calm has returned to the markets in recent weeks after the president of the European Central Bank, Mario Draghi, promised to buy unlimited quantities of Spanish and Italian bonds, thus reducing the countries’ borrowing costs and preventing a default, if they sign up to an official rescue.
Without the usual sense of urgency, EU leaders did little to resolve the crisis at their latest summit. They agreed to an end-of-year deadline to prepare legislation for common bank supervision by the European Central Bank. The single supervisory mechanism is supposed to be set up by the end of next year, and will oversee all eurozone banks. Eventually, this implies shared responsibility for overseeing and recapitalising banks.
But that still seems years away and, for now, Germany has dampened hopes of near-term relief for indebted states with troubled banks, says James Kanter in The New York Times. In June, the understanding was that if a euro-wide bank regulator was set up, then Europe’s rescue fund, the European Stability Mechanism, could recapitalise bust banks directly.
But Germany now seems loath to do this and says that if any money comes from the rescue fund directly it will address only future crises and not the current mess. The German chancellor, Angela Merkel, “seems determined to avoid any new liability for German taxpayers, which would require her to seek approval before an increasingly reluctant parliament before a September 2013 general election”, says Paul Taylor on Reuters.com. So it seems that Spain will have to add the European funds it taps for its banks to its national debt.
All this means that Europe has taken a “step backwards” from its June commitment to “break the vicious circle” between banks and sovereign states, says Ambrose Evans-Pritchard on Telegraph.co.uk. Otherwise, nothing has changed. The prospect of ECB intervention has eased Spain’s liquidity crisis by lowering its borrowing costs.
But “the deeper economic crisis drags on” and a full bail-out looks ever more likely. With the political divide between the north and the embattled south deepening, this multi-year disaster is far from over.