Europe’s leaders struck another bailout deal last week. It allows the use of European rescue funds to directly prop up ailing Spanish banks.
In return, banks across the eurozone will be brought under a single regulatory body overseen by the European Central Bank (ECB).
The deal has, on an very temporary basis, eased the financial crisis that has threatened to tear the eurozone apart. But the changes are mostly cosmetic. The crisis could break out again at any moment.
The agreement was struck at a summit meeting in Brussels. It was initially portrayed as a triumph for Italy, Spain and France against Germany.
Angela Merkel, the German chancellor, had been refusing to offer any more short-term help for stricken southern European economies.
France’s new president François Hollande declared, “Nobody should say I won or I lost. It is Europe that was at stake and it is Europe that won.”
Merkel faced a frosty response from Germany’s parliament. On paper the deal further exposes German capital to bad debts. But the fine print of the deal suggests the new bailout arrangements are not that much different from the old ones.
And the move towards a single banking regulator could play in favour of the German-led creditor countries by giving them more political control of eurozone banks.
Europe’s major bailout fund—the £400 billion European Stability Mechanism (ESM)—comes into operation this month. The deal allows the ESM to inject money directly into Spanish banks and to buy up Italian government bonds.
Previously bailout funds for Spanish banks had to be directed via the Spanish government. This meant that fears over the creditworthiness of Spanish banks spilled over into a credit crisis affecting the whole nation.
The new arrangement is designed to break the link between Spain’s government debt and its ailing banks. But it moves towards a situation where creditors such as German lenders can directly control banks across the eurozone and run them in their own interests.
Share prices for European companies—especially banks—rose on news of the deal, as did Spanish and Italian bond prices. But this has happened before with previous bailout deals, only for fears to reassert themselves and prices to drop back.
The fundamental problem has not been dealt with. European banks lent huge sums of money to Greece, Spain and Italy, during the boom years.
Now they are desperate to claw this money back at any cost. They want to do this at the expense of working class people who had nothing to do with the cause the crisis.
Either these debts are written off—which the European banks will fiercely resist—or more countries will face Greek-style austerity measures. The latter option could spark Greek-style resistance against a capitalist system that makes ordinary people’s lives a misery.