Over the weekend, Eurozone leaders rustled up €100bn for Spain’s wobbly banks. The story then followed the now familiar Euro Crisis pattern. It starts with blustering denials, ramps up to lunatic optimism (following some emergency summit or back room deal) – and ends by plunging into even more gloom.
At the start of last week, Spain shushed rumours that it needed help from the Eurozone to shore up its troubled banking sector. Everything was under control.
But by Tuesday, Cristobal Montoro, the Spanish Treasury minister, said the country’s high borrowing cost had shut it out of the bond market and urged European institutions to “open up and help us.”
On Saturday the country was negotiating a deal to secure €100bn for the banks: this was not a bailout, of course, more a line of credit. Spain’s Prime Minister greeted the deal as “victory for the Euro.” In a textbook example of – what my grandmother would have called – ‘tempting fate’, Mariano Rajoy said “it was the credibility of the Euro that won.” The US Treasury and Britain’s Foreign Secretary William Hague fulsomely praised the agreement. Christine Lagarde, IMF managing director, welcomed a deal that should provide “assurance that the financing needs of Spain’s banking system will be fully met.”
On Monday morning the Today programme reported that the €100bn facility had “cheered up financial markets around the world.” Shares in Asia were rising… everything was going to be alright!
As Monday progressed, more measured, sceptical voices began to be heard. Why was Spain getting this ‘no strings’ deal – while Ireland and Greece had to impose big spending cuts as a condition of their bail outs? And was €100bn enough to save banks with such a huge exposure to the plummeting property market?
By the end of the day, yields on Spanish debt were climbing (making it more expensive for the country to borrow). And, on fears of ‘contagion’, Italian yields reached a new high. This morning, shares on European banks are falling as – according to the BBC – “the initial optimism that greeted the Spanish bailout continued to evaporate.”
The Five Stages of Grief start with Denial and Anger, pass through Bargaining and Depression, and end with Acceptance. With each new development in the Euro Crisis the Euro elite repeats the spin cycle – but somehow never makes it through to Acceptance. When will they finally accept that the Euro project is a dead man walking?