News from the debt crisis in Spain and the rise of a global response
A new bailout fund that works just like the old one
Por DIAGONAL English

By Giuseppe Bottazzi (Milan) / Translated by Esther Ortiz Vázquez

The main EU “anti-crisis weapon” threatens to reproduce the damaging aftermath caused by the Troika in Greece

On October 8th in Luxembourg the media premiere being presented was up to its billing: the European Stability Mechanism (ESM) was named as the “main anti-crisis weapon in the hands of the Union”, as announced with fanfare by the leaders of the continent. However the promised solution to the sovereign debt crisis within Europe has run into its first obstacle: the summit held in Brussels the past 18th and 19th October. There, the Spanish bailout –the ESM’s real guinea pig- was debated at length by the different European Heads of State. While Mario Monti and François Hollande were saying “perhaps” and Angela Merkel “nein”, the mechanism revealed its true nature: it is simply another tool to carry out the same kind of “rescues” already witnessed in Greece, Portugal and Ireland. The next time Madrid saves, once again, its banks, the bill will be charged to the public debt. In these times of neoliberal policies this can only mean more blood, sweat and tears.

What is the ESM?

The ESM is the new bailout fund within the European Union. It replaces the two existing temporary EU funding programmes: the European Financial Stability Facility (EFSF) and the European Financial Stabilization Mechanism (EFSM) that were applied in the intervention on Greece, Portugal and Ireland. Both new and old mechanisms are financial institutions located in Luxembourg. The main difference between them is their capitalisation package and their temporality (the ESM is permanent whilst the older two were always temporary). Whilst the EFSM financed solely through bond issues, the ESM has already collected €80 billion in capital from the State members. Chaired by the German Klaus Regling, this new fund has a €200 billion initial loan capacity which will increase up to €500 billion within the next 18 months. In addition, the combination of both the EFSM and the ESM will mean the total sum at the disposal of the Luxembourg entity will reach €700 billion.

In truth, we are dealing here with really quite irrelevant modifications in the entities to justify the proposed “change of course” pledged by Brussels. In fact, in its inception there was apparently a substantial difference between the ESM and the previous bailout funds inasmuch as when the new body was announced by the European leaders at the end of last June, it seemed to be free of the control of the International Monetary Fund (IMF). The new bailouts taking place in the Eurozone, starting with the Spanish one, -at least this was the promise- were going to be different from Greece’s ordeal. Brussels’ solution at hand was to bypass the IMF’s so-called men in black with their pernicious reputation after decades of intervening all over the world. Unfortunately, the body planned in the drafts bears little comparison to the ESM’s final version and so, in the end, the Troika will be the one in charge along with the European Commission and the ECB.

The “automatic firewall”

The new permanent fund that will manage future national bailouts though aid will be available from March 2013 once the Euro countries have ratified the fiscal pact that forces them to include the “golden rule” –a limit to the yearly structural deficit- within their national legislations just as Spain did in September 2011. Additionally, they will have to sign a memorandum that states they will accept the conditions dictated by the Troika, exactly as Mariano Rajoy’s Government did in June. The outcome is a far cry from what the European leaders had promised. This is especially notable in the case of Mario Monti’s who had insisted on the need for an “automatic firewall” to deal with speculation on peripheral countries’ debt. After so many cuts –this was the reasoning of the Italian PM- the risk premium on bonds kept going through the roof, thus there was a need for a mechanism to manage the buying of sovereign debt to dampen the effects of speculation when a certain differential was reached.

There is however nothing automatic in the ESM; what is more, during the last European meeting, another ray of hope generated by the prospect of a new bailout fund was extinguished by Angela Merkel, the German Chancellor: namely that the recapitalisation needed to save Spanish banks should be pumped directly into the struggling entities without impacting on the public account.

Angela Merkel’s delay until 2014 of the creation of a European Banking Union has ended any hope held by Mariano Rajoy about the retrospective application of the measures in Spain. Berlin’s “nein” means the addition of €40 billion –the whole bailout amount- to the sovereign debt. According to rumours, informal negotiations continue between the different EU institutions to reach a new agreement to split the cost of the banks’ recapitalisation between the ESM and the member states. Everything seems to be back to square one.

Berlin´s “nein” means Spain’s bank bailout has added €40 billion to its sovereign debt As in the nineteenth-century Sicily depicted by Giuseppe Tomasi di Lampedusa in “The Leopard”, in today’s Europe “if we want everything to stay as it is, everything will have to change”. Once again the Governments that are in trouble will be forced back to the negotiating table, always clear in their minds that now it is the so-called Troika which is calling the shots.

The outline of the bad bank

Sareb: A brick warehouse. On 16th November the “bad bank” called Sareb is due to be inaugurated. It is this entity into which the commercial banks will pour their toxic assets, mainly houses. Sareb will have assets totaling some €90 billion.

Millionaire wages. Sareb’s board will be recruited by the executive firm Spencer Stuart and the future CEO is due to earn up to €500,000 a year. According to, the seven directors will earn an annual €2 million.

[This article was originally published in Spanish on October 31th, 2012]





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