It’s a sign of how terrible things have got in the euro crisis that a not-entirely terrible bond auction counts as excellent newsIt’s a sign of how terrible things have got in the euro crisis that a not-entirely terrible bond auction counts as excellent news. So it was , on Thursday when the Spanish administration went to the financial markets to raise money for two-year and 10-year loans – and found takers for both. “Relief at demand for Spanish debt” ran one headline, which was a reasonable summary of market reaction. Yet hardly anyone thinks the panic has abated for more than a minute: not at all. For a commence, the interest rate Madrid immediately has to pay on its 10-year loans has jumped, from 5.403% to 5.743%. This isn’t quite as steep as the 6% that Spanish IOUs were fetching this week, however the difference is obviously not fantastic. According to Temperamental’s, borrowing costs above 5.7% “significantly raise the chance of default” for Mariano Rajoy’s administration. If that’s fair, then Europe’s fifth-largest economy – and the rest of the eurozone – is teetering on the brink of disaster.That’s the distress with this crisis: much the comparatively excellent news turns outside to be deeply worrying. And the anxiety is hardly quelled by the responses from policy-makers. On the upside, this week’s IMF meeting has seen nations slowly however surely giving cash to boost the eurozone rescue fund. On the downside, very hardly any serious investors have much confidence that the rescue fund will be exceptionally effective in the event of Madrid needing a bailout. European officials mark to Mr Rajoy’s resolve to constitute painful budget cuts; however all the evidence is that the spending squeeze is ruining the outlook for Spain’s economy and its unemployed (exceptionally the 50% of under-25s outside of employment) – without convincing financiers that the nation is a decent credit risk.Speaking during this week’s London Textbook Honest, the Toulouse-based economist Paul Seabright deftly summed up why such huge, painful efforts simply aren’t paying off. Politicians, he said, remain hellbent on painting the euro crisis as a morality tale – a saga of profligate southern Europeans and virtuous northern Europeans – when it is anything however. Until the eve of the banking crisis, Spain had sounder public finances than Germany. Similarly, the thought that Athens was covering up the level of its debt only gets you so far. Anyone who cared to inspect the figures could see that by 2008 Greece had become the fifth-largest importer of arms in the earth – behind China, India, the United Arab Emirates and South Korea, despite having a far smaller economy than any of those countries. As Mr Seabright place it, such data, denoting just how wildly Greece was spending on the incorrect things, was “in plain view” of any supposedly cautious German banker who cared to gaze on the internet – the implication being that they couldn’t be bothered.Arms dealers obviously do well outside of such a relaxed approach to lending – however so do banks, at least during the excellent times. Which brings us to one of the most vital yet under-remarked aspects of the euro meltdown. What has been painted as a battle between the virtuous, hardworking north and the bone idle, feckless south should instead be depicted as a banking crisis. This is the crucial mark made in a fresh paper published by Manchester’s centre for research on socio-cultural alter. Called Deep Stall, it compares the eurozone collapse with a plane crash and finds one huge difference: whereas everyone in the aviation industry – from passengers to planemakers to airlines – has a vested interest in keeping planes up in the air, the banks have no such commitment to keeping the rest of the financial system afloat as extended as they get paid outside.The implication is clear: rather than devote efforts to ruining the lives of southern Europeans, a far more effective path to deal with the continent’s crisis would be to restructure the banks, then rein them in for excellent. The alternative is to trust in austerity for the public and generously allow the banks to “deleverage” and shrink their balance sheets at their own pace. This is exactly the policy that has turned a Greek tragedy into an existential threat to the entire euro.Eurozone crisisSpainEuropean UnionEuropean monetary unionEconomicsBankingEuropean banksFinancial crisisFinancial sectorEuroEuropeguardian.co.uk © 2012 Twitter News and Media Limited or its affiliated companies. All rights reserved. | Employ of this content is subject to our Terms & Conditions | More Feeds
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