Europe sweetens the pill for Spain

Spanish bonds will get cheaper, but the EU wants control of the banks in return

At an extremely late hour in the day, the European summit appears to have agreed to modest, but important, changes in the structure of European bailouts.

The most important alteration for many is the fact that the funds provided to Spain by the European Stability Mechanism (annouced on the 9th and formally requested on the 25th) are to be provided without seniority. Previously, loans from the ESM are given subject to a proviso – enforced through convention rather than legality – that they are to be repaid before any other loans.

This is problematic for countries in trouble, since it makes it a lot harder for them to receive other funds. If you are a private investor, the last country you want to lend to is one which, if it goes bust, has to pay off a €100bn+ loan to the European Central Bank before you see a penny. As a result, when Spain first announced it was planning to seek a bailout, the first thing to happen was a spike, of around 5 per cent, in its bond yields (the cost of borrowing).

It now appears that seniority is to be "renounced" for the ESM's loan to Spain. It may still have implicit seniority – in any bankruptcy, the debtor has some choice of the order in which they pay off creditors of equal status, and Spain is unlikely to want to piss off the EU too much – but private lenders will be able to feel slightly more comfortable in giving money to the country. The question for the ESM now (and there are always further questions) is whether this is a one-off exemption, or new policy. And if it is new policy, can it be applied retroactively? Spain is, after all, not the only country with a bailout from the EU.

The summit also agreed to allow funds from the bailout to be injected directly into Spain's banks. The statement from the summit affirms that "it is imperative to break the vicious circle between banks and sovereigns," and that the ESM should be allowed to recapitalise banks. Previously, the money would have gone directly into a Spanish government vehicle, which would have paid out to the banks; the ESM is now capable of skipping that step, which should save everyone some time and money.

More important than what the EU has allowed, though, are the concessions it has demanded. Instead of there being 17 different banking supervisors throughout the eurozone, there will now be just one, a major step towards the creation of a pan-European banking union. The big change is that Eurozone authorities –  for which, read "Germany" – will now be able to force struggling banks throughout the Eurozone to recapitalise, rather than waiting for the individual sovereigns to decide. 

Angela Merkel is happy. Photograph: Getty Images

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

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PMQs review: Theresa May shows again that Brexit means hard Brexit

The Prime Minister's promise of "an end to free movement" is incompatible with single market membership. 

Theresa May, it is commonly said, has told us nothing about Brexit. At today's PMQs, Jeremy Corbyn ran with this line, demanding that May offer "some clarity". In response, as she has before, May stated what has become her defining aim: "an end to free movement". This vow makes a "hard Brexit" (or "chaotic Brexit" as Corbyn called it) all but inevitable. The EU regards the "four freedoms" (goods, capital, services and people) as indivisible and will not grant the UK an exemption. The risk of empowering eurosceptics elsewhere is too great. Only at the cost of leaving the single market will the UK regain control of immigration.

May sought to open up a dividing line by declaring that "the Labour Party wants to continue with free movement" (it has refused to rule out its continuation). "I want to deliver on the will of the British people, he is trying to frustrate the British people," she said. The problem is determining what the people's will is. Though polls show voters want control of free movement, they also show they want to maintain single market membership. It is not only Boris Johnson who is pro-having cake and pro-eating it. 

Corbyn later revealed that he had been "consulting the great philosophers" as to the meaning of Brexit (a possible explanation for the non-mention of Heathrow, Zac Goldsmith's resignation and May's Goldman Sachs speech). "All I can come up with is Baldrick, who says our cunning plan is to have no plan," he quipped. Without missing a beat, May replied: "I'm interested that [he] chose Baldrick, of course the actor playing Baldrick was a member of the Labour Party, as I recall." (Tony Robinson, a Corbyn critic ("crap leader"), later tweeted that he still is one). "We're going to deliver the best possible deal in goods and services and we're going to deliver an end to free movement," May continued. The problem for her is that the latter aim means that the "best possible deal" may be a long way from the best. 

George Eaton is political editor of the New Statesman.