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.

Photo: Getty
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Vote Leave have won two referendums. Can they win a third?

The Remain campaign will hope that it is third-time unlucky for Vote Leave's tried-and-tested approach.

Vote Leave have launched a new campaign today, offering a £50m prize if you can guess the winner of every game at the Euros this summer. They’ve chosen the £50m figure as that is the sum that Vote Leave say the United Kingdom send to the European Union every day.

If you wanted to sum up Vote Leave’s approach to the In-Out referendum in a single gimmick, this is surely it, as it is deceitful – and effective. The £50m figure is a double deception – it’s well in excess of what Britain actually pays, and your chances of winning are so small they can only be viewed through an electron microscope. Saying that “the UK pays £50m to the EU” is like saying “I paid £10 for breakfast at Gregg’s this morning” – yes, I paid with a £10 note, but I got £8 back.  The true figure is closer to £26,000 a day.

But the depressing truth is that this sort of fact-free campaigning works – and has worked before. It’s the same strategy that Matthew Elliott, the head of Vote Leave, deployed to devastating effect, when he was head of the No to AV campaign, and that Dominic Cummings, head of strategy at Vote Leave, used when he was in charge of the anti-North East Assembly campaign: focus on costs, often highly-inflated ones, and repeat, over and over again.

This competition is a great vessel for that message, too, with the potential to reach anyone who has at least one Facebook friend with an interest in betting or football, i.e. everyone. And as my colleague Kirsty Styles revealed yesterday, this latest campaign is just one in a series of Internet-based, factually dubious campaigns and adverts being used by Vote Leave on the Internet.

The difficulty for the opponents of No2AV was, as one alumni of that campaign reflected recently, “how do you repudiate it without repeating it?”. A row over whether the United Kingdom sends £50m or £26,000 – itself £1,000 higher than the average British salary – helps the Leave campaign whichever way it ends up.

Neither Yes to Fairer Votes or supporters of a devolved assembly for the North East ever found a defence against the Elliott-Cummings approach. Time is running out for Britain Stronger In Europe to prevent them completing the hattrick. 

Stephen Bush is special correspondent at the New Statesman. He usually writes about politics.