The Spanish bailout saved the world for about 48 hours

Has the EU just flushed €100bn down the drain?

So, as we predicted, Spain got a bailout on Saturday. The mark for trouble – a five per cent spread between Spanish and German bonds – seems almost to be a self-fulfilling prophecy now. Spreads for Greek, Irish and Portugese bonds were over that level for 16 days, 24 days and 34 days respectively before they were forced into bailouts, but for Spain it took barely a week. 

But the bailout came, the Spanish government was given a €100bn loan from the EU to shore up the troubled banks, and when the markets opened this morning, everything was good again! The IBEX, the country's main stock market, started the day up 4.5 per cent:

Unfortunately, five hours later, the rally isn't looking quite so hot:

 

Even worse, Spanish bond yields are way up today:

The problem is that now that we're up to four eurozone bailouts, the time taken to go from "everything has been solved" to "none of the fundamental problems have been addressed in any way" is measurable in hours.

Europe remains a continent with massive imbalances between the core and periphery, and no obvious way to undo the damage that causes. Germany is so much more competitive than Spain, let alone Greece, that in a full fiscal and monetary union, there would be near permanent transfers of wealth between the two – as there are, without raising a single eyebrow, between London and Bradford, or New Jersey and New Mexico.

In addition, although this bailout is aimed at protecting the Spanish banking sector from damage already done, it does nothing for damage yet to come. The Greek problem is unchanged, with the bank jog continuing steadily (modified chart via FT alphaville):

Such a bank jog can, if it continues unchecked, force Greece out of the euro without any political intervention needed. Paul Mason explained the mechanism in detail, but the basic issue is that eventually, the Greek banks will need to appeal to the ECB for further loans against poor capital. If the ECB, at any time, refuses to allow the loan limit to be raised, then the first bank goes bust at that moment. From there, either the jog becomes a run, and the Greek banking system shuts down, or the country imposes capital controls and de facto leaves the euro.

If Greece leaves the euro, Spain's current banking problems will be looked back on with nostalgia. And, as ever in economics, the fear becomes a self-fulfilling prophecy; belief that Spain might be going the same way as Greece is a large part of why it is going the same way as Greece.

Of course, the fact that the bailout fails to address the fundamentals of the European problem is not to suggest that it does a particularly good job dealing with the surface issues, either.

It is still not clear, for example, what proportion of the loans are coming from the European stability mechanism (ESM) and what are coming from the European financial stability fund (EFSF). This matters because (it seems that) loans from the ESM would be senior to private market loans, while loans from the EFSF would be at the same level; in other words, the ESM money must be paid off before any other loan is, which is unlikely to make the private sector particularly eager to loan to Spain.

As if to emphasise the messy nature of that problem, though, Alphaville is now running a story suggesting that, since Spain already borrows from the EFSF, its loans from the ESM take a more junior status than if it didn't.

It's also not clear whether the money handed over to Spain is actually enough to dampen its banking crisis. Reports suggest that Spanish banks are, in total, exposed to around €400bn in dodgy property loans, so the recapitalisation may not have gone anywhere near far enough.

Oh, and Ireland is getting fidgety as well. Its bailout – way back in November 2010 – happened for much the same reason as Spain's. An overextended banking sector exposed the whole country to risk which it had to ask for help for, but the government was, overall, fiscally responsible. Yet because it needed European funds before the EFSF had any powers narrower than a full-scale bailout, the money came with onerous terms which have not been matched in Spain's case. So Ireland may now be feeling hard done by, and attempt to renegotiate its own terms.

It's looking more and more likely that the EU has just flushed €100bn down the drain.

Do not pass go, do not collect €100bn. 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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A good apprenticeship is about more than box-ticking

The political apprenticeships arms race, promising ever increasing numbers of apprenticeships but with little focus on quality, is helping nobody. 

The political apprenticeships arms race, promising ever increasing numbers of apprenticeships but with little focus on quality, is helping nobody. Playing a numbers game often means the quality and the personal touch that turns a placement into a career opportunity can be lost. The government has set a target of three million new apprenticeships by 2020. In London Boris Johnson set a target for 250,000 apprentice starts, but fell short by over 100,000. Both targets miss the point; any target should focus on outcomes, not just numbers through the door.

Policy makers need to step back from the rigid frameworks and see what works on the ground.  For me this involved eating a bacon sandwich, which is arguably a risky exercise for politicians.  I was seeing how the owner of the Bermondsey Community Kitchen and Café, Mike, has transformed the space above his café into a training kitchen teaching young unemployed people the skills they need to gain qualifications to work in restaurants.

The posters on the wall spell out the choices available to the young people. They make it explicitly clear that there is an alternative to a life in prison, which some of the trainee chefs have already experienced, with pictures of celebrity chefs including Jamie Oliver, Delia Smith and Gordon Ramsay outlining how they worked their way to where they are now. None of the young people have had an easy start in life. Barriers they face include autism, lack of literacy skills, insufficient funds to pay the fare to the café and criminal records. But Mike and the team running the kitchen are determined to give them the chances every young person deserves. From City & Guilds qualifications, work placements and ensuring they have a job at the end of the process, this is the type of grass roots project that the government could learn from. With two groups of eight students over three half days, this is skills training that is about as personal as it gets. The young people are enthusiastic about the course, the practical skills they are learning and optimistic about the future.

The project is funded partly through the café, but mainly through grants and donations (including pots and pans from Raymond Blanc and funding from trusts as well as the local council). Mike has plans to expand. He wants premises with space for a nursery so young mothers who might otherwise struggle to complete a course can attend, he has a vision for two or three more similar enterprises across Southwark. I have no doubt he will achieve this but the challenge for policy makers is making it easier for people like Mike who are delivering flexible qualifications and delivering better results. Bureaucratic processes, lengthy forms and refusals would have put less determined people off. As the funding for skills is devolved, there is both an opportunity and a challenge to look at how innovative models can be supported. Unless more is done to ensure groups that might be defined as ‘hard to reach’ get opportunities, there will always be significant numbers falling through the gaps in a sometimes impersonal system.

Over 60 per cent of the apprenticeships in London focus on low level qualifications with little prospect of employment upon completion. Many skills based apprenticeships fail to match demand, the booming construction industry for example is crying out for skilled workers and with all parties agreeing new homes are a priority its surprising to learn that in London only 3 per cent of apprenticeships are in construction.

Apprenticeships need to focus on leading to work, and work that is skilled and pays enough to live on. They should be about opportunity not opportunistic employers. In a report published in October 2015, Ofsted was critical of apprenticeships saying too many of them ‘do not provide sufficient training that stretches the apprentices and improves their capabilities. Instead they frequently are being used as a means of accrediting existing low-level skills, like making coffee and cleaning floors.’

The new apprenticeship levy charged to businesses with a wage bill over a certain amount could be a useful way of enhancing opportunities but the definition of apprenticeship needs to be refined. On a recent visit to the iconic Brompton Bikes factory, the London Assembly Economy Committee was told that although the firm has to pay the new levy as a result of its size, they have a bespoke way of training their apprenticeships so they have the skills to get jobs with Brompton Bikes at the end of the process. Because this tailored training doesn’t meet the narrow government criteria they aren’t formally accredited apprenticeships and thus Brompton are unable to claim any funding back from government despite their excellent work.

I am increasingly frustrated that the most exciting and inspiring projects I visit don’t always meet the criteria for funding. We are doing something wrong if people are asked to fit something that works into a form that meets criteria rather than rewarding their successes. Instead huge amounts of public money are being put into funding low quality low skilled apprenticeships that sometimes appear to be more about avoiding the minimum wage. This is not just a waste of money; it is a waste of the lives of the young people. As the Bermondsey fishmonger we bumped in to on the way out of the café told us, sometimes what works is smashing the box, not ticking the box.