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 Images
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What's to be done about racial inequality?

David Cameron's words on equal opportunities are to be welcomed - now for some action, says Sunder Katwala.

David Cameron made the strongest, clearest and most high profile statement about ethnic inequalities and the need to tackle discrimination ever yet offered by a British Prime Minister in his leader’s speech to the Conservative Party conference in Manchester.
“Picture this. You’ve graduated with a good degree. You send out your CV far and wide. But you get rejection after rejection. What’s wrong? It’s not the qualifications or the previous experience. It’s just two words at the top: first name, surname. Do you know that in our country today: even if they have exactly the same qualifications, people with white-sounding names are nearly twice as likely to get call backs for jobs than people with ethnic-sounding names? … That, in 21st century Britain, is disgraceful. We can talk all we want about opportunity, but it’s meaningless unless people are really judged equally”, said Cameron.
While the proof of the pudding will be in the eating, this was a powerfully argued Prime Ministerial intervention – and a particularly well-timed one, for three reasons.

Firstly, the Prime Minister was able to root his case in an all-but-universally accepted appeal for equal opportunities. It will always prove more difficult in practice to put political energy and resources behind efforts to remedy discrimination against a minority of the population unless a convincing fairness case is made that values cherished across our whole society are at stake. Cameron’s argument, that any party which tells itself that it is the party of the ‘fair chance’ and ‘the equal shot’ must have a response when there is such clear evidence of discrimination, should prove persuasive to a Conservative Party that has not seen race inequalities as its natural territory. Cameron argued that the same principles should animate responses to discrimination when it comes to race, gender and social class. Put like that, wanting job interviews to be fair – by eradicating conscious and unconscious patterns of bias wherever possible – would strike most Britons as offering as clear a case of the values of fair play as wanting the best baker to win the Great British Bake-Off on television.
Secondly, Cameron’s intervention comes at a potential "tipping point" moment for fair opportunities across ethnic groups. Traditionally, ethnic discrimination has been discussed primarily through the lens of its impact on the most marginalised. Certainly, persistent gaps in the criminal justice system, mental health provision and unemployment rates remain stark for some minority groups. What has been less noticed is the emergence of a much more complex pattern of opportunity and disadvantage – not least as a consequence of significant ethnic minority progress.

Most strikingly of all, in educational outcomes, historic attainment gaps between ethnic minorities and their white British peers have disappeared over the last decade. In the aggregate, ethnic minorities get better GCSE results on average. Ethnic minority Britons are more likely, not less likely, to be university graduates than their fellow citizens. 

As a result of that progress, Cameron’s intervention comes at a moment of significant potential – but significant risk too. Britain’s ethnic minorities are the youngest and fastest-growing sections of British society. If that educational progress translates into economic success, it will make a significant contribution to the "Great British Take-Off" that the Prime Minister envisions. But if that does not happen, with educational convergence combined with current ‘ethnic penalties’ in employment and income persisting, then that potential could well curdle into frustration that the British promise of equal opportunities is not being kept.  Cameron also mirrored his own language in committing himself to both a ‘fight against extremism’ and a ‘fight against discrimination’: while those are distinct challenges and causes, actively pursuing both tracks simultaneously has the potential, at least, depolarise some debates about responses to extremism  - and so to help deepen the broad social coalitions we need for a more cohesive society too.

Thirdly, Cameron’s challenge could mark an important deepening in the political competition between the major parties on race issues. Many have been struck by the increase in political attention on the centre-right to race issues over the last five to ten years. The focus has been on the politics of representation. By increasing the number of non-white Conservative MPs from two to seventeen since 2005, Cameron has sent a powerful signal that Labour’s traditional claim to be ‘the party of ethnic minorities’ would now be contested. Cameron was again able to celebrate in Manchester several ways in which his Cabinet and Parliamentary benches demonstrate many successful journeys of migrant and minority integration in British society. That might perhaps help to ease the fears, about integration being impossible in an era of higher immigration, which the Home Secretary had articulated the previous day.

So symbolism can matter. But facial diversity is not enough. The politics of ethnic minority opportunity needs to be about more than visits to gurdwaras, diversity nights at the party conference fringes and unveiling statues of Mahatma Gandhi in Parliament Square. Jeremy Corbyn’s first speech as Labour leader did include one brief celebratory reference to Britain’s ethnic diversity – “as I travelled the country during the leadership campaign it was wonderful to see the diversity of all the people in our country” – and to Labour bringing in more black, Asian and ethnic minority members - but it did not include any substantial content on discrimination. Tim Farron acknowledged during his leadership campaign that the Liberal Democrats have struggled to get to the starting-line on race and diversity at all. The opposition parties too will no doubt now be challenged to match not just the Prime Minister’s rhetorical commitment to challenging inequalities but also to propose how it could be done in practice.

Non-white Britons expect substance, not just symbolism from all of the parties on race inequalites.  Survation’s large survey of ethnic minority voters for British Future showed the Conservatives winning more ethnic minority support than ever before – but just 29 per cent of non-white respondents were confident that the Conservatives are committed to treating people of every ethnic background equally, while 54 per cent said this of Labour. Respondents were twice as likely to say that the Conservatives needto do more to reach out – and the Prime Minister would seem to be committed to showing that he has got that message.  Moreover, there is evidence that ethnic inclusion could be important in broadening a party’s appeal to other younger, urban and more liberal white voters too – which is why it made sense for this issue to form part of a broader attempt by David Cameron to colonise the broad centre of British politics in his Manchester speech.

But the case for caution is that there has been limited policy attention to ethnic inequalities under the last two governments. Restaurateur Iqbal Wahhab decided to give up his role chairing an ethnic minority taskforce for successive governments, unconvinced there was a political commitment to do much more than convene a talking shop. Lib Dem equalities minister Lynne Featherstone did push the CV discrimination issue – but many Conservatives were sceptical. Cameron’s new commitment may face similar challenges from those whose instinct is to worry that more attention to discrimination or bias in the jobs market will mean more red tape for business.

Labour had a separate race inequalities manifesto in 2015, outside of its main election manifesto, while the Conservative manifesto did not contain significant commitments to racial inequality. The mid-campaign launch in Croydon of a series of race equality pledges showed an increasing awareness of the growing importance of ethnic minority votes - though the fact that they all involved aiming for increases of 20 per cent by 2020 gave them a slightly back-of-the-envelope feel. 

Prime Ministerial commitments have an important agenda-setting function. A generation ago the Stephen Lawrence case opened the eyes of middle England to racist violence and police failures, particularly through the Daily Mail’s persistent challenging of those injustices. A Conservative Prime Minister’s words could similarly make a big difference in the mainstreaming of the issue of inequalities of opportunity. What action should follow words? Between now and next year’s party conference season, that must will now be the test for this Conservative government – and for their political opponents too. 

Sunder Katwala is director of British Future and former general secretary of the Fabian Society.