Spain's bank balance starts heading in the right direction

Some good news from Europe.

This chart, from JP Morgan via FT Alphaville's David Keohane, is quietly rather good news:

 

TARGET2 (Trans-European Automated Real-Time Gross Settlement System – yes, it's not a particularly good acronym) is the European inter-bank lending system, used for settling cross-border transactions throughout the eurozone.

If a Spanish supermarket buys beer from a German brewer and pays with a bank transfer, then the euros aren't just sent directly from one account to the other. Instead, they are channeled through the countries' central banks. The German brewer gets money from their bank, which gets the money from the Bundesbank, while the Spanish supermarket owes money to their local bank, which owes money to the Banco de España. The two central banks then settle those debts with the ECB, and that's the where TARGET2 comes in. Over the long-term, these debts and credits don't always even out, and so countries end up with balances with the ECB.

The chart above shows that the long-running trend for Germany to have ever-increasing credit, and Spain ever-increasing debt, may now be reversing. This is a good thing, because one of the few silver-linings of the crippling austerity the Spanish people have experienced over the last year is that the so-called "internal devaluation" – the reduction of wages in the country – is supposed to increase the strength of exports.

The TARGET2 trend also indicates that fears of a Spanish bank run are unfounded. While it doesn't leave the country in the all-clear – if people are taking money from banks in cash, it wouldn't show up on this account – it bodes well for the health of the banking sector.

But the most important aspect of TARGET2 for the eurocrisis as a whole is that it provides a mechanism for mechanical exit of the euro. We wrote about this in May with regards to Greece, but the short version is that if the debt gets too big, the ECB can decide to simply stop lending to the country. If that happens, the state is all but ejected from the euro in a stroke.

Greece may not be out of the water yet, but the knowledge that Spain is, for the time being, perfectly safe in the eurozone will help the country get its bearing. It still leaves Rajoy with the tough decision as to whether or not to officially request a bailout, but his hand is no longer as forced as it was.

Symbolic. 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.

How Jim Murphy's mistake cost Labour - and helped make Ruth Davidson

Scottish Labour's former leader's great mistake was to run away from Labour's Scottish referendum, not on it.

The strange revival of Conservative Scotland? Another poll from north of the border, this time from the Times and YouGov, shows the Tories experiencing a revival in Scotland, up to 28 per cent of the vote, enough to net seven extra seats from the SNP.

Adding to the Nationalists’ misery, according to the same poll, they would lose East Dunbartonshire to the Liberal Democrats, reducing their strength in the Commons to a still-formidable 47 seats.

It could be worse than the polls suggest, however. In the elections to the Scottish Parliament last year, parties which backed a No vote in the referendum did better in the first-past-the-post seats than the polls would have suggested – thanks to tactical voting by No voters, who backed whichever party had the best chance of beating the SNP.

The strategic insight of Ruth Davidson, the Conservative leader in Scotland, was to to recast her party as the loudest defender of the Union between Scotland and the rest of the United Kingdom. She has absorbed large chunks of that vote from the Liberal Democrats and Labour, but, paradoxically, at the Holyrood elections at least, the “Unionist coalition” she assembled helped those parties even though it cost the vote share.

The big thing to watch is not just where the parties of the Union make gains, but where they successfully form strong second-places against whoever the strongest pro-Union party is.

Davidson’s popularity and eye for a good photo opportunity – which came first is an interesting question – mean that the natural benefactor in most places will likely be the Tories.

But it could have been very different. The first politician to hit successfully upon the “last defender of the Union” routine was Ian Murray, the last Labour MP in Scotland, who squeezed both the  Liberal Democrat and Conservative vote in his seat of Edinburgh South.

His then-leader in Scotland, Jim Murphy, had a different idea. He fought the election in 2015 to the SNP’s left, with the slogan of “Whether you’re Yes, or No, the Tories have got to go”.  There were a couple of problems with that approach, as one  former staffer put it: “Firstly, the SNP weren’t going to put the Tories in, and everyone knew it. Secondly, no-one but us wanted to move on [from the referendum]”.

Then again under different leadership, this time under Kezia Dugdale, Scottish Labour once again fought a campaign explicitly to the left of the SNP, promising to increase taxation to blunt cuts devolved from Westminster, and an agnostic position on the referendum. Dugdale said she’d be open to voting to leave the United Kingdom if Britain left the European Union. Senior Scottish Labour figures flirted with the idea that the party might be neutral in a forthcoming election. Once again, the party tried to move on – but no-one else wanted to move on.

How different things might be if instead of running away from their referendum campaign, Jim Murphy had run towards it in 2015. 

Stephen Bush is special correspondent at the New Statesman. His daily briefing, Morning Call, provides a quick and essential guide to British politics.

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