• Germany's news in English

EU helps Spain, Italy, but still no eurobonds

The Local · 29 Jun 2012, 11:53

Published: 29 Jun 2012 11:53 GMT+02:00

Facebook Twitter Google+ reddit

Spain and Italian leaders pushed through a dramatic deal in the early hours of Friday morning to allow direct help for Spanish banks, while Italy got a promise of loans with no austerity strings attached.

These represent some of the biggest changes in the management of the European debt crisis since Greece received its first rescue package, the Süddeutsche Zeitung newspaper said on Friday.

Spanish Prime Minister Mariano Rajoy came away from the meeting with a promise of up to €100 billion from the eurozone emergency fund. The crucial difference is that this can now be paid directly to banks rather than having to go through the state budget – which means it will not increase Spain’s national debt.

This should increase Spanish credit rating, and reduce the likelihood that it will also have to apply for emergency state funding. But it does mean that the eurozone tax payers are collectively taking on the risk of Spanish banks – something Germany had rejected until now, the Süddeutsche Zeitung said.

Merkel’s argument has long been that the pressure of the financial markets is needed to prompt the reforms needed in those countries in crisis. She thus insisted that direct bank rescues would entail increased control by the European Central Bank (ECB).

The deal reached on Friday morning is that aid paid directly to banks would only become possible if the ECB becomes a central banking supervisory body with the power to take control of failing banks and even wind them down if necessary.

Merkel spoke of a new “super supervisory authority” which would likely take a few months to establish, the paper said. The European Commission will put together a concept by the end of the year, until which Spain will be dealt with under current rules.

The Spanish model could also be used for Ireland and Cyprus where banks are also struggling, and borrowing money to prop them up is turning out to be disastrous for national debt rates, the paper said.

“This breaks the vicious circle that links banks and debt risk,” economist Nouriel Roubini said over Twitter.

Italy also improved its position at the summit, the paper said. Prime Minister Mario Monti managed to persuade his colleagues to enable the rescue fund to buy state bonds – which directly reduces the burden of interest payments.

Should Italy apply for this, it would not have to adopt the kind of harsh austerity programmes being forced on Greece. The ECB would act as an agent in such a buy-up, Monti said.

Story continues below…

Merkel managed to score a face-saving point here, the Süddeutsche Zeitung said – for one, the idea is not completely new – and conditions would apply, such as a brake on mass lay-offs from public employment and Rome could be obliged to follow annual budget recommendations from the European Commission.

Merkel remained unmovable on two matters, the paper said. There will be no expansion of the rescue fund, even though it would not be big enough to cover Spain and Italy if they fail to get money from the financial markets. And there will – for now – be no communalisation of European debt.

The Local/hc

The Local (news@thelocal.de)

Facebook Twitter Google+ reddit

Your comments about this article

12:45 June 29, 2012 by smart2012
Wrong title. It should be: EU helps EU to survive.

Marios (Monti, Draghi and Balotelli) beat Germany twice (in Bruxelles and in Warsaw) :-) as stated by all international press
12:59 June 29, 2012 by mos101392
Why can't Spain and Italy manage their finances like they do a football?
14:01 June 29, 2012 by TheCrownPrince
No more concessions from Germany, please. It's absurd that the one country all troubled countries depend on must give in to their demands. How long shall and can this go on? When will the constitutional court pull the plug? Hopefully soon.
16:08 June 29, 2012 by IchBinKönig
Italy and Spain said they would block 'everything' if Germany didn't start buying their bonds.

more like 'Merkel forced at gunpoint to buy more European bonds, but still no Eurobonds'
17:03 June 29, 2012 by AlexR
This was a clear EU-style power play where Merkel has lost. Just read the reports on the German and the international media.

The PIIGS are not all the same. It was easy for Merkel to demand from the relatively small Greece, Ireland and Portugal to do whatever she wanted but it's not that easy to do the same with Italy and Spain.

And I won't be surprised if the 'small' PIIGS will now complain about the EU double standards where the big countries get much more favorable bailouts than the small ones.
18:25 June 29, 2012 by smart2012
Finally someone competent took the lead in eu... Bye bye merkel... And see stocks today :)
18:40 June 29, 2012 by IchBinKönig
@ smart2012

'And see stocks today :) '

There you RahRahRah'ing the ELITES, again. Oh, and that Crony Capitalism u hate so. yawn. Can I remind you of what the markets are doing next week?
19:26 June 29, 2012 by TheCrownPrince
Perhaps they should make the final summit at Versailles or in a railway carriage in the forest of Compiegne, that would be fitting.
19:34 June 29, 2012 by Englishted

It would be if a Austrian corporal had not blown it to bits in 1940 (I think it was 1940 could be a bit later).
21:22 June 29, 2012 by smart2012
@i am the king

I accept your comment, and agree that system is crap, however this is the first time in the last year that at the conclusion of a tough eu summit (Monti / hollande / rajola against the Frau) markets react so well. It is not the end agree, more work is needed, however please agree is a good start (and hoping merkel will not come next week with silly comment against the results again, like no changes until she dies....)
Today's headlines
Creepy clown scare spreads to Germany
Two of the clowns were apparently equipped with chainsaws. Photo: Pedro Pardo / AFP file picture

Police said Friday five incidents involving so-called scary clowns had occurred in two north German towns, including one assailant who hit a man with a baseball bat, amid fears that Halloween could spark a rash of similar attacks.

Student fined for spying on women via their webcams
Photo: DPA

Student from Munich fined €1,000 for spying on 32 different computers, using their webcams to take photographs, or record their keyboard history.

This is how much startup geeks earn in Germany
Photo: DPA

A comprehensive new survey of 143 startup founders shows how much you are likely to be earning at a German startup, from entry level all the way up to sitting on the board.

Man dies after beating for peeing near Freiburg church
The Johannes Church in Freiburg. Photo Jörgens Mi/Wikipedia

A middle-aged man from southern Germany has died after being attacked by a group of men who took umbrage with the fact he was urinating in the vicinity of a church.

The Local List
Seven German celebrities with uncanny doppelgängers
Former Berlin mayor Klaus Wowereit and actor Alec Baldwin. Photo: DPA; Gage Skidmore, Wikimedia Commons

Check out these seven look-a-likes of well known German figures - we admit that some are more tenuous than others...

Israel seeks to buy three new German submarines: report
A Dolphin class submarine. Photo: DPA

Israel is seeking to buy three more advanced submarines from Germany at a combined price of €1.2 billion, an Israeli newspaper reported Friday.

Here’s where people live the longest in Germany
Photo: DPA

Germans down south seem to know the secret to a long life.

More Germans identify as LGBT than in rest of Europe
Photo: DPA

The percentage of the German population which identifies as lesbian, gay, bisexual or transgender is higher than anywhere else in Europe, according to a new study.

'Reichsbürger' pair attack police in Saxony-Anhalt
File photo: DPA.

A "Reichsbürger" and his wife attacked police officers on Thursday, just a day after another Reichsbürger fatally shot an officer in Bavaria.

Five things not to miss at the Frankfurt Book Fair
Photo: DPA

From consulting a book doctor to immersing yourself in an author's world with the help of virtual reality, here are five things not to miss at this week's Frankfurt Book Fair, the world's largest publishing event.

10 things you never knew about socialist East Germany
Sponsored Article
Last chance to vote absentee in the US elections
How Germans fell in love with America's favourite squash
How I ditched London for Berlin and became a published author
12 clever German idioms that'll make you sound like a pro
23 fascinating facts you never knew about Berlin
9 unmissable events to check out in Germany this October
10 things you never knew about German reunification
10 things you're sure to notice after an Oktoberfest visit
Germany's 10 most Instagram-able places
15 pics that prove Germany is absolutely enchanting in autumn
10 German films you have to watch before you die
6 things about Munich that’ll stay with you forever
10 pieces of German slang you'll never learn in class
Ouch! Naked swimmer hospitalized after angler hooks his penis
Six reasons why Berlin is now known as 'the failed city'
15 tell-tale signs you’ll never quite master German
7 American habits that make Germans very, very uncomfortable
Story of a fugitive cow who outwitted police for weeks before capture
Eleven famous Germans with surnames that'll make your sides split
The best ways to get a visa as an American in Germany
jobs available
Toytown Germany
Germany's English-speaking crowd