Marking time

The suggestion of combined action by the European Central Bank (ECB) and the European rescue fund, to purchase debt from the countries in financial difficulties, and the announcement by Mario Draghi — later backed by Germany and France — that the ECB will do everything necessary to sustain the euro, is cooling the temperature of the debt and securities markets.

The debt differentials are falling, stock markets are recovering, and investors seem convinced that this week the European monetary and financial authorities will come up with a plan for action in the primary and secondary debt markets.

There are well-grounded hopes that Brussels, Berlin and Frankfurt have at last understood the difference between the urgencies imposed by the survival of the single currency, and the need to equip Europe with a homogeneous banking and fiscal structure, capable of coping with a complex crisis — but its creation has been too slow to deactivate the present alarms.

The decisive day will probably be Thursday: a new auction of Spanish debt — the results of which will serve to better gauge to what extent Draghi’s magic words, and the Germans’ commitment, have convinced the markets — will coincide with a new meeting of the ECB Council.

From this council some details are expected on the actions by the bank and the fund, and (why not?) an assurance that the action will be quick — given that, according to Jean-Claude Juncker, president of the Eurogroup, there is no longer any time left for reflection. Should this optimal scenario (put off until almost the last moment) take place, and Italy and Spain obtain a commitment to act quickly, it will begin to loosen the knot of asphyxiating refinancing costs that has had both countries in its grip.

However, actions such as those now proposed require a sure, precise political and legal hand to tie up the loose ends. They demand, for example, that the fund’s engagement be backed limitlessly by the ECB; and complementary clarifications as to whether such action will modify the bank bailout memorandum and, if so, what the required changes will be. This all calls for political explanations to be offered to the Spanish public.

Strict conditions

Any action by the rescue fund, in its present or in its altered form, will take place at the request of the government concerned: in this case Spain, should the case arise. The request implies strict macroeconomic conditions, broader and more general than those imposed in exchange for a bank bailout; thus an intervention by the fund to purchase debt would amount to a sort of tutelage of the Spanish economy.

It would be a qualified or soft intervention, as it might be called, since Spanish Treasury bonds would not be withdrawn from the market, and Spain would not be in the same situation as Greece, Ireland or Portugal found themselves in. But the country’s economic policy would be remote-controlled, and its degree of execution closely supervised. This is what urgently needs to be explained.