Spain’s Contribution To European Integration: Eurobonds Out, Deposit Guarantee Fund At Different Speeds In

The Spanish government leaves the idea of eurobondsSpanish Ministry of Economy Román Escolano

The European Parliament last week backed eurobonds (by 515 votes in favor, 125 against and 52 abstentions) as a medium-term solution for stabilising the Eurozone. It also called for other instruments to be put into place to solve the euro’s problems in the short-term.

The decision, which acknowledges that before the eurobonds are introduced “the questions of moral risk and joint responsibility” need to be resolved, did not go down well with the Spanish government. It has given Brussels its own proposal, snubbing in this way the reforms which the countries in the south were seeking to strengthen the euro. In an obvious attempt not to slight Germany, new Economy Minister, Román Escolano’s team states in the document that eurobonds are not “strictly necessary” to “guarantee fiscal support for banking union” and therefore “are not the priority.” Instead of insisting on the risks being shared out, the document focuses on cutting these, in line with what Germany wants. In fact, the main opposition socialist party has reprimanded it for leaving Spain’s economy and its citizens in a “situation of risk” in the event of future crises “in favour of countries like Germany.

Countering these comments, Román Escolano clarified that the Spanish government is in “no way” abandoning the idea of eurobonds. On the contrary the document sent to Brussels “complements” the steps to be taken in the run up to June. He also stressed the government’s “big ambition” to complete banking union that same month, as without that agreement “it won’t be possible” to advance to the next stages.

Furthermore, what the Economy ministry has done is propose to Brussels that countries still negotiating capital can access the European Deposit Guarantee Fund at different speeds. In other words, in a staggered fashion, once they have restructured their financial system and reduced their level of risks to those which the banks are exposed.

The document also proposes that a mechanism with “capacity for stabilisation” should be put in place at a community level, complementing the specific instruments for each country. “The automatic national stabilisers should continue to be the first line of defence, but, in cases of serious crises, they would be complemented with capacity for stabilisation at an EMU level,” according to the text.

Specifically, the Economy ministry is proposing “a two-pronged focus” for this stabilisation instrument. In the first place, an insurance mechanism with contributions from the member states in times of economic boom to make payments to countries affected by a “severe shock.” And in second place, a loan mechanism with the participation of the European Investment Bank (EIB) which would serve to cover the deficit of productive investments in the Eurozone, especially in the private sector, in cases of “serious recessions.”