14
Jun

The question of who will be allowed to take on debt, and under what conditions, will determine Europe’s future.

By George Friedman

Eurozone countries on June 9 agreed to lend Spain up to 100 billion euros ($125 billion) to stabilize the Spanish banking system. Because the bailout dealt with Spain’s financial sector directly rather than involving the country’s sovereign debt, Madrid did not face the kind of demands for more onerous austerity measures in exchange for the loan that have led to political instability in countries such as Greece.

There are two important aspects to this. First, yet another European financial problem has emerged requiring concerted action. Second, unlike previous incidents, this bailout was not accompanied by much melodrama, infighting or politically destabilizing threats. The Europeans have not solved the underlying problems that have led to these periodic crises, but they have now calibrated their management of the situation to minimize drama and thereby limit political fallout. The Spanish request for help without conditions, and the willingness of the Europeans to provide it, moves the European process to a new level. In a sense, it is a capitulation to the crisis.

This is a shift in the position of Europe’s creditor nations, particularly Germany. Berlin has realized that it has no choice but to fund this and other bailouts. As an export-dependent country, Germany needs the eurozone to be able to buy German products. Moreover, Berlin cannot allow internal political pressures to destabilize the European Union as a whole. For all the German bravado about expelling countries, the preservation and even expansion of the existing system remains a fundamental German interest. The cycle of threats, capitulation by creditors, political unrest and then German accommodation had to be broken. It was not only failing to solve the crisis but also contributing to the eurozone’s instability. In Spain, the Germans shifted their approach, resolving the temporary problem without a fight over more austerity.

The problem with the solution is that it does nothing to deal with the larger dilemma of European sovereignty and debt. Germany is taking responsibility for solving Spain’s banking problem without having any control over the Spanish banking system. If this becomes the norm in Europe, then Germany has moved from the untenable threat of expelling countries to the untenable promise of underwriting them. Europe, in other words, has accommodated itself to the perpetual crises without solving them. Read more…

George Friedman is an American political scientist and author. He is the founder, chief intelligence officer, financial overseer, and CEO of the private intelligence corporation Stratfor.

As published in www.stratfor.com on June 12, 2012.

Comments

Anonymous June 17, 2012 - 9:02 am

good EU PLAN B:

I)Let South be obrero / migrant workers for Euro’s again.
This is how Eu once started.

II) Form the EU of willing high moral of the North.
North is 80% anyway.

Stop the debt AND flow free labour laws and south can pay.
A good economy needs dual labour laws. US/mexican. Chineese rual workers ect. People just forgot how social economies / labor laws really works

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