European officials are set to meet this week in a series of meetings in order to get a hold of the Spanish component of the eurozone crisis as riots intensify in the country and there is a downward pressure on the currency as well. This situation is mimicking the circumstances that were seen in Greece a few months ago. There seems to be a lethargic response to the European debt crisis which has now been dragging on for three years. The meeting is to be held between the European finance ministers on Monday in Luxembourg which covers the financial officials meeting together while the heads of the state are set to meet on the 10th of October.
German Chancellor is ready to go to Greece today while Mariano Rajoy, Spanish Prime Minister, and Francois Hollande, French President, are set to meet in a separate meeting. Sceptical already have given up on the Spanish problem saying that the officials have waited too long to request aid from Europe and that any deal struck now would be patched together rather than fully thought and sorted out. The background already looks bleak where Mario Draghi, President of European Central Bank, had proposed a positive solution to the crisis a month ago. The plan was to buy bank bonds through the ECB injecting money into the markets and which received overwhelming positive response from all segments.
However, the plan still has to be accepted by the governments and the current round of talks and meeting is to agree on the terms and conditions of the plan. These meetings are expected to go through this week and bleed into the next week until the 19th of October. The capital markets have given a resounding thumbs up to the bond issue where bond yields have risen in the past few weeks and speculation drove the prices higher based on Draghi’s comments and the round of meetings to come. The point that counts though is still that Spain has yet to sign off on the deal and considering it’s an election year, the ruling party wants to vet the deal thoroughly before taking any consolidated position.
Draghi himself has expressed his powerlessness over the mechanism of the European Union by saying that the necessary steps would be taken by the ECB depending on the decision of the governments themselves. The measure which has been termed as Outright Monetary Transactions, OMT, involves bond purchase on the secondary market in order to provide liquidity to the sovereign bond markets has been put on the table and now its fate lies within the hands of the governments. The ECB fund which has been set up requires conditions to be met before it is disposed to the countries like certain spending cuts have to be made in order to show motive to control debt in the future.
This is where the rioting plays in with 20% unemployment and fear of future entitlements being taken away, people have taken to the streets to protest any cutbacks. The quandary that the state governments find itself in becomes more of a dilemma of being stuck between a rock and a hard place. In addition to that, the recapitalization of banks is also to take place to lend money to private banks so they can lend again to consumers however this will eliminate the distinction between private and sovereign debt.
The slow action that has taken place till now in this crisis can be clearly seen by the fact that it has been three years since it started and till now there isn’t a solution put in place to counter the situation. This crisis has many shades ranging from the financial to the economic to even political. State leaders who face the crisis have to face blow back from their own citizens over proposed austerity measures to be put in place in order to comply with the ESM (European Stability Mechanism) while the leaders of stronger countries have to pay the tab of the weaker economies and force their citizens to foot the bill while trying to maintain consensus among them or to see Greece exit the euro zone and subsequent end of the euro is a currency and European union as a viable economic bloc.