Euro Zone Discord on Banks Threatens Spain

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The New York Times
Monday, September 17, 2012

Euro Zone Discord on Banks Threatens Spain

By JAMES KANTER

NICOSIA, Cyprus — Beleaguered countries like Spain have been counting on a quick and neat way to fix their banks without taking on more crippling debt.

But a weekend meeting here of European Union finance ministers that was intended to lay the groundwork for that plan revealed the continued difficulty of reaching consensus among the 27 member states — even on measures to which they have already agreed in principle.

The disagreements also left a pressing question: How long can Spain afford to go it alone without outside financial help?

Spanish banks need tens of billions of euros that the government cannot afford to lend. And many economists and analysts say it is only a matter of time before Spain’s debt-plagued central government itself may need a helping hand.

It was on the banking front that the euro zone’s discord was most evident over the weekend.

The Spanish finance minister, with French and Italian backing, called for a quick timetable on measures that would allow a bank rescue program for Spain to proceed under terms favored by the government in Madrid. But ministers from Germany and elsewhere essentially said, “Not so fast.”

Even as that dispute played out here, on the other edge of the euro zone tens of thousands of demonstrators in Spain and Portugal continued to march in the streets. They were protesting government-imposed austerity measures that had taken a toll on the economies of both countries.

In Portugal, the government is struggling to narrow its deficit to meet the terms of its international bailout. In Spain, Prime Minister Mariano Rajoy is trying to cope with mounting debt problems and a recession-racked economy.

Time would seem not to be on his side — despite the assessment here by Austria’s finance minister, Maria Fekter, that “Europe is stabilized.”

Although the European Central Bank’s recent announcement of a program for buying the government bonds of troubled countries brought some calm to the euro zone, it was an even more recent European policy announcement that was the subject of discord among the finance ministers meeting here.

That was the proposal last Wednesday from the European Commission to create a single regulator, working under the central bank, to oversee the euro zone’s 6,000 banks. The commission proposed setting this process in motion by the beginning of next year and having the new system fully in place by January 2014.

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