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Published on October 9th, 2012 | by Katharina Obermeier
Image © [caption id="" align="alignnone" width="566"] Spanish Prime Minister Mariano Rajoy and German Chancellor Angela Merkel © by European People's Party - EPP[/caption]   Sometimes, following international politics can feel like reading up on the latest celebrity gossip. Rumours make the rounds, articles quote unidentified sources, and commenter's question the validity of official statements. Eurozone politics are not immune to the rumour mill, and lately the spotlight has been  on Spain, one of the members of the euro area which  has been hit hardest by the crisis. Over the summer, Spain received a bail-out to prop up its failing banking system, and economists have predicted for a while now that it will soon be forced to seek a full bail-out in order to meet its expenses. However, the Spanish government under Prime Minister Mariano Rajoy has always denied these claims. Recently, the European press started reporting rumours that the Spanish government was finally prepared to request a bail-out from its fellow eurozone members, but is being deterred from doing so by Germany’s insistence that it should wait. Spanish and German officials have emphatically denied these reports, arguing that Spain is not in need of a full bail-out and is taking the right steps to emerge from the crisis. If we assume that the reports are true, this raises  important questions about power dynamics in the eurozone and the EU. If Spain is risking a further deterioration of its economic standing in order to gain Germany’s approval and assistance, then this is an example of the very real limitations to the egalitarian principles on which the EU rests. Much of the response to the eurozone crisis has taken the form of intergovernmental summits, unlike most EU legislation which is approved by the European Parliament and a qualified majority in the Council. So while general EU legislation is determined by parties and alliances, the fundamental decisions regarding the eurozone are made by national governments in negotiations that are very standard for international politics. In this type of setting, it is easy for the economically weaker country with a cash problem to be held hostage by the demands of the “paymaster”. The narrative is not always this simple, though. Spanish Prime Minister has been playing a waiting game with his electorate on the one hand and his fellow eurozone member states on the other, insisting that the country is in better economic shape than it is and only slowly implementing reforms. The Spanish people are already incensed over the budget-cutting measures their government has carried out so far, and no politician wants to be known as the one who asks for a deeply unpopular bail-out. On the other hand, requesting assistance from the EU could bring about a very positive development for the country, as the European Central Bank has indicated that it would buy troubled eurozone countries’ government bonds if they sign up for a bail-out. This would significantly lower borrowing costs for the countries involved, increasing confidence in their economies and making it easier for them to deal with credit crunches. This heightens the stakes for the Spanish government considerably. If the rumours are false, and Spain is not contemplating asking for assistance, this is likely due to the government’s wish to avoid further negative reactions from its electorate. Germany’s role in this affair is also complicated. While the government may well be in favour of bailing Spain out in the interests of preserving the eurozone as a whole, this is a difficult argument to make to its own electorate and the German central bank. According to the rumours, the German government wants to buy more time in order to prevent a revolt among its own parliamentarians, whose support is ultimately necessary in order to increase the German contribution to eurozone bail-out funds. Rather than a “hostage” situation, this may just be concern about prudent timing on the German side. In the end, it is impossible to say at this point whether there is any truth to the reports, but they do a good job of highlighting the intricacies of eurozone politics, where domestic issues can be just as important as power relations.

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The Elusive Spanish Bail-out

Spanish Prime Minister Mariano Rajoy and German Chancellor Angela Merkel © by European People’s Party – EPP

 

Sometimes, following international politics can feel like reading up on the latest celebrity gossip. Rumours make the rounds, articles quote unidentified sources, and commenter’s question the validity of official statements. Eurozone politics are not immune to the rumour mill, and lately the spotlight has been  on Spain, one of the members of the euro area which  has been hit hardest by the crisis. Over the summer, Spain received a bail-out to prop up its failing banking system, and economists have predicted for a while now that it will soon be forced to seek a full bail-out in order to meet its expenses. However, the Spanish government under Prime Minister Mariano Rajoy has always denied these claims. Recently, the European press started reporting rumours that the Spanish government was finally prepared to request a bail-out from its fellow eurozone members, but is being deterred from doing so by Germany’s insistence that it should wait. Spanish and German officials have emphatically denied these reports, arguing that Spain is not in need of a full bail-out and is taking the right steps to emerge from the crisis.

If we assume that the reports are true, this raises  important questions about power dynamics in the eurozone and the EU. If Spain is risking a further deterioration of its economic standing in order to gain Germany’s approval and assistance, then this is an example of the very real limitations to the egalitarian principles on which the EU rests. Much of the response to the eurozone crisis has taken the form of intergovernmental summits, unlike most EU legislation which is approved by the European Parliament and a qualified majority in the Council. So while general EU legislation is determined by parties and alliances, the fundamental decisions regarding the eurozone are made by national governments in negotiations that are very standard for international politics. In this type of setting, it is easy for the economically weaker country with a cash problem to be held hostage by the demands of the “paymaster”.

The narrative is not always this simple, though. Spanish Prime Minister has been playing a waiting game with his electorate on the one hand and his fellow eurozone member states on the other, insisting that the country is in better economic shape than it is and only slowly implementing reforms. The Spanish people are already incensed over the budget-cutting measures their government has carried out so far, and no politician wants to be known as the one who asks for a deeply unpopular bail-out. On the other hand, requesting assistance from the EU could bring about a very positive development for the country, as the European Central Bank has indicated that it would buy troubled eurozone countries’ government bonds if they sign up for a bail-out. This would significantly lower borrowing costs for the countries involved, increasing confidence in their economies and making it easier for them to deal with credit crunches. This heightens the stakes for the Spanish government considerably. If the rumours are false, and Spain is not contemplating asking for assistance, this is likely due to the government’s wish to avoid further negative reactions from its electorate.

Germany’s role in this affair is also complicated. While the government may well be in favour of bailing Spain out in the interests of preserving the eurozone as a whole, this is a difficult argument to make to its own electorate and the German central bank. According to the rumours, the German government wants to buy more time in order to prevent a revolt among its own parliamentarians, whose support is ultimately necessary in order to increase the German contribution to eurozone bail-out funds. Rather than a “hostage” situation, this may just be concern about prudent timing on the German side. In the end, it is impossible to say at this point whether there is any truth to the reports, but they do a good job of highlighting the intricacies of eurozone politics, where domestic issues can be just as important as power relations.

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About the Author

Katharina Obermeier

Katharina considers herself a German-Canadian hybrid. She grew up in Germany and completed her BA in International Relations at the University of British Columbia in Vancouver, Canada. Politics, especially in relation to concepts of nationality, have always fascinated her, and she is particularly interested in international political economy. During her studies, she was an avid participant at Model United Nations conferences, and helped welcome international exchange students to her university. She is currently completing an internship at a Brussels-based trade association and hopes to work in European affairs in the future. In her political writing, Katharina marries social democratic principles with a keen interest in the European Union and its implications for European politics and identity. She writes to counteract simplistic ideas about politics and economics, continuously attempting to expose the nuances and complexities involved in these subjects.



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