Eurozone slips into transfer union

In the multi-billion-euro bailout of Spain's debt-ridden banks, a key principle of eurozone economic policy has been sacrificed. As the so-called "no-bailout clause" was rendered obsolete, new risks will emerge. After the Spanish banking rescue over the weekend, financial markets on Monday rebounded from last week's losses with considerable gains for European stocks and the single currency, the euro. "Europe has shown to be capable of acting," Michael Hüther, Director of the Cologne Institute for Economic Research (IW) told DW, adding that the Spanish crisis deepened on the back of "fears for the eurozone rather than Spain's debt problems." "Investors are reluctant to buy Spanish government bonds because they are no longer sure to get their money back in euros," he said. However, uncertainty about the details of the Spanish banking rescue, worth 100 billion euros ($125 billion), has led to warnings that the rally could be short-lived. According to Commerzbank Chief Economist Jörg Krämer, stock markets had experienced "brief recoveries" in the wake of bailouts, granted to Ireland and Portugal, when tensions eased. "This will last for a few days, but won't be sustainable in the longer term because Spain's main problems haven't been resolved," he told DW. At the core of Spain's fiscal woes is its ailing banking sector, which sits on mountains of bad mortgage loans after the 2008 collapse of the real estate market. In addition, the Spanish government is lacking the funds necessary to shore up its banks as state revenue is falling due to a deepening economic slump with unemployment at a record high. Contrary to popular claims that government austerity worsened the recession in Spain, Jörg Krämer told DW that the country's fiscal troubles weren't the result of "public belt-tightening." "Spain didn't save at all in the first three months because there were upcoming elections in its regions," he said, which was the "the primary reason" why Spain had failed to reduce its deficit, subsequently "losing the confidence of investors. Despite failed economic and fiscal policies, Madrid needn't fear the type of austerity imposed by international lenders on debt-ridden Greece, Ireland and Portugal. While the EU Commission, the International Monetary Fund (IMF), and the European Central Bank (ECB) - known as the "troika" - have a strong say in running the finances of the three eurozone countries, in Spain they are only granted oversight of the banking sector reform. As Spain was enjoying lower borrowing costs as a result of the banking rescue, another step towards a "transfer union" had been made in the currency area, Jörg Krämer said. "Step by step we are moving closer to a transfer and liability union," he told DW, meaning that stronger eurozone members are forced accept greater responsibility for weaker partners, including financial transfers to keep them solvent However, "collectivizing" the debts of crisis-hit eurozone members, wouldn't automatically bring them back on the "path towards growth," said Krämer, adding that the bailouts shouldn't be described as programs for rescuing countries. "Their rescue will only lie in the acceptance of reality, which includes changes to their economic policies, as well as the full implementation of austerity and reform programs," he said.