The headlines this morning are all about the Spanish banking system rescue, with front-page, top-of-the-fold articles in the Financial Times, the Wall Street Journal, and the New York Times.
No question, this is big news. From my perspective, there are a couple of key points that are worth noting:
- The EU stepped up with more money than was needed and did so before the situation actually became a full-blown crisis. Unlike in previous situations, the EU is actually starting to move a bit ahead of the curve. The region’s leaders certainly could have been more responsive—and their current proactive stance is probably being driven by fears of what may happen in the Greek elections next week—but the move was well done nonetheless.
- This does not fully solve the Spanish problem, however. Although the rescue plan will help stabilize the banking system, the Spanish governmental deficit and debt situations are still unresolved. And because Spain is the fourth-largest economy in the eurozone, a full bailout would stretch the available resources—quite possibly to the breaking point. The problem of Spain is not going away any more than the problem of Greece did.
- This solution may create further problems, as Ireland, for example, compares the Spanish deal with its own, and Greece looks to a Spanish bailout as justification for rejecting its existing deal.
As good as the news is from a European perspective, this deal just buys more time. One current problem has been resolved, but a host of others will be along shortly.
The other part of today’s news that I found particularly interesting—and more encouraging in the long term—appeared in two articles in the Financial Times. The first article talked about how Wall Street is now lobbying against the fiscal cliff that’s approaching at the end of this year. The fiscal cliff is the pending trifecta of the expiration of the Bush era tax cuts, the sequestration of spending cuts, and the hitting of the federal debt ceiling, all of which will occur at year-end.
The fact that a major financial newspaper is now reporting Wall Street lobbying action against the fiscal cliff is a good sign. Money talks, especially in politics, and if the money is saying that the issue must be resolved before it becomes a crisis, then such a resolution becomes much more likely.
The other article was an op-ed prepared by former senior members of the U.S. House of Representatives, Dennis Hastert, Republican, and Dick Gephart, Democrat. The piece laid out the case for a bipartisan effort to create a solution that would work both politically and economically. The grownups in both parties finally get it and are starting to move. The conjunction of money and politics here suggests that Churchill was right—that, in the end, the Americans will do the right thing after exhausting all the alternatives. This, coupled with the fact that the EU is starting to get a it ahead of the curve, makes me think that maybe we are finally at the end of the beginning.