This paragraph is really making the rounds.”I need to make clear what the ESM can do: the ESM is able–if one were to decide ever on such an instrument–to take an equity share in a bank. But only against full guarantee by the sovereign concerned… What you have is that it cuts out the effect of that loan on the debt-to-GDP ratio of the sovereign. Does it still remain the risk of the sovereign or [does it go to] the ESM? It remains the risk of the sovereign.”
That quote is attributed to an anonymous senior European official, and it was told to star reporter Matina Stevis at The Wall Street Journal.
Both Edward Hugh at Economonitor and economist Karl Whelan writing at Forbes picked up on that paragraph and understood that it signified a devastating truth: The entire EU Summit was basically a joke.
While in public all the talk was about how Spanish banks would get a bailout without it burdening the government debt, this anonymous senior European official is saying that the bailout to the banks really is just a loan to the government in disguise because “it remains the risk of the sovereign.”
So if you want to understand why things have gone kaput so fast, this is about half of the problem. Even the things said in public can’t be trusted. And then when politicians get home from these summits, and they have to pander to the voters and so forth, the agreements deteriorate even more.