Wall Street Journal
September 30, 2012
For weeks, the eyes of the world have been on Spain. Ever since the European Central Bank announced its Outright Market Transactions program, Madrid has kept the markets guessing over whether it will request aid from the euro zone's bailout funds, paving the way for the ECB to start buying its bonds. The market suspects an ill-tempered standoff between a stubborn Spanish government and its euro-zone partners. Anxiety last week spilled over into the market with Spanish bond yields rising sharply and stock markets selling off. But the reality is more complex. At the heart of the Spanish impasse lies a wider political dispute that goes to the heart of the euro crisis—and the main protagonists in this debate are Germany and Italy. How this disagreement is resolved will shape the future of the single currency.
From Berlin's perspective, the answer is clear: The German government believes the OMT should only be a last resort; Spain should avoid asking for ECB support unless it becomes absolutely necessary. That's partly because Berlin would have to submit any Spanish request for aid to a potentially troublesome vote of the Bundestag; it is also because any government bond-buying by the ECB will further antagonize the Bundesbank, fanning German opposition to the OMT; and partly because Berlin fears that no sooner does Spain request aid than the market will turn its attention to other countries including Italy, fueling the sense of crisis in the euro zone. If ECB support for Spain does become necessary, strict conditions will be required to ease the domestic political pressure on Berlin.
But viewed through Italian eyes, the situation looks very different.
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