Beware of Spanish practices when a euro deal is signed

By Andrew Alexander, Daily Mail

There’s a catch.

There is always a catch when eurozone leaders say that they have finally — finally, finally — settled the Greek debt problem.

Last Thursday, the zone’s leaders announced that they had at last settled the terms for the second Greek bail-out.

The next meeting, due today would just be a formality, just to sign the cheque and, no doubt, drink a glass of champagne.

After all, they had all agreed on ‘iron’ rules to hold members countries to their debt targets in future.

The conference over, Spain’s Premier Mariano Rajoy announced that the Budget deficit this year would be 5.8 per cent, not 4.4 per cent as assumed.

But don’t worry, next year will be all the way down to 3 per cent, he added.

But that is only catch No 1.

The private bondholders, banks, pension funds etc, have a form of partial insurance against Greece’s defaulting, called credit swaps.

The international committee which supervises these matters announced that Greece’s proposed cut in its bonds value by about 75 per cent, would not technically, in their opinion, following consultation about Greek law, actually be a default.

This would be like finding your insurers declining to pay up if your house burned down.

In the face of much agitation, the committee said it would no doubt consider the matter further this week.

For his part, the Greek finance minister added that the discussions about the scale of the loss were over.

The bond holders must like it or lump it.

For what it’s worth, the Portuguese Premier Pedro Coelho hastily announced after Spain’s bombshell that his country was sticking to the official target, unlike Madrid. Perhaps.

But his country stands to be swept aside in the alarm that would follow in the wake of the confusion after an untidy official Greek default.

But we should pay careful attention to the extraordinary behaviour of Spain.

Signing a treaty with so-called iron restraints and throwing it aside within hours suggests that Spain cannot be trusted to stick by the rules.

And if Spain, why not Italy ?

Ominously, Snr Rajoy also insisted that the deficit was a matter for ‘Spain alone’.

This is a declaration of national sovereignty which others may wish to follow.

It has grim implications for the survival of the eurozone, which everyone should agree by now has been a ghastly and avoidable mistake — as some of us said at the time.