European leaders are racing to hash out a grand bargain to save the euro and prevent the region’s 21 / 2-year debt crisis from going critical. To grasp the equally grand flaws of the currency union they are trying to fix, look no further than the plight of Flor Martinez, a feisty but fearful Spanish retiree.
Martinez, 67, is counting the days until July 13, the date when her life savings — now locked up in a certificate of deposit — is finally available for withdrawal from her now-wobbly Spanish bank. If her money were stashed, say, in Miami instead of Madrid, Martinez could rest assured: Even if the bank went bust, the Federal Deposit Insurance Corp. in Washington would step in to protect her cash.
But instead, Martinez, a former hotel clerk, lives in the euro zone — a partially integrated group of 17 nations from Germany to Greece, Finland to Spain that share a common currency. And when it comes to banking deposits, it is every nation for itself.
In times of crisis, European leaders are learning, that is a recipe for disaster. Taxpayers in rock-solid Germany, for instance, have yet to make the leap to putting their cash on the line to directly insure depositors in hard-hit Spain or Greece. That has robbed Martinez of the confidence she might otherwise have to keep her money in an ailing Spanish bank, given that the same government expected to insure her deposits-Spain-is currently facing questions about its own creditworthiness. The European Union and Spain appear close to reaching a bailout deal to shore up Spanish banks that could go a good way toward bolstering confidence, turning the tide of an outflow of deposits in recent weeks that has threatened an economy nearly the size of India’s.
But that would not solve the bigger question of whether, in times both better and worse, a euro deposited in any bank in the 17 nations of the euro zone-particularly its weaker economies-would always be insured by the union’s collective might. For Martinez, her sense of insecurity is such that she has firmly decided to withdraw her nest egg no matter what, stuffing her 20,000 euros “under my mattress.” There, she insisted,they would be “safer than in any bank in Spain.”
Her fears underscore what European leaders are now recognizing as but one of several fundamental flaws of the currency union that have only fully revealed themselves in a time of extreme crisis. It has left them scrambling to reach a landmark accord by the end of a two-day summit June 29, achieving something in weeks that their predecessors who designed the euro could not do in decades: force the fiercely independent European nations-some sharing centuries of animosity — to take a far bigger leap toward economic integration.
With this nation that once commanded the world’s mightiest empire now in the firing line of investors, Europe’s time to solve a crisis that has ebbed and flowed since late 2009 is running out. Spanish officials are calling on Europe to act.
“Europe needs to decide where it is going. It needs to say that the euro is an irreversible project and not just a game,” Spain’s Prime Minister Mariano Rajoy told the Senate in Madrid this week.