“Souboj v EU vyhrál jih”. In this way the Czech daily Právo commented the results of the euro zone summit on 29th June. This view was shared by many other commentators and it had been conveyed by the Italian and Spanish governments. However, these conclusions miss the point. If there has been any victor, it is the banks, not the European south.

The right-wing governments of Italy and Spain lobbied hard before and during the summit in order to get easier access to the so-called rescue funds EFSF and ESM. Both face soaring interest rates for the public debt because their crisis is perceived more acutely by international banks. In the Spanish banking sector, the full extent of repercussions of the exploding real estate sector for the Spanish banks is coming more and more into the open. Stabilising the banking sector proves to be very costly. The bad economic situation exacerbates the problems of public debt and negatively impacts on the state finances. Some of the provincial and local governments face very serious budgetary problems. The Italian economic predicament is of a lesser nature. However, strong austerity measures have deeply dented the popularity of the technocratic government of Mario Monti who owes his office not to elections, but to strong pressures of the core EU governments. He is in desperate need to improve his image.

The first point for which Monti lobbied was easier access to EFSF/ESM funding. The summit affirmed that EFSF/ESM instruments are to be utilised in a “flexible and efficient manner”. This hint to flexibility has been interpreted as easier access to EFSF/ESM funding particularly to Italy though the country was not mentioned in the final declaration. However, the limits of flexibility were defined quite clearly. The countries which want to use the rescue funds in a flexible way have to satisfy both the so-called country specific recommendations as well as the criteria of the Stability and Growth Pact and other macro-economic supervisory mechanisms. Thus, the conditionality will be very tight though, probably, less visible and less humiliating than the Memoranda that were signed by EU and IMF with Greece, Ireland and Portugal. The real scope of this change is limited. However, even this limited flexibility has been questioned shortly after the summit by the Finnish government. The Dutch government reportedly has reservations as well. It might prove difficult to implement the decision due to the immediately resurfacing rift between core and peripheral countries in the euro zone.

The second point was mainly raised by the Spanish government. It wants directs recapitalisation of ailing banks by EFSF/ESM. The Irish government which faces a de facto bankrupt banking sector has similar inclinations. The Irish state has already injected 68 bn euros into the ailing financial sector. In the long run, the bill for the Anglo Irish bank alone might add up to 47 bn euros. Both governments do not want these costs to be fully reflected in the budgets. The summit agreed that, in the future, ESM might directly recapitalise banks. However, this is only to happen after an “effective single supervisory mechanism” for the banking sector has been established. The contours of such a mechanism have not yet been clarified. This might be a long way to go. In addition, the access to such funds would be subject to conditions.

It is the banks rather than the peripheral euro zone governments which have reason to rejoice about this result of the summit. It opens the way to a mode of bailing out banks which is even more opaque and even less democratically controlled than the present recapitalisations by the nation states. It would put even more obstacles to making further stabilising measures contingent on placing the banks concerned under public ownership and control. The ESM is a particularly unsuited mechanism for restructuring the financial sector. The issue of clearly overextended banking sectors is clearly not resolved by the recapitalisation on ESM credit. The problems are only postponed.

In addition, there are legal obstacles to redefining the mandate of the ESM. The redefinition of the ESM role directly coincided with the final phase of the ratification process in Germany. Though the scope of the ESM had already been politically modified, the German parliament passed the old conception of the ESM as if nothing had happened. Even MPs of the ruling coalition expressed unease about this. Directly after the German Bundestag had voted for the German participation in ESM and the so-called fiscal compact, the parliamentary faction of Die Linke, the CSU MP Peter Gauweiler and several citizens’ initiatives instituted proceedings against these decisions with the Constititutional Court. These proceedings emphasize especially the undue reduction of the parliament’s budgetary powers. The Constitutional Court asked the German President not to sign the respective laws until it will have given its legal opinion on these issues. This shows that these treaties raise very fundamental constitutional issues.

The contempt for democratic procedures is demonstrated by (politically) changing the ESM mandate even during the ratification process. The same disdain for parliamentarism is demonstrated by another decision of the EU summit. The European Parliament is to be completely sidelined in the process of drafting a road map for changes in the design of the monetary union. Thus, the loser of the summit can be identified as well: It is again parliamentary democracy.