Yet, recession is wreaking havoc on their ability to face mounting impaired assets. Falling margins falling allow them less ample room to build up provisioning. Should the economy continue its steep downward path, sooner or later banks will face again the grim prospect of potential insolvencies. It may only affect a limited number of middle size entities. But the very prospect they might run into trouble sends shivers down the spine to the sector as a whole.

Rumours on Spanish financial system’s solvency are once again surfacing. English media were, as usual, the forerunners in conveying unpalatable news. But once the German chancellery has voiced its concern on the extent balance sheets might conceal rotten assets, anxiety has once again returned to the markets. The Bank of Spain has promptly reacted by promising a thorough scrutiny on refinanced loans to ensure they are properly covered. No easy task as it involves addressing a huge €200 billion portfolio. It is reckoned that up to 40% might prove to need extra provisioning, a formidable challenge when profitability is performing a free-fall.

Rumours openly point to a further rescue package to save the day. It may take months to come but many are taking for granted that a fresh call for help might be launched at the end of the year, once the new German government takes over. Gossips on a deal providing early green light to such a move openly circulate in Madrid political circles. The Opposition leader’s call for investing the €60 billion rescue fund facility remnant shows he was all too aware that a further salvage operation might be in the pipeline.

Madrid counts on banks being able to tap on such funds, involving no direct public liabilities. But should that prospect materialize, no one believes lenders to bear the brunt of potential insolvencies. You can bet the State will be forced to guarantee any ensuing loss. Indebtedness and deficit might on face value look much abated. But at the end of the day any entity proving unable to pay back would trigger the obligation for Spain to foot the bill.

While discussion on whether banks would enjoy direct financing from the rescue fund seems utterly premature, the distressful prospect they might need extra money weighs high on sentiment. For all their massive restructuring, renewed speculation on their frail stability is bound to nurture further doubts on its overall solvency. The worst omen when you are stuck in a recession.

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Take for instance the US. It stands as a forerunner in enacting stiff rules making life miserable for foreign banks refusing to disclose its nationals’ holdings abroad. The FATCA Act has prompted others to enhance transparency committing themselves to exchange fiscal data with the US Inland Revenue administration. The Caribbean cosy bank secrecy will be dented just as the Swiss one. Further moves are expected from Luxembourg and the Channel Islands. You might rush in concluding that off-shore banking appears to be doomed in the coming years.

Yet, disclosing the accounts will not change the zero-rate taxes enjoyed by those lucky enough to anchor their business in these territories with the helping hand of their home Inland Revenue. The US one is casting a most generous appraisal on its own big companies.

Google has moved all its intangible assets to its Bermuda-based branch, thus significantly reducing its fiscal burden. Amazon applies a similar off-shore scheme for its core business. Apple’s recent 17 billion pay-out is to be financed by borrowing in the home market, thus avoiding the nagging prospect of paying taxes. Remunerating shareholders through increased liabilities may run contrary to sound accounting. But it does make sense when you hoard abroad up to 145 billion in tax-free liquid holdings. These examples show that when it comes to big money, the US administration pays lip service to its tax avoidance much heralded commitment.

The forthcoming G-8 is planning to unveil sweeping moves to curtail bank secrecy. But so long fiscal havens apply close to zero taxation, companies engaged in cross-border business will continue to profit from these favourable arrangements.

The US multinationals are by no means the only ones taking benefitting from a fiscal benign neglect. Just take a look at the IBEX-listed firms. On average they only pay a meagre 11% corporate tax. Deductions and credits add up to a sizeable amount. But drifting international operations through tax havens is behind their ability to escape from being charged the standard 30% tax rate. The excuse for allowing such massive elusion is based on the dubious need to ensure an even playing field with foreign competitors. No one seems to care that indulging is such loose practices entails distortions for home-based SME companies and higher than warranted fiscal pressure on ordinary citizens.

The crackdown on tax fraud will not bloat revenues as many in Europe seem to expect. Only tougher corporate fiscal rules enacted on a global basis could switch the current incentive to evade taxes. This prospect proving rather unlikely to materialize, less equipped taxpayers are bound to foot the bill as they have always done.

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Those betting for a shift in German policies after the general elections are likely to be highly disappointed. The new Chancellor will not move a single inch from her well entrenched positions. Budget stability will remain the cornerstone of economic policy. It has taken Berlin more than a decade to enshrine such a principle in the Treaty and it is not ready to dump it so easily. If only to  dispel any doubt on the very nature of the Euro zone. It embeds the key notion that monetary policy can only deliver non-inflationary conditions should all governments commit themselves to preserve a zero-deficit stance at all circumstances. Thus we are up to be lectured over the next years on the merits of maintaining tight budgets regardless of the casualties in terms of unemployment or utter poverty.

Those longing for a growth strategy to invigorate their ailing economies delude themselves in thinking that Ms Merkel might prove to be more tractable once she is re-elected. All main parties in Germany share the deep-rooted view that footing the bill for their neighbours’ profligacy or poor economic performance stands as a red line never to be crossed.

Those nurturing hopes financial solidarity will mend their woes will be shocked by the stubborn refusal on the German side to endorse mutualisation of liabilities. Instead they will rewarded by the consolation prize that future disarrays might be financed on a common basis. Past contingencies, both under the Banking Union and other potential venues, would not receive any helping hand.

Those ready to wait till the German elections for showing up their shopping list lose their time. Nothing will change in the aftermath of such a date. They might as well start up pressing for a growth model to be implemented the sooner the best. Their frail situation shatters all hopes they might countervail German supremacy. For all the talks of a combined front by the main Southern economies, Hollande only aims at getting extra time to reduce its budget deficit, Letta faces a fierce struggle to ensure his Cabinet survival and Rajoy proves too cautious to risk an open row with Ms Merkel. Needless to say she holds all the winning cards in this contest.

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Structural reform is the new gadget intended to shape a more friendly policy stance. For all the need to enhance competitiveness and axe market rigidities all year round, this rather loose objective merely stands as a good excuse for refraining from fixing precise targets. Sure enough, recommendations will be tabled for more flexible labour market arrangements, further liberalisation and other good intentioned goals, few governments will be able or willing to fully implement. Daily wrestling with budget imbalances will be shelved and a more placid rest in limbo surroundings will take over.

Does such a radical switch stem from a sincere sense of guilt at the appalling performance the current discipline has delivered? There are good reasons to doubt repentance being the driving force in this policy U-turn. The prospect France, not to mention Italy or Spain, will flatly fail to meet their targets stands as a more plausible explanation. The current recession is derailing plans to enact budget stability as the Euro cornerstone, as targets only make sense when they can be possibly reached. Otherwise, they have the potential to severely undermine confidence, plunging once again vulnerable economies into utter disarray.

No one seems to care about the mounting growth gap likely to transform Europe into a lame duck in terms of economic performance. Don’t count on a few reforms for addressing the deeply entrenched crisis. So long as enterprises and citizens undertake a vast balance adjustment nothing will prevent the current protraction. But adding a vicious circle of depressed demand conditions only contributes to make thing worse.

The Euro asymmetry is to blame for enforcing fiscal neutrality while tying up the monetary policy to inflation curbing regardless of the economic outlook. The ECB attempts to explore new territories have not gone far away. Unless such blatant shortcomings in global demand management are swiftly redressed we will lack stamina to escape from a zero-growth scenario. Forcing governments to preserve balanced budgets and preventing the central bank from tackling recession in a resolute way, will lead Europe into sheer irrelevance even if it travels for the time being on a first-class ticket.

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If we were confronted with a short-lived crisis, indulging in hefty public imbalances might help to bridge the expenditure gap. The ensuing pick-up would ensure a quick reduction of the debt levels dispelling any doubt on public finances’ sustainability. But mending the shortcomings and excesses built up during the boom years, is likely to become a long term endeavour. Thus, big deficits largely prove of limited help in feeding an up-front recovery.

For all the much heralded austerity, delivery has proved in most cases less severe than what most people tend to think. Cuts and tax rises cannot be considered by all means as negligible. Bur their real impact on disposable incomes does amount to a rather modest share, on average. Daunting unemployment in many vulnerable economies is more closely linked to the severe drop in production than to policy-making. Additional doses of flexibility in the labour market undoubtedly lead to accelerate lay-offs, as the Spanish experience shows. But the root problem lies in the grim outlook most enterprises face.

By imposing tough budgetary targets,Europe is contributing to transform public accounts rebalancing into a loathsome exercise. As the medicine fails to bring about any tangible improvement, austerity is mercilessly pilloried as the main culprit for the current disarray. In fact, deficits exert far less influence than Brussels bureaucrats believe. The deep recession is the one to blame and no matter the degree of public imbalances, dim perspectives are likely to remain hardly unchanged. The drive for balance largely stems from the acute shortcomings the Euro zone is confronted with, laden with asymmetries and a subdued solidarity incompatible with the smooth running of an integrated economic area.

Only a forceful push by the monetary policy, the only common one Europe has at hand, can save the day and revert the current trend.

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