If you’d asked me a few months back, I’d have said the problems in the Eurozone looked like they’d quietened down nicely.
Yes, some painful targets were being put in place to rein in spending deficits and pay back the absolute mountains of debt that Greece, Spain, Italy and Portugal racked up in the years of plenty, but provided they swallowed this deeply unpleasant hangover cure things wouldn’t get worse.
More importantly, a lull in the crisis would give the European economy time to get back on an even keel and start generating some growth.
Well, they’ve now spat the cure back out again. Or, to mix metaphors, they want to have their cake and eat it.
Last week, I watched a marvellous TV documentary about the eurozone crisis in Greece presented by former Tory minister Michael Portillo. Greece, you’ll remember, is the country where the government lied about its budget deficit to gain entry to the euro, where tax avoidance is a national sport, and where government borrowed squillions to host the 2004 Olympics, building a series of statement facilities which now lie unused (and unpaid for).
Portillo spoke to a handful of ordinary Greeks and asked them whether it might not be better to accept they had been living a lie, realise they could never pay back this towering debt and leave the euro. To a man, they said no. And anyway it was the government’s fault, not theirs. (To be fair, a similar attitude still surfaces here: we blame government for allowing the banking crash, and banks for irresponsible lending, we blame government now for cutbacks…even though it was us who borrowed all that money. But at least we’ve swallowed our medicine…so far).
Even in France – a big economy which lags Germany because of overblown public spending – voters decided they didn’t want austerity. With great respect to La France, they haven’t even sniffed it yet.
The European Union only has itself to blame here. It should never have allowed Greece into the euro when, deep down, everybody in Berlin and Brussels knew Athens’ accounting was just another Greek myth.
And the fundamental flaw in the whole euro project was that it assumed countries were willing to sacrifice a central part of their sovereignty – financial independence – for the greater good of Europe.
The politicians might have been, but the results of various elections in Greece, France and Italy have demonstrated that, when it comes to the crunch at least, voters are not.
The politicians made this assumption partly because they thought the Eurozone would always deliver reasonable growth and because the impact of a one-size-fits-all interest rate on a financial crisis in a range of economies had never been crash-tested.
It has now. And it looks to have failed.
May be it would have been different if voters across Europe weren’t feeling the pinch. But this isn’t the first time that European leaders have been caught running well ahead of the people they represent with hugely ambitious policies no one had voted on.
There is no clean and easy way out of this. Greek banks have been propped up by cash injections from the European Central Bank and from central banks in other countries. Banks across the continent are exposed to the Greek, Italian and Spanish economies.
If Greece goes back to the drachma it will trade at fractions of the value of the euro, the price Italian, Spanish and Portugese governments pay to borrow will rocket, and banks will hoard cash again.
So if Greece limps out of the euro with a default the losses will be felt by us all.
Holidays in in the Aegean will suddenly be very cheap. And by crikey we’ll need one…
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