Henry Hopwood-Phillips 9.46am
I always thought that the EU had secured the winning hand.
In success, it could boast that its social democratic model, inching towards fiscal and ultimately political union, had created a permanent and enlightened route to general prosperity. In failure, the globalised proportions of its wreckage would ensure that only its supranational intervention could offer succour.
Yet the EU’s problem is that its chief creditor, Germany, has been thinking like a nation, rather than a supranational overseer. It is not that Germany is not willing to play paymaster to a transparently political project. Rather, Germany resents the fact that beneath the surface, economically the EU project resembles a cheese grater.
ClubMed, eager to ignore the holes, yearns for closer political unity because of the accompanying German credit card.
The Germans, not wanting to subsidise the European periphery forever, has suggested mandatory terms and conditions and requested appropriate collateral in return for pooling proportions of debt, privatisation, teutonic budgetary discipline, and flexible employment laws. ClubMed baulks at the small print.
The tension between German realism and Mediterranean myopia is painfully apparent. Angela Merkel has said that under no circumstances would she consider Eurobonds. Italy’s ex-prime minister, Silvio Berlusconi, retorts that if Germany continues to prevent the ECB from printing money she should quit the euro. Italy’s current leader, Mario Monti, tells the German chancellor that “six decades of integration are at stake”.
In the past, at least, political obfuscation of economic realities was intelligible while the the direction of the EU’s hopes was centripetal. However, with the EU’s economically strongest member now in direct confrontation with the rest, the outcome of the crisis is far from predictable.
The impending Spanish bank bailout ought to be as conventional as a banking crisis can be, following a relatively simple process. Nonetheless, foreign investors are shunning the prospect - not just because they believe the books are cooked but because how they might be cooked is no longer discernible. An efficient and free market should not be run on fiddled facts but it routinely is. Cynicism does not ruin markets on its own. Rather confusion over the target and form of that cynicism, as with the current EU chaos, appears to. It certainly paralyses credit flows, meaning that Spain is now required to spend $600,000 to insure merely $10 million of debt.
The president of the ECB, Mario Draghi, has identified the systemic weaknesses and trends and said it cannot continue, recently describing the Eurozone as “unsustainable”.
Exasperation is noticeable even in the EU’s own reports. Its top brass has informed the new French president, Francois Hollande, that the economic assumptions behind his budget plans are “optimistic”, measures to hit budget targets “not sufficiently specified”, and France’s record on meeting past targets has been “mixed”.
In this febrile climate, the technical solutions suggested in answer to the European crisis - from a ‘Grexit’ to Eurozone deposit schemes - seem to me to be superfluous. At this pretty pass the repair of the EU body seems more dependent on the cogency and cohesiveness of its soul than any mere physical tinkering.