Euro-Crunch: The Grim Banker is Calling

“If there is no relief, we are going straight into the abyss”. So says, Romano Prodi, one-time Italian Prime Minister and President of the Onion’s European Omission. As European Onion finance ministers gathered in Brussels to disagree about what to do over the deepening Eurozone crisis the sheer scale of the crisis and its potential consequences are now apparent. The Euro-crunch is upon us and Onion leaders face probably the most fateful strategic decision in modern European history – break the Euro up or move to a common fiscal policy, which effectively means the creation of a federal European state. This catastrophic failure of both policy and strategy, the result of many years of irresponsibility by all European leaders of all political hues, now brings us to the edge of Prodi’s abyss.

Greece with a government debt some 143% of the size of its economy will soon default. Italy, led by a buffoon of a prime minister, and with a debt some 120% the size of its economy, now looks like going down the same Mediterranean plug-hole. The debt contagion long feared by Onion leaders is now fact as the cost of borrowing soars for governments that have resolutely refused to make the reforms necessary to balance the books. The European Stability and Growth Pact established to ensure fiscal and budgetary discipline at the creation of the Euro has been derisively and now disastrously ignored. Indeed, governments have routinely lied about their level of debt; and complicit western European leaders have for too long pretended to believe them.

There are of course many lessons from this unfolding fiasco but perhaps the most telling is this; if a political project such as the Euro is not established from the outset on stable financial and economic fundamentals then disaster will sooner or later ensue. There are of course several reasons why the European citizen has been deliberately kept in a state of suspended uncertainty over the Euro. First, the Euro has indeed been first and foremost a political project, designed to foster ‘ever closer union’ in the words of the Treaty on European Union.  Profound, structural weaknesses have thus been ignored. Second, confidence in a currency is the pre-requisite for a stable single European market and of course the very basis for a sound banking system. European banks are still reeling from the 2008 global crisis and are thus deeply vulnerable to shock. Third, information is power; the retreat of democratic oversight in the Onion has fostered a patrician belief in Brussels that we the little Europeans should be kept in the dark for our own good. This noblesse oblige tendency of the Brussels Euro-Aristocracy is as dangerous as it is arrogant.

So, what are the implications? First, it is unlikely that France and Germany will give up on the political Euro until the cost of supporting the financial Euro is so great that over-taxed citizens begin to revolt. Second, if there is a decisive move towards fiscal union, which may be needed given the refusal of southern European states to fulfil their obligations under the Stability and Growth Pact, then the very real prospect will emerge that the United Kingdom and possibly other non-Eurozone member-states could leave the Onion. Third, much more power will be transferred to an opaque, secreacy-obsessed Brussels wholly unfit to exercise strategic sovereignty over the money of European citizens. This will not only render any hope of effective democratic oversight meaningless, but could also break the centuries-old and fundamental link between the European nation-state and its citizens – tax-raising authority and accountability.  Fourth, Europe's precipitous decline will be confirmed and with it any chance to influence a challenging world. 

The paradox? Far from curbing the appetites of avaricious southern European states, it could well stoke further dependency obesity as the gap between the western European payee and those accountable will become so wide as to be in effect broken. And, all of this whilst we the little Europeans slumber on beaches safe in our induced ignorance. By the time summer is over a fait accompli could be fact.

Whatever happens – break-up or state-up, the sorely-tried western European taxpayer will have to pick up a bill that the European Omission suggests could need paying at least until 2030. The alternative?  Sell Europe's debt to China, with all that entails.  Clearly, the political institutions of southern European states long undermined by venal politicians and their assorted hangers-on are simply too weak to cope with the austerity packages needed to bring government debt back down to manageable levels. There will of course be much empty talk of European ‘solidarity’. Sadly, if there is one thing I have long understood about the Onion it is this; whenever I hear talk of ‘solidarity’ it is going to cost me money.

Make no mistake, Europe, the grim banker is calling.

Julian Lindley-French