Being on the fringes of the eurozone crisis a bit like watching a car crash in slow motion. You know what’s going to happen, you know that when it does happen, it’s going to be very unpleasant and a lot of people are going to get hurt and, worst of all, you know there’s absolutely nothing you can do to prevent it from happening. No wonder chancellor George Osborne is feeling frustrated. There he is, tinkering away with corporation tax rates and loans for young entrepreneurs, apparently doing as much as he can to stimulate growth in a declining country that drained its coffers long ago, while those idiots on the continent are seemingly doing their very best to undermine all his efforts. Surely it can’t be that hard to solve the crisis in the eurozone?
I wasn’t alive in the 1930s, but something about the current European crisis strikes me as reminiscent of the lead-up to World War II. With the scars of World War I still fresh and anxieties mounting over German rearmament under Adolf Hitler, British prime minister Neville Chamberlain paid the Führer a visit in September 1938. On his return to London, he uttered the now infamous words: ‘I believe it is peace for our time… And now I recommend you to go home and sleep quietly in your beds.’ Less than a year later Britain and Germany were at war and no one slept quietly in their beds again until 1945. The sad moral to this tale is: just because you don’t want something to happen, doesn’t mean that it won’t.
And that is how it is with the eurozone. Anyone who thinks they can sleep safely in their beds now the Spanish banks have been bailed out to the tune of €100bn is sadly mistaken. Spain’s debt-to-gross domestic product ratio was already expected to hit 80% by the end of 2012 and the bailout could increase this by a further 10%. Meanwhile, Spain’s economy is set to contract by 1.7% this year. Nobel Prize-winning economist Joseph Stiglitz said of the bail-out: ‘The system … is the Spanish government bails out Spanish banks, and Spanish banks bail out the Spanish government. It’s voodoo economics.’
Of course the problems don’t even end with Spain. There are also Portugal, Ireland, Italy and – who could forget – Greece to consider. And France is looking a bit wobbly too. Is there even enough money in the system to rescue them all? The eurozone is like a poor leper who is rotting away and no amount of bandaging can put an end to the rot. The only remedy seems to be the end of the euro itself. Or, at least, the end of the euro as we know it.
The eurozone crisis has now developed a life and a personality of its own; it has become an out-of-control monster. None of us knows exactly what we’re dealing with, but we all know that it’s big and scary and volatile. I wish the best of luck to all the politicians who are trying to wrestle with the monster, but it seems inevitable that the monster will overwhelm them eventually. The scale of the problem is just too great.
Personally, I’m amazed that anyone thinks the eurozone as it is now will survive in the longer term, but apparently the odds are that it will. I think it’s blindingly obvious that there is no way to avoid the car crash. The situation in much of the eurozone is politically and economically unsustainable and unless some of these countries can leave the eurozone and devalue their currencies, the eurozone will stay in intensive care, possibly bringing down the rest of the world with it. Blindingly obvious it may seem to me, and to many others, but as former chancellor Alistair Darling once remarked: ‘The blindingly obvious can be surprising to some people.’