The short-lived buoyancy provided by the Eurozone’s announcement of the ‘three pronged’ stability agreement has given way to the more warranted senses of doubt and uncertainty. This lack of trust, manifested in a market nose-dive this week, is the reasonable reaction to an agreement which is almost entirely lacking in both short and long term credibility.
Imminently, the principal arbiters of the deal have shown they have no faith in the promises the plan purports to be able to deliver. In Greece, the call for a referendum on whether or not the country goes bust is cause for some alarm. Increasing social unrest, staunch anti-European public opinion and a potential vote of no confidence in the government are all signs of a machine that is in dire need of critical attention. That there was so much surprise from Germany and France following Papandreou’s referendum announcement shows the emergency engineers have no idea what kind of machine they have been called to fix.
An affirmative vote by the Greek people on an effective return to the Drachma would create nothing short of unmitigated chaos. A worthless currency, an ostracised economy, a legal firestorm and social anarchy are the high prices Athens will pay for an action we must assume is unthinkable, since it is conspicuous only in its absence from the Lisbon Treaty.
The possible long term future created by the deal also holds little to no cause for optimism. The sheer scale of the fund required for the bank recapitalisation hinges on Chinese involvement and while this is not in itself a problem, the fact the rest of the deal is unlikely to cure the ever spreading disease of the single currency all but guarantees further Franco-German fundraising envoys to the Far East. Beijing cannot be expected or relied upon to foot the bill for Spanish or Italian sized bailouts especially when it is currently acting as the lender of only resort to the United States. After all, the dragon’s gift of a decade long credit glut to the US has been one of the principal causes for the ailing super power’s substantial problems. Mao embossed blank cheques for the West cannot continue to be considered an option.
Instead, Europe must look to itself for an end to its woes. No one would have started here, given the choice, but that must stop us from making bad decisions now. The only way the Eurozone can continue is to become tighter and more unified. The European Central Bank must wake up and become the director of both monetary and fiscal policy on the continent. The competing actions and wishes of the Federal Reserve Banks of New York and Chicago crippled US economic policy during the 1930s and France and Germany will become guilty of a dangerous re-run of history if they continue as they seemingly intend to. The ECB must also be given the option and should not delay in the creation of a Eurobond which would shore up the required capital for stability in Europe. This would not only avoid a nasty backlash from tax-strangled citizens but free them from dependence on a China that for now, but surely not for long, expects no guaranteed return on its investment.
There are many calling for the abolition of the Euro and history so far, at any rate, may have proved the single currency an unwise experiment to run. Now though, France, Germany, Greece, Italy et al must all jump into bed together, which may be easier for Berlusconi than for Merkel. While this bed may look uncomfortable at the moment, action now could give us new feather down in the duvets and pillows. Continuing as we are, however, would risk turning our old, hard mattress into a bed of rusty nails.
