HERE are a few observations on the latest developments in the Eurozone crisis.
1) The markets are desperate, short-termist bailout junkies. Their bounce yesterday was all to do with the hope of more QE or taxpayers’ cash to bail out Spanish banks. The fact that this would mean well-managed countries picking up bills incurred by poorly managed ones was irrelevant to them – they were equally unbothered by the lack of any real, substantial reform process to cure the crippling disease at the Eurozone’s heart, rather than merely treating its symptoms. They just wanted share prices to go up, at any cost. In a real free-market, self-interest is a driver of progress because it is governed by profit and loss; but in a corporatist world, where outcomes depend on government handouts, market signals are warped. There is nothing more tragic than capitalism’s finest clamouring for bailouts, free money and the socialisation of losses. I despair.
2) There will be no sustainable solution to the Eurozone crisis without either a break-up or a dramatic acceleration in integration. The latter would require a new treaty; this would mean a referendum in the UK and elsewhere with likely No votes. Any substantial integration by a subset of countries will take years. Short-term fixes of the kind being lobbied for by Spain – back door bailouts with no strings attached – won’t work long term. The day of reckoning for the EU is moving ever closer. British politics will soon be entirely taken over by a row over our future role in Europe.
3) As Open Europe points out, if Spain faces huge difficulties in achieving more fiscal centralisation, due to its regions’ huge powers and profligacy, how much more difficult will it be for the single currency to achieve similar centralisation at the level of all 17 Eurozone members?
4) The link between sovereigns and banks must be severed – in other words, no more bailouts. That is the only way to protect governments’ solvency and to recreate a proper, value-creating banking system. Tragically, nobody is listening; Spain is bailing out even its non-systemic banks. It should instead have forcibly converted their bonds into equity, imposing a bail-in. For once, the EU is right: the bailout culture must end – yesterday’s policy proposals for new, cross-border bankruptcy (or resolution) procedures to allow even the largest failed banks to be wound down in an orderly fashion, hitting shareholders, bondholders and staff but protecting taxpayers, is excellent. This newspaper has long argued that such reforms are the most important change required to make the financial system truly capitalist once again. But Brussels’ proposals will take too long to implement.
5) The Commonwealth’s GDP is about to overtake the Eurozone’s, according to World Economics. The Eurozone is predicted to grow 2.7 per cent a year in 2012-17 (this is over-optimistic); the Commonwealth (which includes booming India, Australia and African countries) by 7.3 per cent.
I’m entirely against imperialism. Nations should govern themselves.
But imagine what would have happened had the UK chosen to maintain its trade links with independent Commonwealth nations upon decolonisation, and trade freely with the rest of the world, rather than joining the EU’s customs union, thus discriminating against its old trading partners and deliberately shifting its trading patterns towards what was to become the lowest-growth, most stagnant part of the world economy?