Wednesday, 23 November 2011

On the rocks

When the eurozone set sail it lacked a captain and a navigator.  Two years ago minor steering problems led to a loss of direction. The ship was at the mercy of tide and current.  Then the engine failed and the good ship eurozone drifted ever closer to the rocks.  Now it is almost on the rocks and destruction is inevitable.

When the eurozone was launched it was noted that without fiscal and political union it would fail.  One size did not fit all, countries needed different interest rates and a central bank as lender of last resort as their economies did not converge.    The concerns were ignored, after all the eurozone was a staging post to the creation of a United States of Europe, but shush, don't tell the citizens.

When things started to go wrong the responses were always late and inadequate.  Eventually EU commissars and governments realised they had under-estimated the danger of contagion in one country spreading to the rest.  But not to worry, the EFSF tug would save the eurozone by pulling it away from the rocks. Unfortunately the tug owners, China in particular, turned down the invitation to throw the eurozone a line.

So the cry went up that fiscal and political union was the answer. Unfortunately the tide and currents, the markets, kept driving the eurozone towards the rocks.

The EC then played it joker - eurobonds, cunningly renamed stability bonds.  The one country with the power to stay the currents and tides, Germany, does not want to participate as it is of the opinion that the bonds will not deal with the need to have a common fiscal policy, nor would Germany permit the ECB to extend its role.

Germany is the economic engine of the eurozone and Mrs Merkel, the chief engineer, fears that Germany will be called upon to prop up the rest of the eurozone.  But now even greater threats have appeared.  The German economy is slowing and even its bonds are not being snapped up by the markets.  The engine cannot be coaxed back into life and the chief engineer is squabbling with the rest of the crewe.

A disaster of epic proportions is imminent.  Soon it will  be very country for itself, but the danger is so severe that the lifeboats will be smashed, as will the ship.,1518,799397,00.html,1518,799550,00.html

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