So now it is Spain that will need a sovereign bailout. In an effort to increase confidence, the government says it has enough money to get through the autumn, but of course that has quite the opposite effect in that it emphasises that it runs out of money after that.
Only a few weeks ago the Spanish prime minister, Mariano Roy, was denying that there would be sharp tax increases and saying that seeking eurozone funds to rescue the banks was not a sovereign rescue. Then VAT was put up by 3 per cent. And now is it even more evident that the country needs a full bailout. The bluster and self-deception so characteristic of eurozone politicians is evident once again.
What is so strange is that politicians feel compelled to go through the established sequence of downplaying their financial problems, then blaming foreign speculators, then conceding that they might need external help, then finally capitulating or being thrown out.
It is strange, certainly, but perhaps explicable at two levels. The first is that nothing in the experience of most politicians prepares them for leading a country through a fiscal crisis. The other level is that the consequences of fiscal failure could be concealed by a combination of devaluation and inflation. You could devalue your way out of loss of competitiveness and inflate your way out of excessive debt.
Both these conditions have changed. Most of Continental Europe faces a falling population and rising dependency ratios, so tax revenues will be weak at just the time when demands rise. And within the eurozone at least an individual country cannot inflate or devalue.
None of us can hope to see the detail or the timing but the past few days have reminded us of the inevitability of some sort of break-up of the eurozone. And we have hardly begun to think about the impact of all this on European politics. Politicians do what voters want. But they can only do so within the framework of the possible. That framework, in or out of the euro, has become much more constrained, and politicians will have to adapt to that.
What we are seeing in the eurozone is a sudden and wrenching shift, but a similar changing awareness of what governments can and cannot do will happen more gradually throughout the developed world, including here in the UK.Reuse content