Margareta Pagano: Merkel is caught on the horns of a Greek dilemma

Chancellor faces an imminent election – and an unpopular bail-out decision

In Rochdale, the 66-year-old grandmother who infuriated the Prime Minister by asking what his plans are for controlling our national debt, as well as a spicier question about the flow of east European immigrants, spoke for much of Europe when she expressed her fears about the country's growing tax bill.

Taxpayers further south in Berlin are even more worried as they react with fury to Germany's proposed bail-out of Greece, which now looks as if could be tied up any day now. Chancellor Angela Merkel is under great pressure because she faces her own critical local election – next Sunday – in North Rhine-Westphalia, one of the richest, most industrial areas of Germany. Germans are furious that Merkel wants to use public money to pay out billions for Greek pensioners – on better pensions than the ones they themselves get – and welfare payments, while all the German political parties, including her own Christian Democratic Union party, are arguing that Merkel must force the banks to take their share of the pain.

Then there is continued unrest in Athens itself. There, workers are still striking, not so much about tax rises, but about the huge cuts in jobs and pensions which are inevitable if the bailout is to be agreed, and go through.

And further west, across the Mediterranean, there are storms brewing in Spain and Portugal, which both had their debt downgraded last week. Unemployment in Spain hit 20 per cent last week, triggering worries of social unrest, particularly in the poorer south, to levels not seen for decades.

It seems the peoples of Europe have more in common than they think. They are all sitting uncomfortably on this fault line of debt travelling from Rochdale down to the Med and which could, at any moment, blow up into a new sovereign debt crisis every bit as dangerous as the sub-prime one which erupted two years ago.

Professor Nouriel Roubini is one of the few economists who really did spot the financial crisis, and who is now warning that Greece is the tip of the iceberg, and that the contagion could spread down to its southern partners, Spain and Portugal, as the sovereign debt builds up its own head of steam. Roubini is right to warn of the dangers, but Merkel can't afford to let Greece be the Bear Stearns of Europe – and certainly not the Lehman – as that would pull the plug.

It's going to be tricky for her because a big chunk of the Greek debt held by German banks is held by the very same banks which have already been bailed out by the state, and now belong to the taxpayer anyway. So, either way, it's the taxpayer who pays.

Merkel's critics say that she has been holding out, prevaricating about the Greek rescue package, because she wants the election out of the way first. It's an important one, because if her coalition parties fail to win, they could lose control of Germany's second chamber. But the reality is that, despite the media frenzy in Germany, it looks much more likely that Merkel will risk more anger as voters go to the polls, and push through the Greek package, assuming the Greeks agree to the austerity measures as part of the rescue plan. The crisis is all the more hairy because there is only a small window of opportunity as the first Greek bond repayment is due on 19 May. The risk of Greece defaulting is perhaps a greater one than the risk of the eurozone falling apart.

Greece only has three options – a default, deflation or devaluing, none of which it can do within monetary union. That's why Merkel, and ultimately the German public, will have to sign off a Greek bailout; their own future depends on it. However, what this latest crisis shows once again is the fragility of monetary union. When the architects dreamt their European dream, they forgot a vital part of the infrastructure: the power to tax. You can't have countries bound into one currency zone without their spending and taxation also being controlled; it's like a house without electricity, and a move which no voters would stomach from Berlin to Madrid.

The Greek crisis is not likely to see the end of the euro, for now, but when the future Homers come to write their epic stories, they will show that this is where the end began. As with Gordon Brown and Gillian Duffy, perhaps.

Goldman Sachs is burning, and the politicians want to build more bonfires

Goldman Sachs is being tossed onto the fire like a medieval witch.

Even more fuel was thrown on the flames when seven Goldman bankers were toasted by the Senate sub-committee for their part in the selling of mortgage securities. It wasn't a pretty sight, watching the Goldman bankers squirm as they tried to defend themselves against betting against their clients, selling them packages of sub-prime mortgages and then going short.

Whether Goldman told those investors it was going short is at the centre of the fraud action by the Securities and Exchange Commission. It's difficult to believe that the investors, ACA or IKB, didn't know what the bank was doing, and if they didn't, then they probably should. There's another point – Goldman was also only doing what every other bank on Wall Street was doing. In fact, Goldman was a tiddler compared to the big mortgage players, such as Bank of America.

This doesn't excuse what Goldman got up to, but it does put last week's Senate grilling into some sort of context. Neither side comes out of this well; Goldman failed to get across its basic message that market-makers don't have a fiduciary duty to tell clients how they are trading, while the inquisitors got themselves muddled over what banks can and can't do. But, even if Goldmans had managed to explain this it wouldn't have washed with the people on Main Street. They prefer the analysis made by Phil Angelides, chairman of the Financial Crisis Inquiry Commission, who compared it to "selling a car with faulty brakes and then buying an insurance policy on the buyer of those cars". This is not correct, as selling financial products is different to cars as there is always a risk, and you can't blame the seller if the stock doesn't go where you want it to. No one wants to hear this as the politicians want their bonfires, and Goldman is just the first.

I bet it won't be long before the SEC gets all banks involved in mortgage selling to agree a big settlement, just as Eliot Spitzer did over research; that's why US bank shares collapsed with Goldman's on Friday.

Start your day with The Independent, sign up for daily news emails
Voices
There will be a chance to bid for a rare example of the SAS Diary, collated by a former member of the regiment in the aftermath of World War II but only published – in a limited run of just 5,000 – in 2011
charity appealTime is running out to secure your favourite lot as our auction closes at 2pm today
News
people
News
Elton John and David Furnish exchange marriage vows
peopleSinger posts pictures of nuptials throughout the day
News
File: James Woods attends the 52nd New York Film Festival at Walter Reade Theater on September 27, 2014
peopleActor was tweeting in wake of NYPD police shooting
PROMOTED VIDEO
Sport
Martin Skrtel heads in the dramatic equaliser
SPORTLiverpool vs Arsenal match report: Bandaged Martin Skrtel heads home in the 97th-minute
News
newsAstonishing moment a kangaroo takes down a drone
Arts and Entertainment
The Lord of the Rings and The Hobbit director Peter Jackson with his star on the Hollywood Walk of Fame
film
Life and Style
tech
News
people
News
Billie Whitelaw was best known for her close collaboration with playwright Samuel Beckett, here performing in a Beckett Trilogy at The Riverside Studios, Hammersmith
people'Omen' star was best known for stage work with Samuel Beckett
ebooks
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

SThree: Trainee Recruitment Consultant - LONDON

£20000 - £25000 per annum + OTE £40,000 + Car + Pension: SThree: SThree are a ...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE £35K: SThree: We consistently strive to be the...

SThree: Graduate Recruitment Consultant

£20000 - £25000 per annum + OTE £35000: SThree: SThree are a global FTSE 250 b...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE £35K - £45K: SThree: SThree Group have been we...

Day In a Page

Surrounded by high-rise flats is a little house filled with Lebanon’s history - clocks, rifles, frogmen’s uniforms and colonial helmets

Clocks, rifles, swords, frogmen’s uniforms

Surrounded by high-rise flats is a little house filled with Lebanon’s history
Return to Gaza: Four months on, the wounds left by Israel's bombardment have not yet healed

Four months after the bombardment, Gaza’s wounds are yet to heal

Kim Sengupta is reunited with a man whose plight mirrors the suffering of the Palestinian people
Gastric surgery: Is it really the answer to the UK's obesity epidemic?

Is gastric surgery really the answer to the UK's obesity epidemic?

Critics argue that it’s crazy to operate on healthy people just to stop them eating
Homeless Veterans appeal: Christmas charity auction Part 2 - now LIVE

Homeless Veterans appeal: Christmas charity auction

Bid on original art, or trips of a lifetime to Africa or the 'Corrie' set, and help Homeless Veterans
Pantomime rings the changes to welcome autistic theatre-goers

Autism-friendly theatre

Pantomime leads the pack in quest to welcome all
The week Hollywood got scared and had to grow up a bit

The week Hollywood got scared and had to grow up a bit

Sony suffered a chorus of disapproval after it withdrew 'The Interview', but it's not too late for it to take a stand, says Joan Smith
From Widow Twankey to Mother Goose, how do the men who play panto dames get themselves ready for the performance of a lifetime?

Panto dames: before and after

From Widow Twankey to Mother Goose, how do the men who play panto dames get themselves ready for the performance of a lifetime?
Thirties murder mystery novel is surprise runaway Christmas hit

Thirties murder mystery novel is surprise runaway Christmas hit

Booksellers say readers are turning away from dark modern thrillers and back to the golden age of crime writing
Anne-Marie Huby: 'Charities deserve the best,' says founder of JustGiving

Anne-Marie Huby: 'Charities deserve the best'

Ten million of us have used the JustGiving website to donate to good causes. Its co-founder says that being dynamic is as important as being kind
The botanist who hunts for giant trees at Kew Gardens

The man who hunts giants

A Kew Gardens botanist has found 25 new large tree species - and he's sure there are more out there
The 12 ways of Christmas: Spare a thought for those who will be working to keep others safe during the festive season

The 12 ways of Christmas

We speak to a dozen people who will be working to keep others safe, happy and healthy over the holidays
Birdwatching men have a lot in common with their feathered friends, new study shows

The male exhibits strange behaviour

A new study shows that birdwatching men have a lot in common with their feathered friends...
Diaries of Evelyn Waugh, Virginia Woolf and Noël Coward reveal how they coped with the December blues

Famous diaries: Christmas week in history

Noël Coward parties into the night, Alan Clark bemoans the cost of servants, Evelyn Waugh ponders his drinking…
From noble to narky, the fall of the open letter

From noble to narky, the fall of the open letter

The great tradition of St Paul and Zola reached its nadir with a hungry worker's rant to Russell Brand, says DJ Taylor
A Christmas ghost story by Alison Moore: A prodigal daughter has a breakthrough

A Christmas ghost story by Alison Moore

The story was published earlier this month in 'Poor Souls' Light: Seven Curious Tales'