If this 'last chance' fails, it really will be time to brace for the final crash
Thursday 28 June 2012
Your plane is about to crash. What do you do? a) rebuild the plane in mid-air; b) take avoiding action; c) bailout.
There a few things to bear in mind. The plane has 17 pilots. Some people on the ground are praying you do not fall on their heads. Others are firing missiles at you.
The European summit, which starts in Brussels today, is the 18th "last chance" to rescue the euro. In the last two years, the 17 pilots – and 10 co-pilots – have tried several unconvincing variations of a) and b).
If they fail this week, they may be forced into a combination of c) abandon ship; and d) crash-and-burn.
One thing by now should be clear even to the most diehard euro-fanatics. The euro, in its present form, is a failure – a successful failure in some ways, but nonetheless a failure.
The euro did not cause the international, financial and economic crisis that began in 2007 and 2008. That was caused by the arrogance and greed of many of the same market players who are now divided between praying for the euro's survival and speculative incantation for its destruction.
But a tree, which cannot withstand a gale is a doomed tree. The euro's vulnerability to the economic crisis can be blamed on many things: sovereign debt accumulated over decades; Greek insouciance; German arrogance; property gambling by Spanish and Irish banks; computer-enhanced speculation.
Fundamentally, though, the crisis has exposed a crippling design failure in the conception of the single currency. Twelve countries, now 17, decided to create the bloc without the central institutions and rules or the common economic conditions, which govern a national currency and a national economy.
All was well until the crisis came. Then, to simplify a little, our 17 pilots found themselves in a crashing plane with 17 different sets of controls.
The European summit in Brussels today and tomorrow – and until Sunday night if the Italian prime minister, Mario Monti, has his way – will seek, again, the right combinations of rescue strategies a) and b).
The German Chancellor Angela Merkel, is the champion of solution a) – rebuilding the euro in mid-air. We should never have started from here, she says. We must have a euro with one set of controls; with a binding, central system for controlling national budgets.
Taxation and economic policy within the eurozone can no longer be left to national governments. We must, in sum, become a United States of Euroland. A report to the summit by the leaders of four European institutions heads broadly in Ms Merkel's direction.
The new French president, François Hollande, is the champion of solution b) – taking avoiding action. The future is the future, he says, but if we don't act rapidly the plane will crash, with calamitous consequences.
The idea of a more federal eurozone is disliked by many French socialists but not necessarily by Mr Hollande. He can probably accept it this week as the correct long-term solution. He will also point out that without immediate action the euro will, in the long term be dead.
Mr Hollande has already won agreement on a €125bn package of "growth" measures. He insists that rapid action is also needed to help "virtuous" but struggling countries (Spain and Italy), which are too big to rescue in the way that Greece, Ireland, Portugal have been "rescued".
There must be some fix, he says, to short-circuit market fears (or speculation). It must be made clear to the markets that the economic weight of the eurozone stands behind even its weakest member.
That does not necessarily mean an immediate leap into Eurobonds (fully European rather than national debt). But it does mean some sort of Europe-wide guarantee of, say, bank deposits.
The Italian prime minister, Mr Monti, is broadly in the same camp as Mr Hollande. So is the European Commission. So is the International Monetary Fund. So is the British Government. So are Spain and most of the rest. The Netherlands, Sweden and Finland are on Ms Merkel's side.
David Cameron's position is, historically, bizarre. He has spoken in favour of both a federal eurozone (sans Britain) and quick fixes such as Eurobonds. For 60 years, successive British governments have opposed European federalism not just for Britain but for everyone else.
The prolonged euro crisis has cruelly exposed the supra-national pretensions of a European Union, in which selfish national interests still prevail. It has also exposed the British Eurosceptic pretence that the prosperity of "our sceptr'd isle" is not dependent on Europe.
The crucial figure at the summit may be Mr Monti. Italy and Spain are under sustained speculative attack. If either goes down, the euro, and the world economy, will fall apart.
Mr Monti told the Italian parliament he would not leave Brussels until he had persuaded the short-sighted German pilot to look out the window and realise she was nose-diving with the rest.
Ms Merkel says Germany can accept Eurobonds in the distant future when Euroland has only one financial pilot (probably a German one).
Can she finally be persuaded that the federal reforms she wants will take years and the euro may – without avoiding action – only have weeks or days to fly?
The factions: What they want
The Merkel camp
Germany, Finland, the Netherlands and Austria a banking union that would allow a central authority to curb excesses to prevent overspending.
Led by France and Italy, backed by Spain, Greece, Portugal and Ireland. They want the European Central Bank to buy up bonds to push down borrowing rates.
Led by the UK, with some support from non-euro states. Wants eurobonds and guaranteed bank deposits across the eurozone, without interfering in the single market.
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