Review of the eurozone in 2012: A crisis of debt and identity

'It was the year the world was plunged into an economic ice-age'

To the discomfort of great financial brains such as George Soros or Boris Johnson, the euro has survived another year.

This was the year when the euro was finally doomed; when eurozone governments could no longer "kick the can down the road" at "last-chance summits". It was the year when the markets would finally foreclose on Greece, Spain and Italy.

It was the year when the contradictions at the heart of the euro – a single currency without a single economy or a single political purpose or even a proper central bank – would rip apart the whole project and plunge the world into an economic ice-age.

In June, Mr Soros said that the euro had "only days to live". Surprise, surprise, the euro is still here. It remains quite strong against the dollar and the pound on financial markets. Eurozone governments have proved that, yes, they can kick cans down roads.

In 2012, the new European Central Bank governor, Mario Draghi – candidate for European Hero of the Year – discovered that Frankfurt had hitherto unsuspected, independent powers to bail out floundering eurozone banks and nations. In other words, the ECB now claims the right to a form of the Quantitative Easing (or open-ended printing of money) deployed by the Bank of England and Federal Reserve to keep the British and American economies afloat since 2008.

Since the beginning of the eurozone crisis in 2010, markets have been pushing two ways. There are some investors who believe that it is a smart idea to shove all of us over a cliff and pick our pockets on the way down. There are some who feel this is not such a good plan.

Mr Draghi's innovations have helped the second to win the battle against the first, for now. He has given financial markets a reason not to destroy the euro and cripple the world economy. He has given eurozone governments a breathing space.

The longer-term questions remain unanswered: can the euro survive? Does it make sense?

In 2012, eurozone governments have pushed ahead with their fiscal pact, which forbids them to build up large new debt mountains in the future. They are still examining ways of creating an "economic government" for euroland. This would, in theory, give the eurozone a single political direction. It would not immediately bridge the gulf between, say, the German and Spanish economies; or even the growing competitive gap between the German and French economies.

The crisis in the eurozone is more than just a crisis of debt. It is a crisis of diverging economic models within one currency zone – something that goes well beyond the differences that also exist between, say, Mississippi and Connecticut in the 'dollarzone" or between Country Durham and Surrey in the 'poundzone'.

The eurozone crisis is also an existential crisis: a crisis of identity. Having created a single currency without the political machinery to make it work, how far are eurozone countries prepared to dissolve national decision-making into a de facto federal government to run, and create, a single economy? What democratic legitimacy would such a "European government" have?

Another event in 2012 rearranged the three-dimensional chess-board of eurozone politics: the change of government in France. President François Hollande came to power in May saying that he would shift the game away from "all-austerity" and towards "growth with discipline".

President Hollande has marginally amended EU policy in this direction. In return, to the fury of his own left-wingers, he signed up at the "last-chance summit" in Brussels in June for the Angela Merkel-inspired deficit-squeezing fiscal pact.

As the year ends, huge differences remain between Paris and Berlin – perhaps greater than at any time since the EU (née EEC) was founded.

Paris speaks of solving the crisis though "solidarity" between eurozone countries. It has become the de facto leader of a "southern" bloc which wants the Germans and other rich northerners to use their relative prosperity to reflate the whole European economy.

Berlin speaks of solving the crisis through a single European government which would, implicitly, impose a German approach to fiscal discipline and economic competitiveness.

The French – both Right and Left – reject the idea of an all-powerful, federal government for the eurozone. Final decision-making on taxing and spending and labour policy (the 35-hour week) must remain with national governments.

Berlin may be right economically but it is wrong politically and democratically. There is no popular support for a fully federal eurozone, not in Germany, not in France, not anywhere. There is no obvious way that such a government could be democratically elected or controlled.

Paris may by right politically and democratically but it is on weak ground economically. The French version of "eurozone governance lite" would, at worst, be an amended version of the present, can-kicking muddle. It would be unlikely to persuade the markets that solid, new foundations have been constructed under the eurozone.

The years go by. The euro is still with us. So is the crisis.

@peston Hollande + Merkel = Homer. Merkel + Hollande = Merde

Robert Peston, BBC Business Editor

@DMiliband Greek election result far more "dangerous" than Francois Hollande

David Miliband, Labour MP for South Shields

@chris_coltrane I'm a firm Eurosceptic. I don't even think Europe exists. Has anyone actually ever *been* there? Not that I know of. It's a pack of lies

Chris Coltrane, comedian

@Owen Jones84 The Euro-zone is plunged back into re-cession. Aus-terity has sucked out growth, demand and jobs, and devastated millions of lives

Owen Jones, columnist for The Independent and i

@nigel_farage I think the EU flag should fly over the Palace of Westminster. That would at least reflect what is going on

Nigel Farage, UKIP leader

@faisalislam And the €zone officially NOT in technical recession. But we in UK officially are. But its the €zone's fault that we are in recession # logic

Faisal Islam, Channel 4 News Economics Editor

News
Ian Thorpe had Rio 2016 in his sights
people
Sport
Thiago Silva pulls Arjen Robben back to concede a penalty
world cup 2014Brazil 0 Netherlands 3: More misery for hosts as Dutch take third place
News
Tommy Ramone performing at The Old Waldorf Nightclub in 1978 in San Francisco, California.
peopleDrummer Tommy was last surviving member of seminal band
Life and Style
Swimsuit, £245, by Agent Provocateur
fashion

Diving in at the deep end is no excuse for shirking the style stakes

PROMOTED VIDEO
News
ebookA unique anthology of reporting and analysis of a crucial period of history
Life and Style
Several male celebrities have confessed to being on a diet, including, from left to right, Hugh Grant, Benedict Cumberbatch and Ryan Reynolds
life...and the weight loss industry is rubbing its hands in glee
Voices
Spectators photograph the Tour de France riders as they make their way through the Yorkshire countryside
voicesHoward Jacobson: Line the streets for a cycling race? You might just as well watch a swarm of wasps
Life and Style
lifeHere's one answer to an inquisitive Reddit user's question
Arts and Entertainment
'Eminem's recovery from substance abuse has made him a more potent performer, with physical charisma and energy he never had before'
arts + entsReview: Wembley Stadium ***
Sport
Joe Root and James Anderson celebrate their record-beaking partnership
cricketEngland's last-wicket stand against India rewrites the history books
News
peopleDave Legeno, the actor who played werewolf Fenrir Greyback in the Harry Potter films, has died
Independent
Travel Shop
the manor
Up to 70% off luxury travel
on city breaks Find out more
santorini
Up to 70% off luxury travel
on chic beach resorts Find out more
sardina foodie
Up to 70% off luxury travel
on country retreats Find out more
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 General

Information Security Manager (ISO 27001, Accreditation, ITIL)

£70000 per annum: Harrington Starr: Information Security Manager (ISO 27001, A...

C# Developer (HTML5, JavaScript, ASP.NET, Mathematics, Entity)

£30000 - £45000 per annum + Benefits + Bonus: Harrington Starr: C# Developer (...

C# Integration Developer (.NET, Tibco EMS, SQL 2008/2012, XML)

£60000 - £80000 per annum + Benefits + Bonus: Harrington Starr: C# Integration...

Biztalk - outstanding opportunity

£75000 - £85000 per annum + ex bens: Deerfoot IT Resources Limited: Biztalk Te...

Day In a Page

Iraq crisis: How Saudi Arabia helped Isis take over the north of the country

How Saudi Arabia helped Isis take over the northern Iraq

A speech by an ex-MI6 boss hints at a plan going back over a decade. In some areas, being Shia is akin to being a Jew in Nazi Germany, says Patrick Cockburn
The evolution of Andy Serkis: First Gollum, then King Kong - now the actor is swinging through the trees in Dawn of the Planet of the Apes

The evolution of Andy Serkis

First Gollum, then King Kong - now the actor is swinging through the trees in Dawn of the Planet of the Apes
You thought 'Benefits Street' was controversial: Follow-up documentary 'Immigrant Street' has got locals worried

You thought 'Benefits Street' was controversial...

Follow-up documentary 'Immigrant Street' has got locals worried
Refugee children from Central America let down by Washington's high ideals

Refugee children let down by Washington's high ideals

Democrats and Republicans refuse to set aside their differences to cope with the influx of desperate Central Americas, says Rupert Cornwell
Children's books are too white, says Laureate

Children's books are too white, says Laureate

Malorie Blackman appeals for a better ethnic mix of authors and characters and the illustrator Quentin Blake comes to the rescue
Blackest is the new black: Scientists have developed a material so dark that you can't see it...

Blackest is the new black

Scientists have developed a material so dark that you can't see it...
Matthew Barzun: America's diplomatic dude

Matthew Barzun: America's diplomatic dude

The US Ambassador to London holds 'jeans and beer' gigs at his official residence – it's all part of the job, he tells Chris Green
Meet the Quantified Selfers: From heart rates to happiness, there is little this fast-growing, self-tracking community won't monitor

Meet the 'Quantified Selfers'

From heart rates to happiness, there is little this fast-growing, self-tracking community won't monitor
Madani Younis: Five-star reviews are just the opening act for British theatre's first non-white artistic director

Five-star reviews are just the opening act for British theatre's first non-white artistic director

Madani Younis wants the neighbourhood to follow his work as closely as his audiences do
Mrs Brown and her boys: are they having a laugh?

Mrs Brown and her boys: are they having a laugh?

When it comes to national stereotyping, the Irish – among others – know it can pay to play up to outsiders' expectations, says DJ Taylor
Gavin Maxwell's bitter legacy: Was the otter man the wildlife champion he appeared to be?

Otter man Gavin Maxwell's bitter legacy

The aristocrat's eccentric devotion to his pets inspired a generation. But our greatest living nature writer believes his legacy has been quite toxic
Joanna Rowsell: The World Champion cyclist on breaking her collarbone, shattering her teeth - and dealing with alopecia

Joanna Rowsell: 'I wear my wig to look normal'

The World Champion cyclist on breaking her collarbone, shattering her teeth - and dealing with alopecia
Bill Granger recipes: Our chef gives raw ingredients a lift with his quick marinades

Bill Granger's quick and delicious marinades

Our chef's marinades are great for weekend barbecuing, but are also a delicious way of injecting flavour into, and breaking the monotony of, weekday meals
A History of the First World War in 100 Moments: Peace without magnanimity - the summit in a railway siding that ended the fighting

A History of the First World War in 100 Moments

Peace without magnanimity - the summit in a railway siding that ended the fighting
Scottish independence: How the Commonwealth Games could swing the vote

Scottish independence: How the Commonwealth Games could swing the vote

In the final part of our series, Chris Green arrives in Glasgow - a host city struggling to keep the politics out of its celebration of sport