The euro and lines of retreat
It is instructive to look back over the past few months. Time and again I, like others, have reported that a deal has been reached to help Greece. Within days the much-touted agreement fails to hold the line and the eurozone leaders fall back, looking for another place to make their stand. Only a few weeks ago we were trumpeting a 40bn euro bail-out. Within days that had become a 110bn-euro rescue.
When the details were announced last week-end, along with Greek austerity moves, it appeared that the immediate crisis was over. But within days the eurozone countries were looking for a new line of defence. The Australian Prime Minister Kevin Rudd said "markets have judged those arrangements to be inadequate". So in less than seven days the largest sovereign bail-out in financial history is being openly questioned.
One obvious observation is that events and financial markets have driven these events; politicians have only reacted to them. Europe's leaders have not been able to get ahead of the story. They have been playing catch-up. And you can sense their frustration in their rage towards the financial markets.
As always there is speculation, but are there are reasons for the markets to be sceptical.
They cannot see how an economy like Greece, that is contracting by 4% this year and will contract further next year, will find the growth to either reduce its debt or pay back the loans from the IMF and the EU. And the expected shrinking of the economy does not take into account the deflationary impact of the austerity measures.
Peter Boone and Simon Johnson, two economists, have pointed out in their blog printed in the International Herald Tribune that "since most Greek debt is held abroad, roughly 80% of the budget savings the Greek government makes go straight to Germans, the French and other foreign debt holders (mostly banks)." Put at its simplest, many economists cannot see how Greece will find the growth to reduce its debts.
So the markets believe that sooner or later the problem will surface again; Greece will either be bankrupt or have to restructure its debt. That is the calculation.
I spoke yesterday in Athens to the Greek Culture Minister, Pavlos Yeroulanos. He stressed to me the importance of the measures not just to reduce the budget but to transform the Greek economy. In his view they were as important as the savings and cuts. Some have described this part as the "cultural revolution". It is surely right that the Greek economy has to be made competitive but the changes, even if they are implemented, will not happen overnight.
And if Greece cannot escape its debts investors will fear the same might occur in Spain or Portugal, which is why the cost of servicing their deficits has been rising there. No European leader has addressed what actually would happen if those countries needed rescuing. Who would provide the funds? Some eurozone countries have struggled to help Greece.
Some leading economists are expressing doubts that the eurozone will continue. The Nobel laureate Joseph Stiglitz said "the very survival of the euro is at stake". And the US economist Nouriel Roubini warned that the eurozone could "break up".
The core of the problem is not just debt; it is that some countries just cannot compete with other eurozone countries, let alone internationally.
In Portugal the government has been candid about its problems. It talks about competitiveness. Productivity is weak and the government is set on making the economy more flexible. None of this will be easy. Reducing debt often involves dismantling social programmes that people depend on. The Portuguese government wants to reduce some unemployment benefits. The unions won't have it. The Spanish, too, seem reluctant to embrace radical cuts and a wholesale reform of the economy.
Europe's leaders are groping for solutions. How can eurozone countries inhabit a monetary union together when they are so different? For instance, industrial production in Germany rose an impressive 4% in March, while Spain is just emerging from recession.
It may prove easier to police the eurozone in the future. The French and Germans are searching for a mechanism to keep the public finances of each member of the eurozone in check. There is likely to be a new "robust framework" for policing public financing. Statistical reporting is to be improved. There is talk of sanctions for those who break the rules. Financial assistance could be stopped, although the problem with sanctions is that they could damage further a weak economy. Slovakia and Slovenia favour expulsion as the ultimate sanction.
As the markets fluctuate the biggest challenge for Europe's leaders is to kick-start the European economy, to return to a sustainable level of growth. Everything depends on that. The German Finance Minister, Wolfgang Schaeuble, said: "the European project is not much supported by the public. We have to convince people that European unification is in the interests of Europe. I am very worried about Euroscepticism." For the voters out there, bewildered by the storm battering the euro, my guess is that what they will judge Europe by is delivery, not dreams.