The eurozone crisis: What's it all about?
We know the eurozone crisis is important, but in the daily talk of "bank stress tests" and "special purpose vehicles", it's easy to lose sight of the big picture: why the crisis has happened, what we should be worried about, and what could happen next.
Here's the first one, looking at some of the economic and political roots of the crisis. Robert will continue tomorrow with an essay on the funding challenges facing Europe's government borrowers.
The eurozone crisis has caught many people on the hop. But there are those who would say it's been waiting to happen since the euro began, and a collection of economies decided to operate with one currency and one monetary policy - but very different everything else.
Many Germans were lukewarm about the euro even then. If it happened they wanted tough rules for entry so only the fittest economies would get in. But there was a bait and switch: in the end it wasn't just a hard core. For political reasons, softer Club Med types - like Greece, Italy and Portugal - somehow squeezed in as well.
Fans of a smaller, fitter euro had their doubts - the debate inside Germany about joining the euro was almost as vigorous - and sceptical - as the one in the UK. But they took comfort in the Growth and Stability Pact limiting national deficits, and the celebrated no bail-out clause (which Germany insisted on putting in). The rules said that countries weren't allowed to run up big deficits - and if they got into trouble they were on their own.
But right from the start, investors decided not to believe the small print. In effect, they decided that being part of the euro gave countries not just the same currency as Germany but nearly the same credit rating as well. They didn't pay much attention to the thought that countries in the eurozone could still, technically, go bust.
Ordinary people and businesses in the Club Med countries were happy to go along - a place at Europe's top table and German-style borrowing rates? What's not to like? But their government didn't mention the catch - that having the same exchange rate as Germany also meant you had to be as productive as German workers and stay that way. In a single currency, you couldn't devalue your way to matching their price.
In the end, the newcomers borrowed a lot - and reformed rather less. Their workers fell behind the hard core, running large trade deficits with the rest of the zone.
Brussels wasn't too worried because most of those deficits came from private borrowing, not governments. But right at the heart of this crisis is the recognition - first by investors, and then by governments that this basic judgement was wrong.
The lesson of past crises is that if a country can't pay its way in the world and is running up larger and larger debts, it doesn't matter much who is doing the borrowing. Sooner or later the problem is going to come to a head.
When a newly elected Greek prime minister stood up last autumn to announce that the old government had been borrowing far more than previously thought, investors finally started to ask themselves whether there was a risk to lending to Greece after all. And, looking around, they noticed that a lot of private borrowing in the boom years was now showing up on other governments' balance sheets as well. Spain had a budget surplus of 2% of GDP in 2007. Just two years later, in 2009, that surplus that had turned into an 11% of GDP deficit.
From then on, it's all been about the end game: what will happen to all that debt, will governments get bailed out, and what will all of it mean - for the eurozone economy and the messy compromises on which the single currency was based. That end game still has plenty of time left to run.