How the fate of Europe could be decided 'within hours'

Man walking past Athens graffiti

Athens, a street below the Acropolis: the old man in front of me stops in mid-stride to read a leaflet, which has been trodden into the pavement at his feet. He doesn't bend, but squints at it for a very long time.

From a balcony an old lady and an even older lady express their views on the motorcycle parking skills of a young woman with a spiky hairdo.

Iced coffee is served. Petty rivalries between coffee waitresses are played out at the cash till.

Here at the foot of the Acropolis you are reminded that human beings do remarkably similar things from one historical epoch to the next. People in Shakespeare behave in much the same way as they behave in Aristophanes, and in the Wire.

They form elites. They launch overweening projects fuelled by the perception of unchallengeable power. They stride around proclaiming a project's permanence, oblivious to the shadow of catastrophe that looms behind them.

They crash empires and are gone, and the people who come after wonder what all the fuss was, about Mr X or Mrs Y.

Such a drama we are now seeing played out in Europe. As I write, Spain's Foreign Minister Jose Manuel Garcia-Margallo is warning that the fate of Europe will be decided "within hours". The governor of the Bank of England, Sir Mervyn King, has dubbed this "the worst crisis since World War II". The French industry minister, Arnaud Montebourg, has accused the "German right" of crashing the European project: "Certain European leaders, led by Mrs Merkel, are fixated by blind ideology."

That we are in a double vortex of crisis should, by now, be obvious to anybody who has read the papers.

There is the Greek crisis, where Sunday's election threatens to bring to power a party committed to defying the old, Merkel-Sarkozy designed austerity package.

And there is Spain, whose political class makes the Greeks look professional. Right now, the ruling Partido Popular, whose leader Mariano Rajoy thought it was a good idea to go to the football while his country teetered on the brink of breakdown, is calling for the resignation of the man sent in to sort out the banks. The very banks that cronies of the two main Spanish parties ran and crashed. The resignation call comes because Joaquin Almunia, the EU competition commissioner, has had the temerity to suggest some of these banks-cum-political organisations might have to be "liquidated".

Not surprisingly, the people paid to tell the truth about banks and sovereigns - the ratings agencies - are downgrading entities in Spain just as fast as their fingers can hit the "B" key on their laptops.

How will it end? Well there are still variables, still options. Unlike a Greek play, where the ending is determined in advance, by fate, human action plays a part. But the possible endings are being narrowed down with every day that passes.

In Greece, as veteran commentator Antonis Papagiannides said to me on Thursday, the problem is clear: it's being suffocated. If you suffocate somebody, and they can't breathe, they panic, lash out; they do not behave rationally.

So Greeks are switching in large numbers to the far left party, Syriza, which may win, but probably will come a close second. The (narrowly) likely option is that the conservative New Democracy wins the election. It may even get enough to form a coalition government with the old socialists of Pasok and the eurocommunists of the Democratic Left.

But the price will be a third Greek bailout on terms set by Francois Hollande, Jose Manuel Barroso and - if truth be told - the United States. However, the German government is wavering between a position which says "drive the Greeks out" and one which says "do the minimum possible to avoid catastrophe at the last moment".

This, and most Greek politicos know it, mean that even a New Democracy government will find it difficult to stave off a debt default in Greece. The only service it will perform is to separate that event in time from the unfolding carnival in Madrid.

So next come the big ifs: if the Germans would agree to a banking union; if they would give a signal for a fiscal union; if the German-controlled European Central Bank would act like a normal central bank and print money… it would all be all right again.

For all the crisis moments illustrate how close the solution is.

Two and a half years ago, in the anarcho-hedonist stronghold of Exarchia, I wrote that north Europe had seized control of southern Europe and would demand austerity that would crash the latter as the price for a fiscal union.

That article is still worth a read but I got one thing wrong: the Germans - indeed the policy elite that surrounds them, committed to sound money, balanced books etc - have taken control of and crashed southern Europe but made no moves towards a fiscal union.

We are used to seeing and hearing that Greek voters will not accept austerity at current levels. And that German voters will not accept a bailout, and future fiscal union, with anything less than full-blown austerity in the olive oil and suntanned countries of the EU.

If the stones of the Acropolis could speak - with 2,500 years of watching human nature and political ideologies collide - they would probably say: well, that means the euro has become intolerable to the people of Europe.

Already, most of the Germanophiles in my contacts list are talking, tweeting or briefing of a "north-European euro" - a smaller fiscal union. Some believe Germany already has a plan, a list of who's in and who's out - a timetable, even.

Meanwhile, the mainstream politicians of Greece, Spain and Italy increasingly struggle to know what their timetable is for the next 24 hours.

A sharp series of globally-co-ordinated actions could stem the crisis. You can list them:

  • unlimited money-printing by the ECB
  • massive global liquidity operations by central banks
  • rapid restructuring, nationalisation and even closure of troubled banks, with shareholders and even bondholders wiped out
  • a Marshall Plan for southern Europe, which ends the experiment with death-spiral economics, and allows them to combine modernisation (ie paying taxes and cleaning up corruption) with growth
  • a German commitment to the basic elements of fiscal union, with German taxpayers finally locked in to paying for the mismanagement of south Europe.

There is a camp in politics that would like all this to happen and they are struggling to make it happen: the French, Mr Barroso, Italy's unelected prime minister, Mario Monti. They probably have more support in the broadsheet newspapers of Europe than they have in the finance ministries and central banks. That is the meaning of all the anti-Merkel stuff in the papers this morning.

So over the weekend, once the finance ministers start their scheduled "emergency conference call" on Sunday night, if any of these things happen you can surmise the balance of forces is changing.

But crises move faster than elites, especially disorientated elites whose basic world view has been thrown into confusion by events. That's the long view - and the stones of Athens, if they could speak, would probably concur.

Paul Mason Article written by Paul Mason Paul Mason Former economics editor, Newsnight

End of an era

After 12 years on Newsnight, Economics editor Paul Mason has moved on to pastures new and this blog is now closed.

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  • rate this

    Comment number 21.

    Meanwhile back in Blighty:

    Seems that the Nationwide has lost confidence in measuring UK consumer confidence:

    "After eight successful years.. this report will be the last."

    "The main Consumer Confidence Index fell by three points in May to 41 and is just four points above its lowest ever level of 37 in October 2011"

  • rate this

    Comment number 20.

    Globally-co-ordinated actions to stem crisis:
    rapid restructuring, nationalisation & even closure of troubled banks, with shareholders, even bondholders wiped out. Yes, audit & make decisions, even including bankruptcy with shareholders, even bondholders wiped out. Yes, this plan addresses HEART OF PROBLEM. Establishes true level of debt. Speaks to action(s) required.
    This one gets my vote.

  • rate this

    Comment number 19.

    Globally-co-ordinated actions to stem crisis:
    1. unlimited money-printing by the ECB. Every Euro you print lessens value of individual Euro. Money-printing is too easy & solves nothing.
    2. massive global liquidity by central banks. Pumping liquidity serves endless need of banks to sop up toxic debt, does not flow to people. Derivatives in TRILLIONS CANNOT BE SOPPED.

  • rate this

    Comment number 18.

    'News and comment': thanks
    Greek 'coping', to be forced 'down to the streets'

    Coping as sad victims, or coping as proud rebels?
    Part of 'can-kicking', or start of 'Euro-resolution'?

    Must we wait for German pride also to be humbled?
    Or will our Big Wheels capitulate to save the day?
    Seeing enough coincidence of interest to allow care?

    So easy, to 'make an honest citizen of all'
    Agree equality

  • rate this

    Comment number 17.

    The long term interests of Greece is probably out of the EZ and even the EU but the change is likely to precipitate the return of the Colonels. New Dawn will want their Kristallnacht moment which could be the catalyst for the return of the Junta. It should not be forgotten that the fault lines in the PIIGS were there to be seen well before 2008 & in some cases before they were admitted to the Euro

  • rate this

    Comment number 16.

    Y'know I agreed with pretty much all of it and it's grander philosophical undertones.

    I don't buy the solutions presented though. Paper based solutions will not change the underlining dysfuctionality of growth and acceptable levels levels of employment (sence of self worth) being systemically impossible to achieve under the current economic model.

    We cannot grow and be more efficient ad infinitu

  • rate this

    Comment number 15.


    For a thorough expose of the endemic Spanish corruption, see this link:

    But that's not to say that we don't have corruption and cronyism among the elite in the UK either!

  • rate this

    Comment number 14.

    5, 11. As I said on Gavin Hewitt's thread, the only way now Germany can avoid an open-ended commitment to subsidise the periphery in an exercise which makes the cost of East Germany look trivial, is for itself to leave the Eurozone. Technically it is easy, it already prints its own money and may have the Cold War replacement print run still in the safe. Watch the UEFA finals weekend!

  • rate this

    Comment number 13.

    The illusion is dead so long live the illusion.

    What you need more than anything in this situation is a hectare or two of land, a sturdy plough and some oxen to pull it. You need a cooperative of friends and neighbours to help and be helped.

    Politicians and elites are expensive applications for the middle classes to sweat over. They are quite unnecessary so let them eat words..

  • rate this

    Comment number 12.

    "And there is Spain, whose political class makes the Greeks look professional." Snide as usual from BBC which is now nothing more than FOX News w/ a posh accent and a pompous attitude. The coverage of the whole crisis in Greece by the BBC only illustrates its devolved, twisted world view. Nothing more than clueless British post empire elitism lecturing from the sidelines while feigning concern.

  • rate this

    Comment number 11.

    Wow! What a chilling view!

    I suppose that if the Mrs. Merkel has already decided that the Euro can't be saved in its current form, or that it is not worth saving, she may already be positioning Germany for the post-apocalypse scenario.

  • rate this

    Comment number 10.

    Not often talked about is the German responsibility for allowing this crisis to develop. I dont mean the last 4 years but the preceding 6 or more when the state of these 'miscreant' countries was evident but nothing was done. Germany should not be allowed to feign indifference to the state of the EZ. Paul's programme is sound but unlikely to be adopted.

  • rate this

    Comment number 9.

    Remember this crisis is more than a euor crisis - it's a crisis for capitalism.
    It's wrong to think that its a problem with the economic management of southern Europe.
    Finance capital has lent too much everywhere & not all the debt will get repaid.
    As capital gets devalued (depression) will central banks debase the world's currencies trying to save themselves (i.e. the rich)?

  • rate this

    Comment number 8.

    I haven't seen much of the crisis personally and in Spain no one starves, maybe some have to tighten their belts. I consider myself lucky, but you see the effects of austerity more often everyday. A doctor in the family who is owed 6000€ by the regional government isn't paid, a student who was awarded a scholarship isn't paid, a sister moves to London to find work, everyone learning German, etc.

  • rate this

    Comment number 7.

    This is a wonderfully written piece, Paul. Thankyou!

  • rate this

    Comment number 6.

    The “smaller/weaker” nations were flattered that they were invited into the club and considered themselves equal partners whose interests would be promoted and protected.
    The result is Germany has all the money and everyone else is broke.
    A simple rule in life - be very suspicious when the big boys invite you to play poker.

  • rate this

    Comment number 5.

    The most sensible thing for Germany is quit Euro , introduce Mark . Keep the euro as exchange. Euro survives. Germany is on par with Japan and China in exchange holding. Then based on business need Germany can decide the exchange rates between mark and euro.

  • rate this

    Comment number 4.

    I think too many are forgettign that the opposite side of the coin called risk is opportunity.

    Perhaps the only way to overcome those who would block a European fiscal union is to engineer a crisis where all other options look so bad that only the fical union one can be accepted?

  • rate this

    Comment number 3.

    Well done Paul. We need more of this kind of reflective, thoughtful and balanced commentary/analysis.

  • rate this

    Comment number 2.

    'They' could take all the actions that you list to stem the crisis apart from the last one and they would still not stem the crisis. Not fully.

    The only one the would, really, is the last one, the 'Germany Pays' one.

    Like Merkel or not, its not much of a choice is it.


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