The price of saving the eurozone

State workers protest against the Spanish government's latest austerity measures There is no end in sight to Spain's recession

A few things have happened in the weeks since I was last here, so there may be some merit in reflecting - briefly - on where we find ourselves at the beginning of the new school term (so to speak).

On balance, the biggest risk to our prosperity, total meltdown of the eurozone, has diminished, though it has not been extinguished.

As you'll know because I've bored you to tears about it many times, there is a compelling argument that the long-term survival of the eurozone requires its national members to cede considerably more autonomy than they have hitherto done on the management of their economies and public finances: it requires the eurozone being transformed from pure currency union into a political union that looks more like a federation.

So what was most important over the summer is that there have been greater moves in that direction than at any point in the eurozone's inglorious history.

So today there exists a roadmap towards much more aggressive support by the European Central Bank for governments like Spain struggling to borrow through its planned Outright Monetary Transactions (OMT).

An agreement in principle has been reached for eurozone banks to be policed by the ECB and - ultimately - supported and quarantined in the event of crisis through the pooling of "resolution" or rescue resources.

And even on the table is discussion of a new discrete eurozone budget, to be funded by pan-eurozone taxation, which would be able to make transfers to member countries mired in recession.

If all of this were to happen, it would be big stuff. Predictably agreement on the detail is now bogged down in spats, which can generally be characterised as supplicant, struggling southern nations wanting easier terms for potential rescues than the rich north would prefer.

But the eurozone is less at risk of uncontrollable messy fracture than it was just two months ago.

All that said, not all members of the currency union head into winter insulated from potential shocks. Today's Greek general strike is a timely reminder that agreement has still not been reached on the latest phase of its succession of life-saving bailouts. And its economy continues to contract at an alarming rate.

If anything, for the rest of us, it is the economic, financial and political weakness of Spain that is most alarming. There is no end in sight to its recession, or diminution of its devastatingly high unemployment.

We will learn at the end of the week how may extra tens of billions of euros are needed to prop up Spain's banks. And there is a growing danger of national, political disintegration, as the Catalan government makes plans for a plebiscite on secession.

When you aggregate all this it yields the prediction that the eurozone is - on balance - likely to hold together (just), but at an enormous social and economic cost for Spain, Greece and a few others.

This is probably the least-worst outcome for the UK. That said, the creation of a federal eurozone might lift one of the great potential threats to Britain's economic rehabilitation and simultaneously generate something of a political and constitutional dilemma. It would present the British people with a tricky choice between becoming even less influential within the EU than is currently the case or contemplating becoming detached, like Switzerland or Norway.

Robert Peston, economics editor Article written by Robert Peston Robert Peston Economics editor

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  • rate this

    Comment number 33.

    "If Greece has nothing that the rest of the world wants to buy or need .."
    Greece has long been a 'playground' for the extremely wealthy. Unfortunately the country did not find a way to make them pay for the use of their assets. They presumably relied on the 'trickle down' effect, a theory encouraged by politicians and their cronies
    Many other 'playgrounds' are in the same boat

  • rate this

    Comment number 32.

    Simply planning to throw huge amounts of ECB funds by printing more euros to lend to badly managed economies and societies is as stupid as proposing to centralise control of banks and fiscal policy. It has not worked for the USA: QE infinity and fiscal cliffs are not sorting anything. The truth is that our glorious leaders have not got a clue! So they lead us all to the slaughter.

  • rate this

    Comment number 31.

    Spain’s economy is spiralling down.
    Eurozone members are being forced into a corner by debt & threatened with financial Armageddon unless they agree to fiscal & economic union. This has been the plan all along & it is beginning to look as if the wearing down process is having the desired effect.
    Once a United States of Europe has been established any democratic process in Europe will end.

  • rate this

    Comment number 30.

    This is still being portrayed as a case of 'financial firepower'.

    It is not.

    Governments are (still) trying to pay off the financial institutes at the expense of their own populations. This is why they should never have started to negotiate with terrorists.

    For all the hayhem that may ensue, it is now the people of southern Europe, not the banks of the north, that need rescuing.

  • rate this

    Comment number 29.

    Reading the report on European carmakers is grim reading, and begs the question that there may still be worse to come?

    Not sure Iceland is comparable, it is a bit of a quirk in terms of economy, population etc. So if we follow the Iceland model we won't even be able to afford to get drunk to try and blot out all of the misery...? One thing iceland also has lots of energy (but not exportable).

  • rate this

    Comment number 28.

    Euro will only survive by effectively blocking out the existing "markets", which suits them and the BRICS - SE Asia did the same late 90's

    It's US/UK neocon "markets" that are the really busted flush here - debt way higher than EZ and $/GBP both highly vulnerable unless EZ collapses, in which case all bets are off

    The casino is bust boys, they bet our future on a con - Wizards of Oz

  • rate this

    Comment number 27.

    Can anyone honestly see an EU referendum which includes joining the Euro succeeding in the next 5 or 10 years, even if they learned how to manage the currency properly which is doubtful & it was the best economic option, peoples memories of the last few years would stop them voting for it. If you're not in the Eurozone then you can''t be a proper part of future EU,

  • rate this

    Comment number 26.

    I see little difference between being governed by buffoons in London or other buffoons in Brussels. One significant challenge is in replacing the self interested with those that have the interests of society at large - and we don't have a moment to lose.

  • rate this

    Comment number 25.

    #19 we could not but some one did from MIT,LONG GAME IS EVOLUTION, The rich survivors have harnessed the worlds brains to build a way of this planet,at our expense,once resources have gone who needs eu ,usa etc,they can be real masters of the universe,fly of to the stars !!!!!!!!!!!!!!!!!!!!!!!

  • rate this

    Comment number 24.

    If Greece has nothing that the rest of the world wants to buy or need then how does Greece survive? The only way is to borrow money, but then how to pay it back, they cannot hope to do this. This is a situation that will be faced by a number of different countries and there is no easy solution to the problem

  • rate this

    Comment number 23.

    #18 So non EU countries have easy access to EU markets? Have you tried importing into the EU from outside the EU? The costs involve mean that the goods need to be 30% cheaper to be worth the hassle of importing. So yes, the UK would have the same access as for example China. No inward investor would look at the UK as a good base.

  • rate this

    Comment number 22.

    Should we aim to be a high-value offshore centre of excellence? If so, in what?

    Should we aim to be a pool of cheap, unskilled labour available for hire to the lowest foreign bidder?

    Or shall we pretend our financial sector is a world leader (beater?) and everyone else a dirty little pleb, and go for both?

    Hurrah! I think they've cracked it, whatwhat.

  • rate this

    Comment number 21.

    You are right the choice is between a rock and a hard place.Outside the EU just why would inward investors choose UK when we will have no say in rules and regulations governing trade with our biggest partner. Inside the EU we are left with compromised regulation nwhich we only partly support. The EU needs more democracy but whatever happens this is Hobsons choice

  • rate this

    Comment number 20.

    # 1 and 12 norway rich in raw materials, switzerland going bust just slower than uk, what has uk to offer other than cheap labor,every import of energy to keep factories running need some value added to profit from re export as finished goods,any ideas what these will be they need to brand new ideas got one you are on to a national winner, i think the iceland route might be way forward

  • rate this

    Comment number 19.

    Follow the money and it’s plain for all to see that the big winners are the banks at the expense of every European country and it’s tax paying population.

    Whole countries are being lead into perpetual debt slavery and for what? So that bankrupt institutions can continue to fleece the very sources that enable them to continue. You couldn’t make this stuff up , you really couldn’t

  • rate this

    Comment number 18.

    #12 "To leave the EU would block the EU markets for UK exporters"

    No they would not. Firstly it is against WTO rules. Secondly even if were not, if UK blocked EU exporting to UK it would hurt EU more than UK (that is the positive side of running a negative trade balance). Thirdly, as countries such as much of the world is not part of the EU you may find it surprising that they trade with EU.

  • rate this

    Comment number 17.

    Better to ask what will be the price of losing the Euro.

    600 million people without a currency + perhaps 100 million more around the World who rely on the Euro.

    Loss of the Euro will take the planet back a couple of hundred years in terms of economic development - think 1812 not 2012, then 30 to 40 years to recover.

    All this to save the CORRUPT BANKS!

    Kill the banks!

    Save the planet!

  • rate this

    Comment number 16.

    As 1) time to divorce ourselves from this pit of despair, billions of UK taxpayers money has been squander on a eurozone that was set up on an ideology of Germany so their Deutchemark could stop being so strong which was making their exports so expensive. Did you really see many BMW Audi Mercedes in the UK before the European Union was dreamed up? The answer is NO us Plebs could not afford them

  • rate this

    Comment number 15.

    Our Government made a clear decision in support of the people's wishes, and committed to leave the EEC. Inspired leadership created a dynamic culture amongst the latent brilliant UK people, and we traded our way out of trouble, with a lower tax regime and reward for effort. Then I woke up. Was it Nero who fiddled while Rome burned? Sound familiar? Oh yes, welcome back Robert, thoughts r with you.

  • rate this

    Comment number 14.

    This is not about saving the Eurozone, it's about saving French, German and British banks that took outsized punts in "safe" high-yield Eurozone sovereign bonds

    Following the subprime mess, Governments and CBs did a "save the banks at all costs". Moral Hazard increased and bankers took even more risks to boost bonuses (record ones in 2009)

    Common people in the PIIGS are now supposed to pay


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