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 Article written by Robert Peston Robert Peston Economics editor

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  • rate this

    Comment number 393.

    The price of saving the eurozone.

    They've already told you Robert - anything, everything & more. It's part of their dream, you pay anything to have your dreams come true. Reality is for those not dreaming, let alone your dreams.

  • rate this

    Comment number 392.

    “You can cut all the flowers but you cannot keep Spring from coming.”

  • rate this

    Comment number 391.

    Alas, the IMF is again getting in the way towards a resolution of a financial crisis.

  • rate this

    Comment number 390.

    and just think, when the european spring does start all the governments will support it just like they did for the african spring.

    I wonder if the uk government will send in tornados to bomb those opposed the european spring, oh sorry that would be themselves.

    I think its only a matter of time before this starts over more of europe.

  • rate this

    Comment number 389.

    Greek finance minister Yannis Stournaras says the three parties in the country's governing coalition have reached a "basic agreement" on the austerity package for 2013-14.

    That's nice. All they need now is the population to agree to a return to the stone age to achieve these measures and, the jobs a good 'un. Not going to happen though is it?

  • rate this

    Comment number 388.

    I fear that the african spring will soon become the european spring as the general population rises up against those in power. It is already happening in Greece, Spain

  • rate this

    Comment number 387.

    So if 'austerity measures' work, why are Spain, Greece etc... having to take on yet more debt? reminds me of Einsteins saying...

    Insanity: doing the same thing over and over again and expecting different results.

    Well, the results haven't changed and, we're doing the same thing over and over again. This is the route the UK has chosen as well, oh dear. Another distraction war looms.

  • rate this

    Comment number 386.

    this still doesn't explain why debt is a good thing, all it leads to is more debt and then more debt. Each time someone sells this debt on the price goes up, but at somepoint this has to be paid back and that is the fundmental issue.

  • rate this

    Comment number 385.


    What is money?A promise to pay the bearer? Isn't a mortgage a bit like that? What if the bearer decides to take cash now and give the future mortgage earnings to whoever gives them cash for it?

  • Comment number 384.

    All this user's posts have been removed.Why?

  • rate this

    Comment number 383.

    We've rather brought a lot of these problems on ourselves by believing in the basic mantra of the banks ... but you want to be rich / comfortably off / able to retire / living in a big house / whatever, don't you?

    We woz 'ad.

    We should have put our time and efforts into community food / fuel co-operatives and side-stepped the financial industries, and politicians too, as much as possible.

  • rate this

    Comment number 382.

    I cannot think of one good reason why buying a debt would be an asset.

    To me this makes no sense whatsoever. And someone has marked our posts negatively, thats nice of them.

    However did that, can they please then explain why debt is such a good thing?

  • rate this

    Comment number 381.


    It's much worse than that. They make loans with money that does not exist. Debt = money. Really!

    But to them, a debt (yours to them) IS an asset. They buy and sell mortgages for example. And that was where the US subprime implosion ame round and bot us all.

  • rate this

    Comment number 380.

    Banks dont have assessts, they exist on debt, remember they have to borrow the money to provide loans. they borrow from the BOE or the get capital injections through QE.

    My business for example has a positive balance sheet because thats the way we run our buisness. If you run a buisness in debt then you have major problems.

  • rate this

    Comment number 379.

    32. rememberdurruti

    "No disposable income = no customers = no business"


    No disposable income = no customers = no business = stagflation

    A stagnent economy and rising prices have been experienced by Britain in the not too distant past. Its not very pretty.

    Britain was one of very few countries to emerge from this condition and remain a democratic nation. I hope she can do it again.

  • rate this

    Comment number 378.

    Will politicians, bureaucrats, not to mention financial experts, ever admit that a holding operation is what it is and not a solution for the
    impossible ?

  • rate this

    Comment number 377.

    Is the market now a true economic indicator ?

    While a small postive revision to negative GDP

    Given footsie been hovering around 5700-800 for a period now and if all bad things priced in does this mean good times roll on?

    Somehow I think not

    With sugar high free money those who can get it are removed from reality

  • rate this

    Comment number 376.

    If a bank fails, then it all its asset are liquidated by an adminstrator. Adminstration can take years (4 years later they are still at Lehmans). Meanwhile everyone who has money in the bank has their assets frozen. Just imagine all the business who can't pay their staff, you who have lost your savings/wages. Total assets are weighed against the liabilities you get a % back.

  • rate this

    Comment number 375.

    11 Minutes ago
    Re comment alan_jackson

    But this just shows the arguement. There is not enough money to go round.

    and you are correct, 300 characters is not enough to explain things properly :-)

  • rate this

    Comment number 374.

    Robert I think wishful thinking euro just hold together.

    What is point going crisis to crisis

    I am sorry but until tough decisions taken and Greece exits euro crisis will continue.


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