The German government is stuck on the horns of an extremely nasty dilemma. Berlin’s decision will go a long way towards determining whether or not we endure serious instability on global financial markets over the coming months. The future path not just of the eurozone but also the UK and, in fact, the entire world economy will be impacted significantly by Angela Merkel’s next move. The German Chancellor, moreover, has just days to make up her mind.
Is Berlin to permit full-scale quantitative easing? Will Germany’s coalition government allow money created ex nihilo by the European Central Bank to be used to buy the sovereign bonds of otherwise insolvent eurozone nations? While this is an arcane,technical question, the real-world implications are huge.
Sunday marks 25 years exactly since the Berlin Wall fell. Probably the most important political event of the second half of the 20th century, the collapse of that ghastly concrete and barbed wire divide across the German capital, and the broader Cold War schism it represented, is a subject close to my heart.
Normally a conscientious student, I heard a radio report from Germany in November 1989 and absconded from university. Leaving a flurry of scrawled notes for tutors, I raided my bank account and hitchhiked from the UK to Berlin. It was one of those truly life-changing moments.
William Hague was on rather shaky ground when he argued this week that Moscow has chosen “the route to isolation” by recognizing Crimea’s referendum. On the contrary, it is the European Union and the United States who look as if they have seriously overplayed their respective hands in Ukraine. Across Asia, Africa and Latin America, the cry of “Western hypocrisy” has been heard much louder than complaints about Vladimir Putin.
Even in the UK, mainstream opinion is steadily becoming more critical of Western interventionism and our “New Cold War” posturing – despite some pretty one-sided media coverage and much establishment “tut-tutting”. Independent thought is still viewed with suspicion, and even disgust, by some – and I should know, having consistently argued we should negotiate with Moscow, not threaten tough sanctions we’ll never impose.
UK car sales are now the second-highest in Europe. I know that’s true because I repeatedly heard it on a variety of national news bulletins last week and read it on the front page of several respected business newspapers. Yet it’s only true up to a point.
No-one is denying that 2.3m new cars were sold in Britain in 2013, according to the Society of Motor Manufacturers and Traders. That compares to 2.9m cars bought in Germany and marks a 10.8pc increase on UK car sales the year before.
The European Central Bank has acted. Across the 17-nation Eurozone, the benchmark re-financing rate was slashed on Thursday, from 0.5pc to a record low of 0.25pc. In Greece, Spain and other economically-fragile Eurozone members, where inflation is worryingly low, many welcomed the ECB’s action. In Germany, with its historic inflation aversion, Teutonic eyebrows were raised.
What’s beyond debate is that this latest ECB move is the prelude to a renewed round of money-printing. While America’s quantitative easing is meant to be “tapering soon”, in Western Europe the funny-money dials have just been turned up.
“It was Europe that toppled her”. That’s the conventional wisdom, repeated endlessly in recent days, on the subject of how Margaret Thatcher lost her grip on power.
It’s perfectly true, of course, as the record shows, that back in November 1990, many of the then Prime Minister’s own MPs voted to oust her from No.10, embarrassed as they were by her high-handed treatment of Britain’s “European partners”. For them, Michael Heseltine’s “consensual” approach seemed wiser and less troublesome. To tolerate and indulge Brussels’ vision of “ever greater union”, as numerous Tory bien pensants insisted, was to be somehow less chauvinistic.
This latest round of eurozone “crisis diplomacy” is set against a backdrop of growing evidence that the world economy is slowing. For weeks, global stock markets have been treading water, remaining relatively buoyant but on extremely low volumes, waiting for the QE lifeboat.
It really does seem as if every financial analyst in the world is fixated on the big central banks, anticipating the moment when the US Federal Reserve, the Bank of England and – as Berlin finally capitulates – the European Central Bank fire-up their virtual printing presses.