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.
This euro crisis is now getting extremely serious. Events are happening quickly, closing-in on policy makers and threatening to engulf us. Across the single currency zone, fears are rising and, even in the most moderate nations, populations are becoming more restive. History is locked on fast-forward. Some say that seemingly arcane economic policy debate doesn’t matter. In the UK, in particular, but across much of the rest of Western Europe too, the political and media classes have long displayed a tendency to roll their eyes whenever anybody with even a smattering of economic insight has had the audacity to show it.
For the bien pensants, ignorance of financial issues has been a badge of honor. Economics has been dismissed as a “trade”. To hold well-researched views about commerce and asset markets has been to be a suspect arriviste “striver”. Such is the prejudice of those cosseted from economic reality, their minds dulled by generations of inherited wealth. Well, such minds created the euro and what a disaster the euro has been. And the greatest disaster could yet be to come.
So now, there can be no question about it. The possibility of “eurozone exit” is real. For years, some of us have been arguing, until we were blue in the face, that the eurozone could break-up. For years the bien pensants have told us we were wrong. Only a fool would say that now. Greek exit could happen. To have worried aloud about the euro unraveling has been to be widely derided. I should know. I wrote my first national newspaper column predicting some nations could end up quitting the eurozone almost fifteen years ago, before monetary union even began.
Those of us who’ve long pointed to the technical incongruity of a single currency area with no common fiscal policy, were shouted down. Concerns about competitive variations, and different countries’ needs for exchange rate adjustment, at different points in time, were waved away, with condescending accusations that the great unwashed didn’t understand Franco-German “political will”.
So what if it’s totally unclear whether or not a second Greek bail-out will be agreed tomorrow? So what if, after a week of particularly nasty rioting, parts of Athens now resemble a “Mad Max” film-set? So what if the German cabinet, at the highest level, is split on whether or not Greece should default? So what that nobody can possibly know if such a default would be “orderly” or “disorderly”, with global markets remaining sanguine or unleashing months – years – of pent-up frustration?
So what if Greek a payment failure could send bond prices in other eurozone member states plummeting, spreading “contagion” across Western Europe and beyond? So what if the German cabinet’s disagreement over what to do is, in fact, only the sub-plot of deeper political schism between Germany itself and France?