A thought occurred to me watching Channel 4 News last night. We are all it seems waiting for some anarchic / cathartic moment with the Eurozone crisis. A cataclysmic earthquake which causes the entire structure to fall apart and countries forced to start printing their own money. We are all expecting to see massive capital flight to safe havens, terror stricken faces on central bankers, horrified Germans, delighted Tory MPs and various economists trying to tell us that they predicted this all along.
But what if this doesn’t happen? What if the Eurozone leaders keep on applying sticking plasters just big enough to stem the bleeding but not big enough to finally cure the patient?
I suspect we have been conditioned to expect the anarchic resolution scenario in this country in part due to our ejection from the Exchange Rate Mechanism in 1992. That day all hell broke loose with massive currency trades, emergency interest rates of 15 per cent, a Chancellor of the Exchequer caught in the headlights and screaming currency arbitrage traders bellowing at each other across London trading floors. Oh and George Soros looking very happy because he made billions that day and Peter Jay of the BBC seemingly the only person who knew what the hell was going on!
Ultimately, however, the experience was cathartic. The UK economy, released from the stranglehold of the ERM blossomed, which is what many predict will happen if the likes of Greece and Spain are cut adrift or leave the Eurozone of their own accord, devalue their currencies and use inflationary pressure to reduce debt. Then again, nobody is really sure.
Personally, I am beginning to believe that the key date is not when Greece or Spain’s next government bond repayment is due but the German elections when Angela Merkel has to face the electorate next year. Once Merkel herself is released from trying to get re-elected then we might see some progress on a growth strategy for the Eurozone.
As I write I note that Angela is talking at the G20 about getting the “big bazooka” out to finally deal with this. We’ll see, I’m increasingly of the belief that European leaders are not up to the task and that we are condemned to one sticking plaster after another with European, not just Eurozone, economies bumping along the bottom for a good while yet!