The perfect Eurostorm

by Paul Mason

BBC News
May 3, 2012

Sunday night may conjure up a perfect Euro storm. Total political instability in Greece, a new French president elected on a wave of opposition to the Merkozy austerity plan, plummeting growth across the continent and everywhere the rise of non-centrist parties.

The story so far: in December, after the disastrous Cannes summit had unleashed a second euro debt crisis, the EU countries finally committed to a form of fiscal union.

The price Germany and its north-European allies exacted was a new fiscal treaty, signed by 25 out of 27 EU members, mandating balanced budgets from here to eternity, and forcing some countries to slam the brakes on to meet the 2014 deadline. In a word, mandatory austerity for a continent already sliding towards recession.

But they sugared the pill. The European Central Bank, which had always resisted quantitative easing, or itself taking part in the continent-wide bailout, suddenly turned on the taps in the form of a massive, temporary bank bailout known as LTRO: it pumped three year loans into the banking system at interest rates of 1% and a repayment date of three years.

This has been like the sudden connection of a saline drip to a very poorly patient. It removed the immediate threat of contagion from Greece, and allowed the Greek debt write-off of euro 107bn in February to be a) partial b) controlled c) controlled by the European centre, so that it is really a bailout of those who lent to Greece, not the Greeks themselves.

This, combined with the imposition of non-elected governments on Greece and Italy, and the election of a pro-austerity right-wing government in Spain, seemed to calm things down.

So why have they again erupted?

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