Dominic Sandbrook – Daily Mail May 14, 2012
For the high priests of the European project, these past days have been probably the worst in living memory.
With every passing hour, Greece, the birthplace of democracy, looks more likely to exit the eurozone after the country’s voters rejected the strict austerity programme recommended by their European masters.
But the turbulence has spread, with the French people having kicked out Nicolas Sarkozy and replaced him with his Socialist rival, Francois Hollande.
The new president promises massive new state spending to reinvigorate the economy — even though this flies in the face of the austerity pact championed so sternly by Germany’s Angela Merkel.
Today, the two countries’ leaders meet as the financial markets ponder a possible rupture in Franco-German relations. This Merkel-Hollande showdown looks set to be the most decisive European meeting since the end of the Cold War.
Given the growing panic in the markets, the pair probably have only one chance to decide a clear line and save the euro — though even that now looks dubious.
But the record of the past few years, as well as the deep ideological gulf between the German and French leaders on the issue of ‘growth versus austerity’, means their meeting will probably produce yet another fudge, and the eurozone will slide further towards disaster.
Meanwhile, the Spanish government has been forced to bail out the troubled lending giant Bankia, sending tremors though the stock market.
All this probably sounds very familiar. For more than four years, the headlines have been full of doom and gloom, with the sorry saga of the euro usually at their heart.
But the truth is that Europe is approaching the crunch. And in their very different ways, the Greek and French people may have pronounced the death-knell for an economic regime conceived in hubris but now collapsing in ruins.
With every passing day, the chances recede that Spain will escape the kind of meltdown that has afflicted Greece and Ireland. With every passing day, too, the chances of the eurozone surviving dwindle still further.
And for our own embattled government — a Coalition that has presided over a second recession and seen its support eroded in the local elections — all of this presents a horrendously daunting challenge.
If the euro does collapse, then Britain’s economic revival will be in severe jeopardy. Yet if Brussels and Berlin continue to impose unprecedented austerity on Europe’s people, then the consequences in social alienation, political extremism and international tension could be even more terrifying.
At the heart of the crisis, as ever, is the wreckage of the Greek economy. Even after months of bad news, the latest figures are genuinely shocking.
Under the latest austerity regime, imposed by the EU and the International Monetary Fund in a desperate attempt to slash Greece’s gigantic deficit, unemployment has now hit 22 per cent. Among school-leavers, it is 54 per cent. In the past four years, the Greek economy has shrunk by 20 per cent.
Little wonder that so many Greeks, bruised and battered by austerity, have turned to extremist parties, making it impossible to assemble a democratic coalition to run the country.
The most likely outcome is that eventually, despite a new election, Greece will end up with an unelected technocratic regime that effectively does the bidding of Brussels and the IMF.
The problem, though, is that this would almost certainly provoke bloody street protests, as well as giving an even bigger boost to the parties of the far-Left and ultra-nationalist Right.
Whether there is any point persisting with the EU’s austerity plan, though, is another matter. Many observers now believe that Greece has no choice but to abandon the euro, devalue its new currency and start again.
A Greek exit would send shock-waves through the eurozone. Portugal and even Spain would probably come under fierce market pressure in their turn.
But the really frightening thing is that, actually, this might be the least worst option.
Until last week, the Greeks were under pressure from both Berlin and Paris to sacrifice their own interests at the altar of the euro. But the election of Francois Hollande may have changed everything.
In place of austerity, Mr Hollande proposes to start chucking money around as if it grew on the apple trees of his native Normandy.
He has promised to hire 60,000 new teachers, to create 150,000 new public sector jobs, to bring the retirement age down to 60, and to take on the ‘financial elite’ he blames for the crisis.
Unfortunately, it is not obvious where the money is going to come from considering that the French economy is in a pretty poor state.
In any case, if he sticks to his spending promises, he risks alienating the markets, smashing the European fiscal pact and breaking the alliance with Mrs Merkel.
What’s more, there is no guarantee that France will escape the European contagion. For it is becoming increasingly and disturbingly clear that there are huge problems across France’s Pyrenean border.
Portugal is in a terrible mess. After a €78 billion bailout last year, Lisbon slashed welfare spending, cut public sector pay and put up taxes.
The Portuguese economy is likely to shrink by another 3 per cent this year and the government has even abolished four public holidays in a desperate attempt to boost economic activity.
But it is the wretched situation in Spain that is most worrying. Unemployment stands at more than 24 per cent, while half of all under-25s are out of work.
The country’s banks are sitting on €184 billion of bad debts, equivalent to more than 17 per cent of Spanish GDP, which they ran up during the disastrous construction boom before 2007.
Many experts fear a catastrophic wave of bank losses, sending the Spanish cap-in-hand to the IMF.
Of course Ireland, Greece and Portugal have already been down that road. But Spain is a different matter.
As the fourth biggest economy in the eurozone, Spain accounts for almost 9 per cent of European GDP. A Spanish meltdown would hit many British businesses hard, from airports and airlines to banks, construction firms and travel companies.
You would like to think that George Osborne’s Treasury officials have already drawn up contingency plans to deal with the possible collapse of the euro and implosion of the European economy.
But the fact is that the British government is the prisoner of events. David Cameron will be a mere spectator at the meeting between Mrs Merkel and Mr Hollande which could have a seismic impact on this country’s economic future.
From Britain’s point of view, that is perhaps the most worrying thing of all: that our future isn’t really in our own hands, but may be decided on the streets of Athens and in the government committee rooms of Berlin.
Despite such impotence, Mr Cameron still has to prepare a potential strategy should the eurozone fall to pieces.
Many believe he should be lobbying Berlin to allow an orderly, managed retreat from the euro, which might give countries like Greece more chance to recover.
Even so, the Prime Minister can do little as we all watch the death agonies of the euro.
Like Ramsay MacDonald during the great European banking crisis of 1931-2, he cannot do much more than watch from the sidelines and cross his fingers.
As a student of history, Mr Cameron will know what happened the last time the world economy collapsed in ruins.
With capitalism and democracy in retreat, many European countries turned to military strongmen, extremist agitators and xenophobic demagogues. Barely eight years after the continent’s banks had collapsed, the world was at war.
As a self-proclaimed optimist, Mr Cameron has no doubt ruled out a return to the nightmares of the Thirties.
But for months on end Europe’s leaders have been telling us that we were about to turn the corner. Instead, things have been getting steadily worse, and now they have reached a new low.
My own feeling is that things will get a lot worse before they get better.
This week’s events may not be the beginning of the end. They may only be the end of the beginning.