I make no pretence to understanding the full ins and outs of global financing. In fact, I suspect half the people who do have a pretence to that understanding are talking cobblers. But this much is apparent: we’re fucked. The only question is how badly and how quickly. Unfortunately, the answer seems to be ‘very’ and ‘soon’.
The Euro was always madness – as should have been apparent to anyone bright enough to operate a light switch.
Imagine if you will that each county in Britain used the pound as its currency, but were responsible for their own finances. What would happen if the Lancastrians, in their usual light-hearted whimsical manner decided to spend £40 billion more than their income (probably on insubstantial froth like Olympic bids and trams)? Eventually, the national government would have to step in in some way to teach the errant little buggers a lesson and pay the debts.
Which is fine if you’re a country – up to a point (what if Norfolk and Surrey overspent to a similar degree?) But what if you’re not? The EU isn’t a country and apart from a load of bits of paper, agreements and accords what – really – is to stop any of the members doing whatever they want? Fines? Colourful language?
Indeed, that is precisely what Greece, Portugal, Ireland, Spain and (scarily) France did. While the good Protestant Germans dourly saved their cash, everyone else invested in a colossal orgy of unrestrained spending. Private debt blossomed – generating economic growth from consumption which was eagerly swallowed in taxation.
And this taxation then became “investment” – in infrastructure projects… ever-more grandiose schemes to ‘unify’ this and that… redistributive ‘social justice’… chimaeras of equality.
So fast was the growth in spending that the governments decided they wanted a slice of the debt pie too – after all, there would be more money tomorrow, so debts were perfectly ‘serviceable’. And so they borrowed. And borrowed. And borrowed some more. Remember Gordon’s Golden Rule: “the Government will borrow only to invest and not to fund current spending”
With hindsight, does that make any fucking sense whatsoever? What is the difference between “investment” and “current spending” anyway?
The bankers couldn’t believe their luck. Not only could they lend to hapless consumers caught like rabbits in the headlight of “everyone must have better shoes” but they could lend to entire countries. Of course, you can’t lend what you don’t have, so they had to borrow in turn – raising “money” through “innovative financial instruments” that hapless regulators couldn’t understand enough to regulate about.
The picture got very messy very quickly. The implosion of 2008/2009 happened very quickly and Gordon’s mantra (“the financial crisis was caused by the American sub prime market”) was adopted all too easily in place of serious analysis. The problems didn’t go away. The weak point could have been exposed anywhere in the chain.
On 18th September, no less a body than the IMF was happy to declare that Ireland “didn’t need assistance“. On the 14th November, the Irish Government were telling the world that they “didn’t need money” either. And yet by the end of the month Ireland were being bailed out. The Irish Justice minister now admits that the European Central Bank pressured Ireland into the deal.
So when the EU decided to proclaim that rumours that Portugal might need help were “absolutely false” a few days ago it was no great surprise to learn today that the vultures are circling around Portugal, and I give it two weeks – tops – before another ‘bailout’ is announced.
And this my friends is the End Game. For once Portugal goes, the pretence that Europe can somehow find the money to fund this fantasy game must surely be up. Even if Portugal can be “saved”, there is no way that Spain can. Beyond that lies Italy (already wobbling) and then, la Gloire herself: France.
Ordinarily I’d be happy to see the European Project in disarray and panic, and part of me is rubbing my hands in glee at the thought of its imminent dismantling.
But the chickens will also come home to roost here. Right here on our streets. For even though our Glorious Coalitions much-vaunted “cuts” have won the “approval” of the “markets” there is no escaping the cold reality that we too are just another domino in the chain. Our projections of the restoration of some kind of fiscal balance in 5 or 6 years will be soon shot to shit if the markets decide we can’t actually afford our debts and start cranking up their lending rates. It’s already a squeeze as it is.
The Bankers: Against a Wall
When the end does come, it will be very scary indeed. The modern vision of “The European” is a thin, bespectacled, grey-suited, reasonable, soft-left techno/democrat pacificist. But away from the podiums of the European institutions lie the faultlines of thousands of years of bloody history. Remember that within MY lifetime – and I am only 35 – guerilla warfare has raged in Ireland, shots were fired over cod fishing rights, the Balkans dissolved into an orgy of ‘ethnic cleansing’, armies faced each other across the Iron curtain, revolutions struck Eastern Europe and more besides.
This is not the bland, happy Euro vision of Eurovision, but a dark and troubled continent with a history of monstrous violence – hints of which you can see in the pan-European protests sprouting like mushrooms in the foetid darkness outside. Whether you are of the left or the right, a statist or a libertarian, if the financial holocaust hits us then your petty ideology won’t be worth the free blogspace it is hosted on.
If governments are to blame for their supine incompetence, then behind them lie the bankers. The scales are starting to fall from the eyes of those who for years championed the “more goverment is always better” mantra, but the bankers have – despite jokes about ‘Fred the Shred’ – thus far avoided their comeuppance.
If I was them, I’d move my operations offshore. And not to avoid paying a bit more in taxation.