Last updated at 12:22 PM on 17th September 2011
The world economic situation has, according to IMF boss Christine Lagarde, entered a “dangerous phase”.
Central banks from around the globe have promised yet another bailout fund to stop Europe’s banks running out of money.
Although the financial markets have recovered (slightly), the respite is only temporary.
Protesters hurl rocks at police during a violent demonstration against austerity in Thessaloniki
Greece is still likely to default on its debts, which are 160 per cent of its annual GDP.
All that remains to be settled is the timing. It will happen when Chancellor Merkel of Germany, President Sarkozy of France, Eurocrats in Brussels and European Central Bank officials in Frankfurt finally admit the iron law of capitalism: that markets are more powerful than the wishes of politicians.
Until a few days ago, whenever one of Europe’s economic basket cases went to the German government begging for money, it coughed up.
But no longer. There are two reasons.
First, Germany’s constitutional court ruled that parliamentary approval must be given for further bail-outs.
Second, opinion polls – especially those taken among Merkel’s supporters – show approval for her policy has collapsed.
Not surprisingly, therefore, Merkel is turning off the tap and ordering colleagues to be wary of mentioning the word ‘default’.
Angela Merkel, German Chancellor is turning off the tap and ordering colleagues to be wary of mentioning the word default
What’s more she tried to boost confidence in Greece, absurdly telling her Athens counterpart how central his country was to the future of the euro.
That was a little like saying that Scunthorpe is central to the future of Sterling.
This ridiculous rhetoric nonetheless reassured the financial markets for the time being.
This is not because they believe what was being said: it is simply because they took it as a sign that, if Greece should prepare to default, Germany will still hand out a few billions more.
However, markets make judgments based on facts. Everything in the long-term points to a Greek default, not just because Germany cannot keep bailing out the Greeks but because they themselves are mulishly refusing to accept the necessary and long overdue austerity programme.
Meanwhile, the Chinese (who have been busy buying up European debt) signalled on Wednesday that they had bought enough. No-one else is keen to take on more.
George Papandreou, Prime Minister of Greece. If Greece defaults, contagion is likely to spread and more countries says Heffer
If Greece defaults, contagion is likely to spread and more countries, perhaps including Italy (whose debt is 120 per cent of GDP and whose economy is too big to bail out), are likely to follow.
Some language used in the last few days by eurocrats suggests this is a probable, rather than a possible, outcome. Why else would we keep hearing dark talk that if the euro implodes, so would the EU?
Why, too, would Jacek Rostowski, the Polish finance minister, warn that the debt crisis threatens to destroy the entire EU project and make wars in Europe imaginable again?
When such ministers engage in such hysteria, scaremongering has replaced reasoned argument.
If the eurozone does eventually evaporate, the next great event in European history would not be war but an attempt by the 27 EU members to make a new treaty to cement a union of nations no longer secured by the ideal of a single currency.
And, as one former Foreign Office minister told me, that treaty would seek closer integration between states – possibly even fiscal union - to avoid a repeat of the current crisis.
This, of course, would be a nightmare for David Cameron who is already under pressure from 120 Tory MPs who are calling for a looser association with Europe. Some – perhaps as many as a fifth of backbenchers - want out altogether while sentiment among Tory voters is profoundly anti-EU.
UKIP continues to do well in local elections by advocating withdrawal from the EU and making other traditional Tory demands such as restricting immigration and restoring grammar schools. If instinctive Tories vote for UKIP, the Conservatives would lose a wave of seats.
Mr Cameron used to believe that any treaty that changed the nature of the EU should be subject to approval in a referendum of the British people.
This was the stance he took towards the Lisbon Treaty (which would have given Brussels many more powers) until six months or so before he won power.
He was then told that the Treaty amended the earlier Treaty of Rome (the founding document of the EU) and that a vote against it would void the Treaty of Rome, forcing Britain to leave the EU. His referendum pledge was swiftly dropped.
The great danger now is that a combination of the Foreign Office, the malign editorial voice of the BBC (which regards eurosceptics as deranged and anti-Europeans as downright evil) and, above all, the Lib Dems would press Mr Cameron into signing a treaty advocating closer integration - and bully him to refuse a referendum on it.
That would have far-reaching effects.
Tory MPs are in no mood to see the PM collude in the pretence that the EU can carry on towards the same superstate goal by different means.
Indeed, the parliamentary Conservative party is more eurosceptic than at any time since the war.
It would be especially toxic for Cameron if he appeared to be manipulated by the Lib Dems on this issue as he is, regrettably, on so many other policies.
It would be especially toxic for Cameron if he appeared to be manipulated by the Lib Dems on this issue as he is, regrettably, on so many other policies
No party in Britain has a more shocking record of misjudgments on Europe than the Liberals.
The Tories rejected a single currency when William Hague became leader in 1997 and even Labour kept Britain out of the euro thanks to Gordon Brown, despite pressure from Blairites to join up.
By contrast, the Lib Dems have been obsessive believers in the European project throughout the disaster with the euro. This attitude reflects their fundamental distrust in British institutions and their disregard for national sovereignty.
David Cameron would be better off taking advice on Europe from his postman than from Nick Clegg and his deluded friends. If ignoring the Lib Dems breaks the Coalition, so be it.
But the really astonishing aspect of this debacle is that the political class failed to see it coming. Why did anyone ever think that 17 disparate countries, with different economic cultures, different work ethics, different industrial bases and different standards of living could ever adapt to a one-size-fits-all currency?
Why did they ever think a single currency could work in 17 different countries with 17 different finance ministers, 17 different tax systems, and 17 different economic policies? Why did they think it would work when country after country – including significant ones such as France and Italy – repeatedly flouted the rule forbidding them to run deficits of more than 3pc of their GDP, and nobody punished them?
I don’t profess to be a genius, but my own realisation that this could never work came when I was in the fourth form at school, just before the 1975 referendum on whether we stayed in what was then called the European Economic Community.
I read a newspaper report of a speech by Enoch Powell who said that you could only have a single currency if you had a single economic policy; and you could only have a single economic policy if you had a single Chancellor of the Exchequer. “And it won’t”, he added, “be ours”.
If the euro dies, the EU won’t, I’m afraid, die with it. Frantic, desperate attempts will be made to keep the twitching corpse alive. The big decision for our Prime Minister will be whether he joins the ambulance, or passes by on the other side.
Read more: http://www.dailymail.co.uk/debate/article-2038327/Eurozone-crisis-Hysteria-desperate-bid-twitching-EU-corpse-alive.html#ixzz1YJibJuUp
