Portugal’s arrival with its begging bowl was inevitable and foretold. Spain struggles on. It may be next. A hard nosed assessment of the state of its banks would predicate that it is next in line. Hovering at the side, it hopes that property assets will pick up in value to the notional figure that its banking sector thought they were worth, or near to it, to reduce to manageable, losses yet to be acknowledged. Maybe. Maybe not. Maybe pigs will fly.
In the Eurozone there are two systemic problems. The first is that, as this blog has stated so often, you cannot have a long term viable currency without a government. Modified slightly to accommodate many sovereign states sharing one currency, financial and economic policy must be under one central authority, over-riding fiscally the sovereignty of national governments. If you refuse to surrender that sovereignty, you cannot have the currency.
The second problem is that in some countries (including GB which is not in the zone) have developed what are, in effect, false economies based on continuous borrowing against ever inflating property values, while actual production of real goods and wealth slows and demand is met by imports. Once the property bubble bursts these countries are either bust or in trouble. If they have their own currency, like GB, they are in trouble. If they are in the Eurozone they are bust and lending them more money will make them even more bust.
Building an economy on the ever advancing value of assets, without matching this by productive capacity, is similar, but less offensive, to the economy of the Confederate States of America. The asset and the economic driver was slavery . When the slaves were freed, the value of land and everything else dropped and the economy collapsed. At the end of the civil war 80% of all the wealth, real wealth, of the re-united States was in the industrialised North. It took a century and oil for the South to recover and even now living standards outside the oil centres are lower. History is full of lessons.
Meanwhile the ECB has increased interest rates, fearful of inflation running at half the rate in the U.K. In contrast the MPC, in disagreement and fearful of choking off the recovery, once again does nothing. If it is a recovery based on borrowing which will be ‘choked off” by a half per cent rise in base interest rates to control inflation, it is a recovery not worth having. Better to kill it and start again.