Like chickens in a pen with a wolf circling around them, the markets are uneasy. They crash and recover day after day. Their problem is that the wolf, ie the problems with the managementof the Euro, will not go away.
Now everyone, including the British Government, thinks that there has to be central management of the currency if it is to survive. This means economic policy for all its members decided by one authority, sovereign over the individual states, at least in matters of money. There is no structure in place, nor is there a mandate to put one together. None of this has been thought through, neither would any electorate in Europe give up the sovereignty to allow such a fundamental change to take place. Thus we are back to the impossibility of having a currency without a government.
There have been meetings and handshakes a plenty and ringing declarations of intent, but nothing has actually happened. Meanwhile Italy’s austerity package is unravelling, like a ball of wool from an uncertain hand. First the tax on the better off went and now the entire country is at a halt because the unions have called a strike. The nature of Italy’s government, even the nature of Italy, offers no hope that fiscal discipline will triumph or that voters will concur.
Matters are made worse by the leaking news at the weekend that many of Europe’s banks could not stand a sovereign default or even a re-structure. This means they are bust already, because no way will these rampaging borrowings be paid off without significant modification. Bankers have behaved with such arrogance and greed, that it is doubtful whether anygoverment in Europe has the backing of its voters to bail them out, without outright nationalisation.
There is no clear answer to any of this. No wonder the markets are nervous. The wolf continues to prowl.