Leaders: Tipping point reached in eurozone crisis

Published on 24/05/2012 00:00

A TIPPING point has now been reached in the crisis that has engulfed Greece and put her continued membership of the European single currency in peril. Yesterday, markets round the world fell sharply on reports that contingency preparations are now being made for a Greek exit from the euro.

The concern, of course, is less Greece itself, accounting as it does for less than 3 per cent of the euro economy, but that a Greek exit would loosen the brickwork around other heavily indebted eurozone countries such as Portugal, Spain and Italy. While eurozone financial institutions have been able to cope with bail-outs for Greece, a capital flight from Spain would be well beyond their capacity.

Just such a capital flight has been under way in Greece for some time. It is now accelerating. Deposits are also leaving Spanish banks at an alarming rate. These events now threaten to overtake the latest European Union summit and leave it grasping at solutions such as a joint euro bond or project bonds, which may have had credence years ago but now look all too little, and far too late.

The hard truth is that, leaving aside the widespread allegations of misleading statistics submitted at the time of entry, Greece was never suited to sharing a common currency with a powerhouse economy such as Germany. There seems little prospect of a resolution to this crisis without a Greek exit. The 40-50 per cent devaluation that would ensue on the re-introduction of the drachma would at least offer some prospect of recovery for the economy two to three years from now where there is no such prospect at present.

But this is highly dangerous on two counts. First, it would trigger massive losses for those financial institutions who have lent money to Greece and who would now see both the principal and interest on these loans sharply devalued. And second, it threatens a major de-stabilisation of the entire eurozone, as it would be seen as precedent-setting. Financial markets would suspect other countries might follow suit, thus accelerating a far more devastating capital flight.

Once such a tipping point is reached, there is little that pious exhortations to Greece from yet another “euro crisis summit” could do to rally confidence. The fact that this crisis has been allowed to fester and intensify for three years has gravely damaged the credibility of the eurozone, its institutions and leadership. No-one seems able to take charge.

What the leaders of the single currency must now accept is that Greek membership was a colossal error, that the country should be allowed to leave in the most orderly manner possible and that the European Central Bank stands by with massive fire-power to limit the contagion effect on the banking systems and sovereign debt markets of other member countries. Markets must see the glint of hard steel if a pan- European financial maelstrom is to be avoided.

Archbishop talks independence

There is a problem being the Archbishop of Canterbury. He is expected to provide bold and fearless leadership for the Church of England at home and around the world. Long gone are the days when the pronouncements of the head of the CoE were limited to matters spiritual and theological.

But he is also expected to be judicious and circumspect in his remarks, given the divisions within his Church on issues from women clergy to gay marriage.

Inviting him to the General Assembly of the Church of Scotland was thus always going to be newsworthy. Indeed, news coverage is what his presence was intended to stimulate. So it is hardly surprising his remarks on the issue of Scottish independence – that it is “not a magic bullet” and that separation does not represent a solution to the country’s problems – would attract attention.

The Archbishop is, of course, fully entitled to his political views. But many will be puzzled as to why he considered it appropriate to pronounce on an issue that has no obvious spiritual or religious dimension. And given all the issues that have a Scottish dimension in which he has a locus, it seems strange that he reaches in to his left field for a topic. Scottish independence is a matter that will engage many people, among them those whose position or specialist knowledge would justify a contribution to debate. It is not clear that this is the case with the Archbishop.

It may be that he was sending a cryptic message to those who are moving towards a breakaway from the Church of England. But from the leader of a church whose very existence was itself the product of a desire for independence from a greater entity, it may be considered somewhat odd.