Gerald Warner: Keeping the fantasy of the euro alive is just prolonging the crisis

FIRST, the official version. The crisis in the Eurozone was, until recently, a serious problem and a threat to the prosperity of its 17 member states; but thanks to the timely intervention of the European Central Bank (ECB) in bailing out exposed banks with its LTRO three-year lending programme and the responsible behaviour of national governments in imposing austerity measures on their citizens, the crisis is all but over.

Job done; Eurosceptics discredited; the case made for further integration; Eurocrats may safely graze…

If you like your news agreeably sanitised, along the lines of Pravda reports on record rates of tractor production in the Ukraine circa 1949, then this reassuring narrative will be congenial. Unfortunately it is as far removed from the truth as the claims of Tony Blair anent the imminent threat from Iraqi weapons of mass destruction. The euro crisis is not over; it has not even reached its peak. The pattern that has developed is that, whenever the house of cards that is the EMU seems on the point of collapsing, mind-numbing amounts of money are pumped into propping up the doomed currency. The problem then appears to recede, only to return more aggressively after a short period.

The periods of remission have been growing shorter as the unsustainability of the bogus currency becomes more evident and the resources available for bailouts begin to run out. For years we were warned of the dire consequences of a Greek default. That has now happened, under the euphemisms of “restructuring” debt, “haircuts” for bondholders, etc. Two weeks ago, one ECB policymaker, Marko Kranjec, described the Eurozone’s solution for Greece as “satisfactory”. It did not seem so to Dimitris Christoulas, a 77-year-old retired pharmacist who four days later shot himself in front of the Greek parliament rather than face existence “scrounging for food among the garbage”, as his suicide note explained.

Satisfactory? With a budget deficit at almost 9 per cent of GDP, debt above 140 per cent of GDP, unemployment at 21 per cent (48 per cent youth unemployment), manufacturing down by almost 16 per cent and 60,000 small businesses bankrupted in the past nine months, it is questionable whether such an entity as the Greek economy any longer exists. Austerity carried too far produces more devastating results than prodigality, by liquidating a nation’s economic base. Now a snap general election is scheduled for 6 May, which could produce a left-wing government that would simply tear up Angela Merkel’s decrees, producing further chaos in both the Eurozone and the markets.

We have repeatedly been assured by policymakers that the Greek crisis is a unique phenomenon. Now here comes Portugal. By statistical sleight of hand, the Portuguese government exaggerated its deficit reduction in 2011 by 1.9 per cent, but the markets were not deceived. Commentators are plausibly predicting a deficit of 7 per cent for this year, with public debt exceeding 120 per cent of GDP. Portugal is the likeliest candidate to default next on its debt. That would further subvert the Eurozone, but it might just be the Iberian curtain-raiser for the main feature: Spain.

Spain could be Euroland’s nemesis. It is not a country that allows itself to be bullied. Last month, Spain’s new prime minister Mariano Rajoy took the “sovereign decision” to reject the EU deficit target of 4.4 per cent of GDP, setting his own figure of 5.8 per cent. That was an unprecedented slap in the face for Brussels, but with unemployment at 23.6 per cent and a majority of youth on the dole, there is a limit to the degree of austerity that can be imposed. Meanwhile, Spanish debt yields are soaring. It is unsurprising that a growing body of opinion there now favours leaving the euro.

So much misery – for what? To maintain the doctrinaire fiction that a single currency is sustainable across 17 disparate economies. The traditional solution to the problems faced by countries such as Greece, Portugal and Spain was devaluation followed by renewed growth. That option is denied them by the straitjacket of the euro. It is complete madness. Eurocrats’ demented vision of an integrated Europe under one monstrous nanny state is ruining the lives of millions. The unimaginable sums of money thrown into the euro black hole could have generated prosperity for entire nations.

No wonder even Marko Kranjec, who thought Greece’s situation “satisfactory”, also said: “Until I see very robust results I will not be sure that the [Eurozone debt] crisis is over”. George Soros declared last week: “The crisis has entered what may be a less volatile but more lethal phase.” The euro crisis will only be over when the euro is over.