Eurozone: heading for the playoffs?

The eurozone continues to limp through injury time as the eurocrats risk injury to the entire team

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"This'll take more than a magic sponge..."
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Simon Miller
On 11 May 2012 13:27

Tomorrow sees the semi-finals of Premiership Rugby’s playoffs. You would think that, like other league-led sports, the winner would be the one that comes first. But no – with a mind on extra money and sponsor exposure, weary players have to drag themselves back onto the pitch for at least one more game and, as the Leicester Tigers can testify, coming first does not guarantee being crowned champions.

In some ways I feel like this about the eurozone. Just as we think we are coming to the end of the match and the season, there is yet at least another 80 metaphorical minutes to be played.

We all should know the score by now but still they refuse to blow the whistle.

To change sports for a bit, the euro is a battered boxer that has crawled himself up from the canvas but still the coach refuses to throw the towel.

The figures coming out from the EU are entirely predictable; the eurozone is in a technical recession and the debt ratio for the eurozone is expected to rise to 93 percent of GDP by 2013 – some austerity.

For those in trouble, there seems to be more of the same with Spain seeing its deficit hit 6.4 percent of GDP this year and the economy falling by 1.8 percent.

Italy will see its economy shrink by 1.4 percent and the Greeks will be further battered by a 4.7 percent drop this year – that is on top of the 6.9 percent suffered in 2011.

So how’s that plan for growth going chaps?

The problem is that the EC is hoping for some kind of super-sub. From the seeming intransigence of Angela Merkel over the fiscal pact, to Francois Hollande’s ludicrous idea that he will be able to abandon the spending cuts and cut the deficit to the required 3 percent (France’s forecast – 4.5 percent of GDP this year) through taxation, they all seem to be hoping that something turns up to change the game.

Well that is not going to happen. The Chinese have woken up and its largest sovereign wealth fund, the CIC, is to stop buying eurozone sovereign debt.

Other countries, as seen by the refusal of the US and Canada to contribute to the IMF top-up, are also looking at the basket case that the eurozone is becoming.

There have been some suggestions that the European Investment Bank should be allowed to intervene more aggressively but I hope that, as the UK is one of the four largest shareholders in the bank, Georgie boy tells them where to go with this idea. Investing in a bad idea is still a bad investment be it a company or a collection of countries.

How often do we have to say this? Without fiscal union, austerity cannot work. The sugar for the pill just isn’t there. And without fiscal union, the risk is that this will blow into a full crisis that will see not only Greece exit the euro but probably Spain with it.

Even those former diehards for the fiscal pact, the Dutch, are muttering about a loosening of policy. But all this does is put off the inevitable. The euro cannot survive in this form. The structures and politics make it unfit for purpose and the fallout is beginning to be felt as Credit Agricole found out when it announced a €940m hit over Greece this Friday morning.

And yet, despite the mass youth unemployment, protests, lack of governments, recession and the like, Le Projet Grand is still being supported.

To continue in the face of the evidence is sheer stupidity and something is going to give; the question is what? Will it be the Germans or, more likely, the Greeks?

What do the eurocrats really want? By chasing the ideal, they have risked the reality.

As a Harlequins fan, I know in my head that we are still two matches away from being the Premiership champions even if we have topped the league and there are two seriously good teams that will try to prevent that from happening no matter what my heart wants. 

If the eurozone wants to keep playing then someone is seriously going to have to engage the brain. By following the heart, the politicians and eurocrats risk serious injury, not only to themselves but to the spectators as well.

Simon Miller is the Editor of Financial Risks Today. He tweets at @simontm71

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