As we watch Italy’s 10-year bond yields smash through 7.3pc and threaten to detonate the explosive charge on €1.9 trillion of debt, it is time for the world to reimpose order. You cannot allow the biggest bankruptcy in history to run its course – with calamitous domino implications – before all options have been exhausted. One can only guess what is happening in the great global centres of power, but it would not surprise me if US President Barack Obama and China’s Hu Jintao start to intervene very soon, in unison and with massive diplomatic force. One can imagine joint telephone calls to Chancellor Angela Merkel more or less ordering her country to face up to the implications of the monetary union that Germany itself created and ran (badly).
Yes, this means mobilizing the full-firepower of the ECB – with a pledge to change EU Treaty law and the bank’s mandate – and perhaps some form of quantum leap towards a fiscal and debt union. Germany will of course try to say no. But it will pay a catastrophic diplomatic and political price, and will fail to save its economy anyway if it does so.
Having followed the German political scene closely for the last five months, it is clear to me that almost the entire German political establishment is out of its depth, ideological, sometimes smug, apt to view the EMU debt-crisis as a Calvinist morality tale, and lacking in deep understanding of what it has got itself into. One can understand German worries about money printing – and especially the loss of fiscal sovereignty and democratic control – but matters have already moved on. It is too late for that.
As for the EU authorities with their mad contractionary fiscal and monetary policies in an accelerating slump, they seem to have achieved little by toppling two elected governments in one week. In Italy they have already made matters worse. I doubt that much will change with “technocratic governments” in either Greece and Italy, yet immense damage has been done to democratic accountability.
The EU Project has become both dangerous and insane.
