Friday, November 04, 2011

Papandreou's week

From Eurozone crisis: the revenge of politics Guardian editorial 11/03/2011:

What had appeared to Mr Papandreou to be good Greek politics – playing hardball with an unruly party – turned out to be a lousy European strategy. He failed to take account of the fragility of the deal that had been hammered out in Brussels: if its components failed to hang together, each vulnerable state would hang apart. Sky-high spreads on Italian debt yesterday confirmed that it is next in line. It is the third-largest debt market in the world, an economy with the sheer heft to shake the eurozone to its foundations. This reality never entered Mr Papandreou's calculations, but for Germany and France it was bound to be decisive – and so it proved. While Silvio Berlusconi fights a desperate battle for his own survival after his failure to win agreement for urgent reforms in Rome, the minds of Angela Merkel and Nicolas Sarkozy were already being distracted from the Greek farce by the question of how to salvage the solvency of an Italian state which is too big to bail out. At the G20 in Cannes, the German chancellor and French president broke the last great taboo of the crisis and referred to the possibility of Greece being cut loose from the single-currency club.

Should that happen, as it may, the consequences for Greece are wildly unpredictable, and could be dire indeed. But so too could be the consequences for Europe more widely, as the entire periphery of the continent scrambled to avoid going the same way. The doomed Papandreou plan for a referendum was always both messy and risky, but it at least had an intelligible aim – injecting some desperately needed democratic legitimacy into the resolution of Europe's crisis. The prospective parliamentary elections could prove an even messier way to do the same. For all the talk of vast, impersonal forces, financial markets must exist in a social context, and their functioning relies on a measure of acquiescence. In administering ever more austerity, Europe's ruling powers have forgotten this simple truth – and now the continent is paying the price. European economics ignored politics for too long, and now European politics is wreaking its revenge. [my emphasis]
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