The recent decision by the Bank of England to pump another £75billion into the economy shows that Britain, far from recovering, remains on the edge of another dip. But what happens to the British and world economy is, to a large extent, out of our hands. The greatest threat to our economic future is what is happening in the eurozone. The scale of the euro crisis has made one thing abundantly plain: Europe, Britain and the rest of the world would be better off if the euro had never happened. It would be preferable if it were now dismantled in an orderly manner.
Yet leaders of eurozone countries appear determined to keep the show on the road, however much voters and their parliaments object to the project. At the end of last month, Germany’s Chancellor Angela Merkel had to see off a rebellion from German MPs to win a vital vote in the German parliament to support the expanded €440 billion European bailout fund.
Last night, the parliament of Slovakia, one of the poorest of the eurozone countries, cast still more doubt on the bailout project by voting against paying its share of the rescue fund.
Never mind that the €440 billion fund is already considered too little too late — or that the European Commission President Jose Manuel Barroso resorted yesterday to demanding Britain helps bail out Greece even though we’re not a member of the eurozone. It is clear that eurozone leaders are already drawing up contingency plans to get round their national parliaments to increase funding if necessary.
At the weekend, Mrs Merkel and France’s President Nicolas Sarkozy claimed to have reached ‘total accord’ on a recapitalisation programme of hundreds of billions of euros to rescue ailing eurozone banks.
Their agreement came just before the Franco-Belgian bank Dexia collapsed, a clear sign that the contagion of Greek debt has spread from the southern fringes of the eurozone to its heart. Merkel and Sarkozy failed to announce details of their programme. But if reports are correct, one plan is for Europe to use some highly dubious financial wizardry to increase the amount it can borrow — injecting toxic assets directly into the bloodstream of the European financial system as it does so.
The latest idea is to get the European Central Bank (ECB) to lend up to five times the €440 billion of the bailout fund, taking the total available to more than two trillion euros. Why would Europe’s leaders do it this way, rather than demanding higher contributions to a bailout fund from individual countries? Because if this new huge bailout is done through the ECB, they won’t have to go back to their national parliaments.