Greek fire

That Greece was the first European Union country to be threatened by bankruptcy was doubly unfortunate. First,because it created the impression that it was a relatively small problem,for a tiny country on the margins of Europe. And it was unfortunate,too,because the malfeasance of its political class which had chosen,knowingly,to spend more than it should and then to borrow far more than it could repay caused all subsequent events to be viewed through a stern moral framework: as ye sow,so shall ye reap. Why should the healthy economies in Europe continue to bail out the irresponsible?

Neither way of looking at things helps any more. The contagion has now spread like Greek fire across the Mediterranean,with Spain and Italy,two of the EUs largest economies,suddenly at risk. Nor do the moral spectacles give us a clear picture: while Italy has been comprehensively mismanaged under Berlusconi,it should be nowhere near disaster; and Spain was,till very recently,a model economy with low debt and a budget surplus. So why are their bonds under threat? Simple: investors believe other members of the EU are too angry to allow their shared central bank to support southern European governments bonds any more,by buying them. And thats why,too,the euro has slipped to a 10-year low against the yen.

The concern that northern Europe has had enough is real. The right-wing German tabloid Bild warned,when an Italian was named to take over the European Central Bank,that inflation was as much a part of being Italian as tomato sauce is for pasta. Yet there is much that is wrong with that picture,too. The lesson? Monetary policy can never be divorced from politics,because fiscal policy is the location for politics. This is the inevitable consequence of a depoliticised currency for a politicised group of states. We still cant tell whether the European grouping will respond by bringing their fiscal policy and politics into line,or by slowly dissolving their grand post-War experiment.