My words fly up, my thoughts remain below:
Words without thoughts never to heaven go
These lines from Shakespeare’s most famous play, Hamlet, aptly describe the critical issue in the Eurozone crisis.
This issue is very simple, as the blog discussed last July. Monetary union and a common eurozone currency cannot exist without political and economic union. This was clearly recognised at the start of the eurozone project in 1990. But nothing has since been done to make it happen.
Instead, we have had empty words. The most famous recent example was Mario Draghi’s July statement that the European Central Bank (ECB) would “do whatever it takes” to save the euro. This statement meant nothing, however as it had not been agreed with Germany – who as Europe’s richest country would ultimately have to pay the bill.
Now, the lack of substance is starting to be exposed. Germany faces elections in September, and public opinion will not allow many more late-night compromises in Crisis Summits to be achieved. Equally, whilst Germany can afford modest help for the smaller PIIGS countries such as Portugal, Ireland and Greece, it can’t support large economies such as Italy and Spain.
And, of course, others can also play with words to have an effect. Thus Beppe Grillo (pictured), who now controls the largest party in the Italian Senate, has told the German paper Handelsblatt that he intends to call an online referendum to take Italy out of the euro.
He added that once out, he would then devalue the Italian lira. Presumably he would also propose legislation to ensure Italy did not have to repay all of its current €600bn borrowing – much of which now comes from Draghi’s ECB, as many private lenders have withdrawn.
This, of course, is currently words too. But German voters may well not like the thought that Germany, as the ECB’s paymaster, might end up paying €bns to cover losses on Italian loans.
The message is clear. In the end, as Shakespeare knew, it is actions and not words that count. Europe’s politicians must urgently move beyond words and towards full economic and political union. If they continue to avoid the issue, then the collapse of monetary union and the euro will become increasingly likely.