November was when the banking crisis of 2008 finally hit home. The governments of Europe have bankrupted themselves by taking on the debts of the banks. The latest move by Angela Merkel and Nicolas Sarkozy is the final nail in the coffin of the eurzone economies. It saddens be greatly to say that, but I can't see any way out for them now.
What was decided in Paris was that, in future, private investors will not incur any losses in future defaults by eurozone countries. In Greece, the banks and investment houses who had bought up Greek debt were forced to take a "haircut" of some 30-40%. This freaked bond investors and made them wary of taking on sovereign debt of any Mediterranean states - which is why Italy's borrowing costs leapt above the crucial 7%. Markozy decided that the only way to calm the markets was to give them a promise that future losses will be taken onto the state.
All very well, but the sovereign states of Europe are already effectively bankrupt, not because of public debt, but because of the 23trillion that has been lent by eurozone banks. This is the real wild card. By any reasonable standards, the eurozone countries are already insolvent. And there is no one left to come along and pay their debts for them. This is why the rating agency, Standard and Poor's (what a wonderful, Dickensian name that is) has put them all, even Germany, on notice of credit down grade. This will make it even harder for them to borrow money, and will increase debt.
But all those gloating over the misfortunes of the eurozone should remember that Britain is deep in the debt pit as well, and it is only because we have been debauching the currency and igniting inflation by Quantitative Easing that we have been left alone for the time being. There is a reckoning here too.
