Euro rescue: lifebelt or dead hand?

EUROZONE Finance Ministers left Brussels after their ‘Summit’, slapping one another’s backs, and breathing sighs of relief that the euro has once again been hauled away from the abyss.

The markets showed a somewhat muted acceptance of the €109bn rescue package for Greece, but clearly, the underlying mistrust remains.

You may recall the 2008 banking crisis which brought down Lehmann Brothers, and sent huge tremors rippling through the financial centres of the world.

We are still suffering the after-shocks, and even without the uncertainty over the long-term future of the euro, much of the western world remains close to recession. Yet it appears that the bankers and politicians have learned nothing.

What caused the financial collapse back in 2008?

Wasn’t it the fact that the banks and other money-lending entities had been suckered into a scam which, at the time, they thought was a sure-fire thing.

‘Sub-prime’ it was called, and consisted of granting mortgages to clients who had absolutely no chance of repaying the associated loans.

These debts were then bundled up into packages and sold off to other banks and financial houses throughout the western world, to be used as collateral on further loans. A pyramid scam if you like, which sooner or later, was bound to collapse.

I’ve often wondered who had the original idea and presented it to his or her employers. Find this one person, and you’d have someone we could put in the stocks and punish, with of course, the aid of lots of rotten fruit to throw.

Sub-prime. Yet, only three years further on, with the financial world still teetering, it’s happening all over again, only this time, instead of granting loans to private individuals who have not a hope in hell of paying them off, European Governments are lending huge amounts of money to Countries that cannot repay even the accumulating interest, never mind the principal.

The fact here is that, although the EU and the IMF talk about ‘Bail-outs’, what we have is still a Sub-prime problem, only bigger.

In the normal run of business, if a client defaults on his mortgage, he will eventually forfeit his property and whatever money he’s put into the deal; but what do we find now, when the EU and the IMF are the mortgagers and entire states are the mortgagees?

Of course, in cases like these the mortgagers can’t repossess anything, and so, ignoring any previous lessons, they go the other way: “Can’t pay your mortgage or even the interest? Never mind, we’ll lend you some more money, give you a bigger loan, to tide you over.”

I doubt if these financial wizards would behave in such a cavalier fashion if it was their own money they were squandering, but it’s your hard-earned cash, and you have no say in the matter.

The small print of the agreement itself appears to be peppered with political and economic danger signals, not the least of which points to the potential loss by all EU states, of fiscal sovereignty, plus, ‘where necessary’, the external long-term imposition of austerity measures.

Democracy, always rather fragile in the EU, appears now to have been officially put on hold, and one can’t help wondering what the public reaction in Greece will be.

Photo credit: The Council of the European Union