THE disease is spreading.
Financiers who warned that debt-afflicted Greece would prove contagious have been proved right. Already, Spain is facing acute problems financing its sovereign debt and many of its banks are failing. Prompt action is needed from Europe's political leaders to prevent the infection spreading to Portugal, Ireland, Italy and, ultimately, the UK. Unfortunately, action is not forthcoming.
This newspaper has always supported Europe and European integration. The European Union has been a force for peace in the world. Many countries in Eastern Europe were inspired to adopt liberal democracy to qualify for membership of the EU. Greece itself was in the hands of a military junta as recently as 1974. Let's hope the indolence of the EU political elite doesn't land it back there in 2012. The turmoil in Greece is reawakening extremism of the right and the left.
The single European currency was, in theory at least, simply an extension of the single market – a means of ensuring European nations were bound together in a common financial project. However, the institutions created by the European Union in the 1990s were never fit for purpose. For the single currency to work, there needed to be a single government in Europe, as in federal countries like the USA, with the power to levy taxes and arrange financial transfers among the partners in the union. Unfortunately, this central European treasury never evolved.
Instead, it has been left to Germany and France, the founding nations of the European community, to resolve difficulties on an ad hoc basis. This worked when economies were growing, but it has been tested to destruction in the current crisis. Being in a union means taking responsibility for the welfare of all nations that are part of it. It means Germany cannot wash its hands of the Greek crisis by saying, in effect: "Take the medicine or leave the eurozone." The medicine in Greece is killing the patient. The Greek economy has collapsed under the strains of trying to meet the conditions of the ECB/IMF bailout.
The medicine is also threatening to kill Spain, where half of all young people are without work. The Spanish economy has been in recession as a result of the bursting of its property bubble in 2008. But the deflationary policies it is obliged to follow by the European central bankers is turning this into a deep depression. Before long, all of Europe could find itself succumbing to debt-deflation. This must not be allowed to happen.
Germany must be persuaded to reflate its economy, abandon inflation targets that hamper growth and agree financial transfers through the institutions of the EU to allow countries such as Spain to embark on employment-creating growth. Nor can Britain stand on the sidelines. We may not be in the euro, but we are in the same economic boat, and failure to promote growth in Europe will plunge us further into double-dip territory. Europe must follow the expansionist policies pursued successfully by President Obama. Really, there is no alternative. We either hang together in this crisis, or we hang separately.
We moderate all comments on HeraldScotland on either a pre-moderated or post-moderated basis. If you're a relatively new user then your comments will be reviewed before publication and if we know you well then your comments will be subject to moderation only if other users or the moderators believe you've broken the rules, which are available here.
Moderation is undertaken full-time 9am-6pm on weekdays, and on a part-time basis outwith those hours. Please be patient if your posts are not approved instantly.