THERE are worrying indications that the eurozone's firewall, which is struggling to prevent the banking crisis in Greece spreading to other weak Mediterranean economies, is beginning to buckle.
On Monday alone, nervous Greeks withdrew around 800m euros from their banks. Yesterday afternoon Spain's economy minister was forced to make a statement denying rumours that there was a run on the part-nationalised Bankia bank, following reports that one billion euros had been removed in recent days.
So far in this crisis, one man who has been bang on the money is former British Chancellor Alistair Darling. As he warned months ago, the European fiscal stability pact imposed on Greece is something akin to the 1919 Treaty of Versailles, which humiliated Germany to the point of undermining parliamentary democracy and presaging the rise of the Nazis. If you offer people an institutionalised downward spiral of austerity without hope, it is hardly surprising if they reject it.
There are clear signs of desperation from the normally phlegmatic Mr Darling, who warned last night that a banking crisis can "blow up in a matter of hours" and accused the EU of "running around like headless chickens for two years". He believes the fall-out from a Greek default would dwarf the crisis precipitated by the Lehman Brothers collapse in 2008. Yet, if current trends continue, eventually the Greek banks will run out of money, creating a panic across Europe from which Britain would not be immune. Only some confidence in the future can stop the haemorrhage.
Recent elections in France and elsewhere suggest Europeans too are rejecting undiluted austerity. Shrinking economies cannot pay their debts. Given that Greece represents just 2% of the European economy (about the same as Manchester), the cost of a modest growth package is bound to be smaller than coping with the consequences of banking collapses in Spain and Italy, which could easily follow "Grexit".
Mr Darling has not suggested what such a growth package might consist of. However, it must be sufficient to persuade the 70% of the Greek electorate who are said to favour remaining in the eurozone to back that wish with their votes next month.
Clearly there is an issue of moral hazard and nobody denies the need for fiscal reform but if the Greeks are ever to dig themselves out of their crisis, they need to be offered a couple of carrots along with all the sticks. Youth unemployment is at crisis levels across most of Europe but nowhere more so than in Greece and Spain, where it is over 50%. If, instead of barracking from the sidelines, David Cameron suggested an EU package to address this crisis, it would provide a ray of light at the end of the tunnel.
In a crisis politics becomes fixated on the present but politicians should also consider the future. Lost generations in Spain and Greece – both no strangers to right-wing dictatorships – could be easy meat for far right extremist groups.
Of course, in Britain too the deficit cannot be tackled without growth.
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