The markets answer to the new EU bank stress tests yesterday was brutal. The cost of borrowing money for Spain and Italy soared. More rumours circulated about the difficulties of some banks borrowing the money they need to c arry on. There was a general mood that the EU authorities were still not taking the substantial measures needed to shore up their zone.
One of my constituents had just returned from Greece. Judging by the published figures, the economy is falling. Out put is down, real incomes are badly squeezed. Judging by the press comment, the public spending cuts are biting, with more lost jobs and money wage cuts.
I asked my source what it had been like. He said it was like going to a party. The restaurants were full where he visited. He saw plenty of economic activity. Everywhere he went he was told they liked tourists who pay with cash, not credit cards. The view seemed to be that they did not trust their government to spend their money wisely, so why go out of their way to put the income through the books or pay the taxes? If you could add the unofficial economy into the figures it might not look so bad.
This attitude is creating large tensions in the Euro zone. Germany and the other paymaster nations are asking why should they have to make good the tax revenues of Greece, and pay for the extra public spending. The more the potential paymasters lecture the Greeks on how to run their affairs, the more resentment it creates.
Meanwhile, the 400,000 strong Greek army of regulars and reserves needs paying and equipping. We are witnessing a struggle over who pays, and how. Expect some new fix based around more borrowing, this time in the name of Euroland as a whole. It will leave neither side happy. German taxpayers will be wary of the obligations they are taking on and will still ant more control over Greek spending and tax collection. The Greeks and other over borrowing states will come to resent the degree of surveillance of their affairs. We will soon need to ask the question again – what is the point of elections in some of these countries, where more and more will be settled in Brussels?