Meanwhile all that Europe has essentially agreed so far is what in air traffic parlance would be regarded as achieving a holding pattern. The EFSF [European Financial Stability Facility] and the planned EFSM [European Financial Stabilisation Mechanism] have and will continue to play a part of course but the real answer to this crisis is to let the European Central Bank acquire and support a very large proportion of Eurozone debt. While Greece remains a large thorn in the side of progress and over which I suspect some kind of tentative agreement covering the next tranche of required funding may soon be imminent [assuming existing bondholders are after all prepared to accept a haircut well in excess of 50%] I suspect that it is time to say after this NO More! As it should never have been allowed in I suspect that at some point over the next two years Greece will leave the Euro although I am bound to fear that if it does Europe may then face an additional set of political problems.

Howard Wheeldon is the Senior Strategist at BGC Partners

In the face of a strikes, riots and increasing political uncertainty one might so easily be tempted to say that we must be absolutely nuts to make any further payment. ‘Haven’t we given Greece enough chances already’ said one person said to me earlier today? For a brief moment I could acquiesce with such a view until you realise that this is about the potential of a default by one country such as those of Argentina and Russia a decade or two ago – this is about avoiding a default about Greece and that most likely when and if it occurs would bring down the complete pack of Eurozone cards and probably also the ground on which those were built – meaning the European Union. Yes, I can see exactly what you are thinking – GREAT – is the word which sprang to your mind wasn’t it? But be careful what you wish for – Britain may be fortunate enough not to be in the single currency club but as the Bank of England well knows make no mistake that collapse of the Euro would bring about significant damage to our economy as well.

For now and as long as an independent minded International Monetary Fund is prepared to have its troops on the ground in Athens managing and monitoring how loans made so far are pored into the great black hole that is Greece we probably don’t have sufficient reason yet to pull the plug. Sure, deep down most of us feel that as a country and an economic system in its present form that Greece is doomed.

Listening to BBC World Service in the very early hours of this morning as I have a habit if doing some rather surprising remarks from a couple of interviewed economists were to be heard. ‘Invasion’ was one solution put forward but it was the suggestion that Greece should merge or be taken over by Turkey that did at least bring a wry smile to my face! That said I suspect in all honesty that Greece probably feels that it has been invaded – by hoards of EU and IMF staff crawling over its books! Nonsense though the idea of invasion and merger might be they highlight growing concern that there is no belief out in the street that any real solution yet exists to bring Greece out of its crisis. It might also suggest that anyone seeing the Greek problem as merely a ten year one needs to get new glasses meaning this is a thirty year problem at absolute best.

In Brussels the message following yesterdays vote was very different and tantamount to dancing in the streets. How ridiculous but listening to some of the comments overnight that is exactly the type of misplaced euphoria that appeared to be all too evident. Day by day we wonder about the future of the Euro and of whether Greece will bring the single currency down. Loathed to the misplaced ideals of the blessed thing as I am if there is to be any change in attitude and approach to the future transition of the single currency I hope to God it is orderly as opposed to placed on demand. As things stand now a collapse of the Euro is unlikely because no mater how much it costs them the authorities will somehow hold it up. Right now against both Dollar and Sterling the Euro defies gravity. Why? Sovereign debt issues aside large parts of the Euro economy are actually doing reasonably well all things considered. Yesterday’s service sector data didn’t help and neither are increasing signs of concern over where the US economy goes from here or with just over four weeks to go before the deadline increasing worries that raising the US debt ceiling above the current $14.3 trillion may not be sanctioned by Congress.

Back to Greece – do we and should we try to hold the remaining pieces together for just a little while longer despite what we see on our TV screens? Do we give the Greek government a final chance to show that they are genuine in their approach to pushing through the proposed EUR28bn austerity package through to its full conclusion? Do we accept the inevitability that a second round of negotiations with regard to another EU120bn requirement should begin between the government and the EU/IMF authorities? Or should we better accept what long experience of watching Greece over the decades tells us - that no matter what there isn’t a cat in hell’s chance despite all the lovely proposals being pushed through Parliament that over the next couple of years’ public sector costs will fall or that tax revenues will begin to rise? Wars have occurred from far less than the Greek problem of today ad I suppose that the answer to the above questions is that we need to accept a combination of all of them. History also tells us that having been spoilt for decades with welfare and pension payments that defy belief, the possibility of public sector workers (the majority of working Greeks) to retire at fifty, a history of low taxes and too little willingness to pay them even then that the majority of the Greek public are hardly likely to make the government plan work.

Meanwhile not content that the Greek tragedy should be the sole thing on their minds our wonderful EU diplomats in Brussels reckon that we should increase our contribution to the EU by maybe 5%. What on earth planet do these guys live on!

Listening to German Chancellor, Angela Merkel at the press conference held this morning with French President Nicolas Sarkozy one senses not so much the word compromise in the air but more likely agreement over inevitability that the EU has no choice but to step up to the second Greek bail-out plate. OK, so nothing concrete came from the 'summit' between the two leaders this morning with regard to the huge problems of Greece except agreement to buy a little more time until more investigations are complete in September. Indeed, watered down though it may, when it comes to using the word 'voluntary' it seems that the German view has not changed that much. In fact it has and the word voluntary may be worth a lot more than it did earlier this morning.

For Angela Merkel to protest that Greek bondholders must share more of the pain is one thing but to achieve that is quite another! So whilst an unsatisfactory impasse remains that could provide dangers to other EU states if the IMF has as reported stepped up to the plate with regard to payment the final EUR12bn of the first agreed tranche of bailout funding to Greece we should all be able to eat next week. Of interest too and rightly so in my view whatever mistakes he has made in the past is that both EU leaders have gone for consistency meaning they are content to back Greek leader, George Papandreou if not through thick and thin but at least through the next difficult political rounds faced.

Meanwhile no one is left in any doubt through the events of this week that Greece is an unholy mess. With strikes and demonstrations continuing and with a batch of new government ministers to contend with and bed in Mr. Papandreou is faced with great odds as he struggles to maintain control of a worsening situation. It is though inconceivable in my view that having come this far that the EU/IMF authorities will fail to come together for a second EUR120bn bail out package for Greece in September. In the meantime I guess that while markets which are after all hugely powerful in this regard will do what they can to wreak further havoc on the bewildering Greek scene they will also decide that it is just not in their interest to press the self destruct button.

Germany can and no doubt probably will continue to throw more wordy toys out of its pram suggesting that Greece must do more to help itself and so must Greek bondholders. But while deep down few would disagree Germany cannot avoid the issue that having acquiesced to the risks that Greece could well bring in when it joined the Euro currency club in January 2002 it can hardly walk away from the problems that Greece ahs subsequently caused EU and Eurozone authorities. Hindsight is a fine thing and easy to say now that if proper levels of homework had been done by Germany which remains the engine of the Eurozone economy perhaps they would have better realised that as Greece relied for well over 70% of GDP on services (in excess of 50% of GDP is accounted by public sector employment) including tourism (15%) that the trade gap was out of line by two-thirds meaning this was a country that needed to buy far more of what it required from abroad the seeds of today's problem was already very apparent. Because of this factor plus others such as bloated public sector inefficiency means that Greece would always be prone to inflation. If Germany and France had used voices of reason and experience they might also have known that fuelled by the prospect of cheaply available loans at rates significantly less than those back in Drachma currency era that at some point the chickens would come home to roost. And so they did - chickens that had that all too guilty look of living beyond our means writ large over them.

Was it the hot dry weather in the very fine city of Aachen in Germany that caused M. Trichet, a former French civil servant, to have had such a momentary lapse of concentration? Probably not but like many before that attempted to conjure up new EU political doctrine it seems that M. Trichet made the classic mistake of failing to test the air of the regions voters. Had he done so he would I think have found that right across Europe they want the EU to have less power and control over their lives rather than more. That he chose to come out with the idea now might suggest that M. Trichet could have been ‘got-at’ by his French masters! This thought led on to another possible conclusion – was this speech a personal and tacit admission from M. Trichet that at its root questions whether collateral damage to the single currency caused by through the ongoing sovereign debt crisis could now be such that unless the EU faces up to a new kind of reality that requires even more control over member states and the ability to push through even deeper regulatory and political control the Euro may not survive!

There is nothing wrong with dreaming of course and that is just what I consider the ECB Presidents speech to be. Jean Monet, Robert Schuman and for a time Winston Churchill all had the same dream of creating a united Europe – one in which war would not only be unthinkable but materially impossible. A great dream it was too. From the inception of the Common Market back in the 1950’s right through to Rome and the foundation of the modern somewhat oversized European Union of today no one would argue that the founding fathers dream of achieving permanent peace in Europe failed. However, I rather doubt that the founding fathers anticipated that the EU would within just a couple of generations would have grown to the size and all encompassing power over so many lives that is has today. I doubt too that they would have thought or indeed wished to see quite so much national sovereignty trashed or the ridiculous speed that the membership of the club has expanded. Rome made a suitable point albeit that Maastrict went a stage too far. Now the powers that be in Europe are attempting to remove even more national sovereignty it seems and once again turning a blind eye to what voters said about Lisbon. They would better take a big step back and remember what many of Europe’s voters including the French said about that and best summed up as ‘enough was enough’.

I am no expert on EU law but for a EU finance ministry to be established would most likely require that individual EU states would need to hold a referendum. I am in no doubt whatsoever that the answer from most voters to the question to whether they might accept more national sovereignty being given to the EU would be a resounding NO.

What you see in the EU today is basically what you get and right now the whole concept is a virtual mess. I wish this was not so and I would prefer to be more neutral on the concept of the EU than I perhaps have in recent years. The same is true with regard to the Euro – it may not seem like it but I really do want the single currency to survive. However, at this stage of the process and based on what has gone before, I cannot and will not accept that a one size fits all currency across the Eurozone area with but one single interest rate for all that benefits the large nation state whilst at the same time it kicks and further weakens the small is a solution to what we need. Without doubt there will be a need to ensure better regulatory control over how EU member states conduct themselves in terms of controlling deficits and budgets. But it does not need overarching control to be passed to one giant expensive and bureaucratic EU finance Ministry.

What I wonder brought all these thoughts about the EU taking more direct control of member state budgets, finances, spending and tax raising? Well until a few weeks ago the powers that be thought they had got away with it as they stumbled over the potholes of Greece, Ireland and Portugal and belatedly managed to fill up the various begging bowls with a little bit of additional help, discipline and control from the IMF. But not only has Greece come back to haunt them but Germany has been throwing its toys out of the pram saying enough is enough in terms of coughing up more funds to help the afflicted. They well know that Spain also languishes in the background. The Euro will survive of course, be in no doubt about that but the bigger question is whether it can go forward from here with much credibility left?

Might a European finance ministry controlling economic and regulatory strategy and strings of all EU member sates be the answer to the current problems? You already know my answer to that! True of course that if the economies of all member states were to be on an equal footing the answer might need to be quite the opposite. If that was to be the case then we really could be talking about a United States of Europe that more befits the original 1946 dream. But the economies of the various EU member states are I am afraid quite the opposite to that of being equal and what’s more, they are in my view unlikely to ever be equal in your lifetime or mine. Thus the idea of a one-size fits all strategy of financial and economic management is one that will quickly fall on deaf ears. The idea is after all absolute nonsense, a bureaucratic nightmare in the extreme and one that can hardly be afforded. It may well be possible to further integrate budgetary and regulatory control responsibility amongst Eurozone nations but across the EU impossible. The idea that countries like Britain might give up economic control is absolute nonsense and there is no way that this or any other government would allow it. I guess that if the pressure became too hard then we would need to walk away from Europe altogether. However, while caution is the watchword the idea clearly has its fans. Indeed, given that M. Trichet chose to make known his views on any potential for creating a common EU finance ministry in a speech that was given in Germany might even suggest that not even Angela Merkel is prepared to cast the idea aside.

Despite the grotesque sight of a still worsening sovereign debt crisis that has over the past few months ‘forced’ fellow Euro Member States such as Greece, Ireland and Portugal to go cap in hand to EU and IMF authorities for bail out funds it seems that while these nations suffer, the engine state of the Euro-economy continues to expand at the expense of others. With some eurozone nations now headed into recession as they are forced by the authorities to make severe and in most cases overdue cuts in public spending and to increase taxes these are tough times for some eurozone Member States that thought the long period of growth might never end.

Back in Germany it is a very different story. Not only did first quarter German GDP growth beat most analyst forecasts at a seasonally adjusted 1.5% it actually trashed them. Heavily export orientated German exports now account for around one third of the nations national output. In March alone German exports surged by 7.3% to the highest value since 1950 and at 7.1% unemployment here is not only running at its lowest level in the past nineteen years it is close to being the lowest within any eurozone economy. Germany has of course long been a strong advocate of closer European integration and yet these days its politicians often speak with forked tongues. Not surprisingly the Euro which some believe may be as much as 25% overvalued against the dollar surged on news of yet another rebound in German economic growth. Each rise in the Euro against the dollar, pound, yen or other currency makes exporting at a competitive level just that little harder. For Germany which is heavily manufacturing orientated and where exports are a key element of macroeconomic policy the situation appears to be manageable due to its huge scale. But for most other members of the pack of struggling eurozone economies a rising Euro and relatively high interest rates is hardly fun.

Contrast 1.5% first quarter GDP growth in Germany and the smaller 1% gain in French GDP with the equally better than expected 0.8% figure Q1 growth across the whole eurozone region and it may highlight that something is wrong.

The stranglehold that Germany and France have on the Euro is increasingly plain to see and as each day dawns it appears to get worse. And yet, as few will have failed to notice, for self political ends senior German politicians continue to throw their toys out of the pram by constantly objecting to EU provision of bail out support for those nations that, through the lack of diligence of themselves and the EU and eurozone authorities, are struggling. The arrogance of Germany in the manner that it slates those who failed to keep their deficits in check knows few bounds in my view and yet I might ask where was the voice of Germany in the earlier years of the Euro’s existence demanding that that deficit and borrowing rules were strongly adhered to buy all Member States? The answer is that they where nowhere to be heard.

As Europe’s sovereign debt crisis continues to cut a swathe of discontent in global financial markets the powers that be in eurozone and the EU appear content to close their ears and eyes to any criticism that suggests Europe’s single currency system failed at the first hurdle. It is of course in the interest of all of us whether we happen to be in the Euro or outside or whether we love or hate the concept of the Euro and the EU that the current appalling sovereign debt situation is handled with great care.We may well know that at some point Greece will have no choice but to default and we may feel very sorry for the Portuguese who really did very little wrong. It is of course yet possible that other nations such as Spain may also need to request support from the EU and the IMF over the coming month although I for one doubt that will occur. Whatever, we may be assured that for some considerable time the printing presses of the Euro are going to be kept very busy.

Whatever might pan out for the weaker countries that have failed to contain spending and balance their national accounts I take the view that if the eurozone authorities are to persist with a one size fits all strategy on Euro interest rates we can assume that the potential for the larger majority of Euro Member States to equal the growth level being enjoyed by Germany can only be slim.

The UK and the handful of other European nations that elected to stay outside the common European currency can with the benefit of hindsight be thankful that they did. It is true that the single currency concept has many advantages in terms if intra European trade but the bottom line is that a common currency can only truly work if political union has also been achieved. Chances of that occurring during the lifetime of most who are reading this issue of ‘The European’ are now thankfully slim. Of course, for these nations that stayed outside the eurozone area by choice restraint on growth still comes in the form of the extended bureaurocracy that is the EU today and of its burgeoning regulation. Somehow I may believe that the world has moved on and that the eurozone authorities and those in the EU offices in Brussels and elsewhere are ignoring that day by day, week by week, month by month and year by year economic power continues to shift from west to east. Tied up in knots over sovereign debt and many other issues the European economy is being left behind. Not Germany of course and not France. Like ships of state all but oblivious to the rest of mankind the leaders of these two nations care not for the plight of those others that it encouraged into the eurozone fray. For Germany it is a case of you really can have your cake and eat it as it steams on a solid upward trend of growth leaving its eurozone partners standing behind. Something will soon have to give.

The bottom line is that both Germany and France start thinking outside the box realising that the eurozone area as a whole can no longer cope with one size fits all interest rates or the situation will get much worse. For many the thought that German arrogance could eventually lead to the potential break up of the single currency will of course bring a smile but others will realise that turning the clock back is not an option. The single currency concept is indeed a fine enough idea provided that all those who join it can benefit on the basis of a level playing field. In the current format and having expanded its membership far too fast operating on a level playing field basis is just not possible. Time then to start thinking again!

At the same time Portuguese debt was ‘downgraded’ it seems that the rating agency people decided to take the same hammer and sickle to Greek debt bludgeoning this down to what is termed BB- from BB+ on the back of a belief that new EU bailout rules may well mean that both Greece and Ireland default on their debt obligations. Again all that can be said to this is that having pushed yields into the stratosphere markets decided some time ago that sooner or later one or other of the most troubled Eurozone nations would default on its debt. No doubt by further downgrading debt one or two notches closer to junk status will at some point encourage one of them to actually do just that!

Of course in proffering a degree of criticism on the behaviour of rating agencies we must take into account their past actions back in the good old days when, buoyed by gung-ho politicians like Gordon Brown and misguided central bankers like Alan Greenspan who thought that they could prove history wrong, left much to be desired. Back then by failing to take due cognisance of risk they [rating agencies] effectively encouraged governments, national banks, companies and individuals to borrow and spend. Clearly they have much to answer for but going too far and too fast in the other direction by downgrading virtually everything that walks particularly if reasoned partly at improving the public perception of themselves is no way to go. Still, perhaps I should know better as history not only tells us that we almost always shut the gate after the horse has bolted but that we then overreact!

That last point [overreact] is best emphasised by overregulation of the controlling authorities. To that end sooner or later over the next few weeks we will hear the full and likely torrid details of what if any impositions Sir John Vickers and his so-called Independent Banking Commission would seek to impose on our already bewildered British based banks. I fear the worst and that what Vickers will do could, if the government acquiesced, lead to the slow destruction of all that Britain has stood for and its hitherto great success and leadership of global financial markets. This will hardly be a case of ‘will the last businessman to leave England please turn out the lights’ but if allowed to run its course unhindered it could certainly be a case of ‘will the last UK headquartered bank and investment banker make sure that they hand all the keys back’.

Having said that and being in one of those moods today let me have a go at some other of our finest institutions! Yesterday or was it the previous night when the PR related embargo was finally removed at midnight the Office of National Statistics told us that in falling by 0.8% last year household incomes had suffered their biggest drop in over 30 years. Why am I and few others surprised by such news? Simply because if you have paid yourself too much for decades, made yourself so uncompetitive meaning that we have to buy in maybe 85% or more of what we consume at some point something has to give. If it isn’t your currency because of inflation and the corresponding negative hit to employment then the only thing that can happen is that wages drop beginning a gradual decline in the standard of living. It’s what happens when other countries are growing and yours is not! It is what happens when we ignore the lessons of history and try to do things on the cheap meaning casting aside our industries and buying everything in. Oh yes, I can hear the cries that say what about our brilliant service based industries that have so brilliantly taken the place of our lost manufacturing industries, what about our hugely successful banking and financial industries that have taken up the slack employing hundreds of thousands of people? All true and brilliant that each and everyone are so why then are we risking our very commercial existence by potentially pressing the self destruct button on these too?

Not content with continuing to talk house prices and whole economies down with aplomb it did not take long for those economist prophets of doom to tell us that after Japanese industrial output edged up a fraction in February only to, due to the tragic events that we unfortunately know all too well, likely collapse back in March. Thanks for nothing! A little information goes a long way so they say and I am surely not alone in thinking we get far too much!

Concluding the theme for today I turn my attentions quickly to the oil, energy and nuclear story in the wake of the Japanese earthquake, tsunami and specifically here in the UK, the imposition of a £2bn tax grab on oil companies by the Chancellor in last weeks budget. While the German government did itself few if any favours in its handling of the nuclear debate in terms of future investment the UK government had in fact behaved quite sensible in how it handled the approach. It did so in the knowledge that not only is Britain an unlikely candidate for a large earthquake and tsunami but also in the knowledge that seven of the remaining eight nuclear power stations in Britain are of the advanced gas cooled (AGR) type. The exception is Sizewell B which is a pressurised water reactor (PWR) type. Meanwhile we read with some regret today that Deputy Prime Minister Nick Clegg has apparently suggested that the plan instigated by the previous government and that has subsequently been backed by the present government for the building of additional nuclear facilities may, following the incident in Japan, stumble at the very first hurdle. I make no judgement on the nuclear issue here but for the purpose of this exercise the point is not whether the long held political view of Mr. Clegg and the Lib-Dem party that no further nuclear power stations should be built is right or wrong but that a senior coalition cabinet minister has once again broken ranks. On the subject of oil and the £2bn budget grab we have already seen the Norwegian group Statoil say that it is as a direct result of last weeks budget planning to put two separate North Sea related oil and gas projects on ice. So be it but what’s the betting that if oil and gas prices keep going up they will soon be seeking to melt that ice.

Like a disease that will just not go away it seems that proponents of full political union would have all five hundred million inhabitants within the current twenty-seven member states – the rich and the poor, the weak and the strong all living under similar rules and one political roof. Will these guys never learn that Rome took over a century to build? Why is it that those that favour full EU political union cannot understand that while Maastrict might have marked the peak of EU ambitions the subsequent Treaty of Lisbon marked the beginnings of a protracted fall from grace! Why is that they fail to see that the views of many of the EU’s great institutions such as The European Commission, the European Parliament, the European Court of Justice and other appear to out of touch with the wider electorate. The same may well be true of many diehard EU Commissioners too! I wonder, what does one need to do to persuade political union protagonists that one stop policies on agriculture, fisheries, security, foreign policy and defence may no longer be either advisable or affordable.

Neither with no less than seventeen individual EU member states having joined the Euro and with each having many national problems to face let alone often having different economic cycles can it make any sense to be constrained on the basis of a single interest rate. Can these blinkered people not open their eyes and see the real devastation that their ill thought rushed out laws and ideals have done? Are they completely blind to the knowledge that the European Union is already not only too large and too cumbersome in terms of administration but also increasingly in the minds of the younger generation past its sell by date? Do they not understand that the one stop serves all currency that they persuaded so many to embrace a dozen or so years ago may in its present form already be living on borrowed time? The answer to all these points is apparently not! Indeed, like lambs to the slaughter it seems that no matter whatever lessons might be learned from the over zealous expansion of the EU there are those that believe EU wide regulatory control over national budgets, EU wide taxation policy and strategy, EU wide rules governing all public services and of most forms of welfare not only are still urgently required but that these should be pushed through with haste. Forgive them for they know not what damage they do!

Left to their own devices those that hold sway in the EU still appear to believe that no matter what mistakes have been made in the past political union can and still will be achieved within ten years. How sad – why on earth the hurry one may quite reasonably ask? In fact the answer if you really do want one can probably be found looking at the very deep-seated problems that now face the single currency. It is one that says without the promise of eventual political union it is increasingly probable that the Euro as single tier currency could well be doomed. Not yet mind you and there remains some scope for further experiment such as to try a two tier system with different rates. 

For now though unless China really does come riding to the rescue of the troubled Euro based nations such as Spain and that might just provide a ‘get out of jail free card’ for some of those troubled by rising yields, higher borrowing costs and that are seeing the value of bonds sharply decline we are left to conclude that chances of the Euro surviving beyond the next three years in its present form are thin. No matter what, even if the Euro can manage to survive the crisis of confidence beyond three years in probably less than five years from now we should see a currency that might have a few less members not to mention by then this being a two-tier currency that carries with it two very different interest rate spreads and all the complications that would provide.

Greece, Ireland and Spain are but three EU member states that joined the single currency experiment right from the very start. Each of them benefited from vast financial resources that all of a sudden were made available. None it seems understood the pitfalls or even the simplest rules of supply and demand. Sadly they could see only expansion and growth and worse, while Greek and Irish governments spent far too much of the national cake Spain and Ireland failed to see that there economies were being governed by speculators. Each of these economies failed to a greater or lesser extent because quite simply they knew no better. Each had through too many previous decades lived with both economic and sometimes political pain. Can we really blame them that when the Euro injection finally came there should have been such universal relief ? No but we can blame those in authority of the Euro meaning EU lawmakers and those charged with running the European Central Bank that allowed so much cheap money to be printed. The golden rule is that for every boom there will at some point always be a bust. Having allowed themselves to be swept away on a something for nothing magic carpet that said sustainable economic growth was around the corner all three nations are today saddled with vast national debt and oversized government deficit. Each of these nations and other EU member states too such as Portugal, Italy and even the UK find themselves in various states of economic misery and disarray. Who knows who might be next knocking the door for even more of all that newly printed money made available through the European Stability Fund and whose very existence affects each and every one of us as taxpayers?

If all this sounds harsh it is I suppose only because with all the benefit of hindsight one recognises now that had the EU better overseen the single currency that it had so menacingly rushed to conceive, had it laid down more secure foundations and disciplined rules that must at all cost be observed and had it more effectively and properly policed rules on the size of national deficit as opposed to turning a blind eye to the one stop ‘do as I say not as I do’ nationalistic ideals of some then perhaps we may not be staring at the sovereign debt crisis mayhem that we are now. But we are staring at the problem and it is one that clearly is not easily about to go away! Indeed, had the EU observed history, had it recognised that with so many diverse cultures involved that to secure real free trade even amongst a group of like minded states combined with maybe some partial economic union would take maybe one hundred years to achieve as opposed to just a third of that number perhaps things might look very different today. Indeed, perhaps if those that believed they had the right to be the true lawmakers of the EU had stopped to think and maybe understand what over-fast expansion of the EU might do and had seen the light then we just might have been able to look at Brussels today in a completely different light. But we cannot do that and even worse is that we already know that a vast and fast increasing number of voters spread across many EU member states now believe that its lawmakers have failed.

In taking such a hard line stance against the idea of a European bond Mrs. Merkel has set out on a mission to ensure that as best as possible Germany ring fences itself from wider affects of the sovereign debt crisis that has been created by other far less disciplined members of the Eurozone. With the bail out issue high on the subject list of a great many German lips today we should perhaps not be that surprised that Mrs. Merkel has read the political nuances of German voters correctly before deciding that enough is enough. It is a fair point too – why apart from an old and now failed idea that introduction of a single currency right across the EU would if it was also done alongside full political union provide the financial stability required should one nation that subsequently observed all the rules be expected to pay such a high price to bail out other far less scrupulous member states.  

In the meantime and just as non Euro Britain has done we believe that Germany will for now continue to accept any remaining responsibilities that it has within the wretched Lisbon treaty.

Whilst the idea of a European bond is not particularly new it is clear to most that without German participation it is a non runner. In a further attempt to isolate the German economy and probably its bond market from further potential backlash from the sovereign debt crisis Mrs. Merkel is expected to formally reject calls from the International Monetary Fund that finance ministers should agree to increase the size of the existing EUR750bn European Stability Fund.

Far more difficult to judge will be what further potential negative affect this will have on the already battered Euro. Gradually and noticeably rating agencies are marking down the debt of the most troubled Eurozone member nations. In terms of the IMF requests it seems that the official line from European finance ministers is that having bailed out Greece and Ireland there is ample remaining funds should they be needed. In any case the view appears to be that markets should get real and see that the deficit problems in Spain and Portugal have now or very soon will be sufficiently contained and that neither nation will need additional support. Contagion fears though do not disappear just like that. In any case, even had the idea of a European bond been turned to reality whilst their can probably be little doubt that the immediate sovereign debt crisis would have quickly subdued there would be plenty of us around to remind that eventually there would still be a heavy price to be paid. At some point debt has to be paid off and to achieve that in some of the worst countries affected requires far more growth than any are likely to achieve over the next ten years. Neither should we lose sight that the objective of monetary union was first and foremost stability that would be achieved by all members obeying set in stone rules that limited budget deficits, national debt and if at all possible, trade deficits too.

Could a so called e-bond have worked? Certainly it could and I am in no doubt whatsoever that there would be plenty of takers for such a bond either. Indeed, I would even include China and some other fast emerging eastern economies as being potential sovereign state buyers of such bonds. But the problem with any instrument such as this and that some would like to believe could act as a force to bind the larger part of Europe closer together is that there always needs to be full political union to make it work. Right now there is certainly no desire for that neither on the political front or voters that they represent.

Whilst 2010 isn’t quite over yet one doubts that there will be further sovereign debt fireworks until early next year. Relying on the votes of two independents the Irish coalition government should today with any luck pass its austerity budget with a majority of just one. Don’t worry, one is enough for now and in the circumstances it is the best that could possibly be hoped for. Portugal has also taken stringent measures to tighten spending and at least here we are, unlike Ireland, not staring at a problem made one thousand times worse failing banks. And what about Spain? Well rule nothing in and rule nothing out. Right now no-one really knows whether Spain will need to come to the IMF and European Stability Fund with a large begging bowl or not. What we do known though is that if it does and if the Eurozone authorities speaking as one of course, that if EU finance ministers, presidents and prime ministers fail to agree and that if the IMF should perhaps find itself in an invidious situation that this could be the final test that leads to a Euro split.

For now though the European politicians can at least go back to their own Parliaments telling them just how well the ministers working together in Brussels this weekend have done. Great isn’t it but just because Ireland has been stitched up hardly means that a few more days or weeks from now markets will be about to give up relentless underlying concern that they clearly have over stability of Euro area debt. Indeed, given that strong hints that emerged from the Brussels confab this weekend suggesting that there are many in Europe who believe existing bondholders – those that have propped up Irish and other banks for so long - must in future be required to share future pain and also that ministers appear to have agreed that there are limits to the amount of printing of Euro’s and of which I might the current high value when set against that of dollar, yen and pound can hardly be hardly justified judging by the economic mess spread across the whole Eurozone area suggests to me that markets may well take and far more hardened view in the weeks ahead.

Far from halting Contagion then it seems to me that by words rather than any actual deed of specific Irish bailout agreement European ministers may almost unknowingly just have succeeded in making a very bad situation even worse. Certainly they have sown more seeds of more discontent that when grown out will play down hard on the future course and scale of Euro membership and maybe even harder still on the future of the European Union itself.

Did the virtues of the EU peak at Maastrict? Probably it was making Lisbon little more than a bad joke. Forget what the technical analysts say on the Euro, no matter what artificial value it is currently held it too is on the way down albeit quite probably not completely out. Be certain too that with political and monetary union being now as far away as ever to the point of being seen by most as an impossibility it is noticeably that almost by the day the future course of both the Euro and European Union appears to be being dictated by Germany in the form of one very powerful woman - Angela Merkel. No longer will Germany bear the burdens of financial hardship that are caused by pains of its fellow EU members it seems. No longer will bail-outs be automatic and they must encompass bondholders sharing the pain. Careful to avoid new frictions and with a leader who is probably the least popular of any in living memory France stays alongside Germany watching, waiting but failing to give any new lead. Bearing its own heavy economic burdens Britain kowtows with its partners for now careful to avoid upsetting the applecart. It could hardly do anything else but what I wonder will Britain do when and if the Spanish situation finally blows? Perhaps it is here that we will see a new inquisition!

Markets will as they have always done have the upper hand. Ignore them at your peril is the message to EU member governments and don’t think for a moment that they can be bought off with political rhetoric. Let us dream what could yet become a reality - for now it may just be words but who knows when and what specific event will lead to a dramatic downsizing of the Euro. It seems almost banal to say that a one size fits all strategy was never going to work but let us at least give them the credit for spending twelve years attempting to find out. Sure no matter what we should believe that the Euro will survive in some form or another but my guess is that five years from now membership may consist predominantly of what we call Northern European members. The big question and the one that is and will remain difficult to answer is whether a partial break up of the Euro would leads to the breakdown of the European Union? Of course, should they be called upon and having confirmed that the stability fund that please remember was one that was really never supposed to be used means that if required they and the IMF will assist poor old Portugal without as much as a cough or a shout. But when and if it comes to a debt market implosion in Spain EU ministers would find that they have a situation on their hands that may well be well be well beyond their ability to resolve by agreement. Back to reality – are we witnessing the early stages of a break down of the Euro and indeed, possibly the European Union as well? Chances are that we really are!

That the Irish government had almost a year ago set out what appeared as a bold strategy to bring the current (net of banks) 12% budget deficit down to just 3% by 2014, that unlike the situation in Greece it seemed that although it had little respect for the Fianna Fail government the Irish public appeared to be onside attempts to bring down unprecedented levels of deficit matters far less to markets that getting this dangerous problem off the books. To do that in market and maybe eyes of other financial authorities mean that Ireland must now follow Greece going cap in hand to a one, other or a combination of the International Monetary Fund and European Financial Stability Fund. Given the extent of visible market pressure it would probably be crass stupidity to argue that they are wrong and that Ireland should just be left to get on with the job in its own way. This is after all a property induced crisis that has destroyed the credibility of several Irish banks and brought the Irish economy virtually to its knees. With property prices in a market that clearly has substantial real estate overcapacity falling by the day the genie it seems is now all the way out of the lamp. The message is clear - unless the Irish government acquiesces to market demands the ride ahead could be much further troubled. That means that the cost of borrowing on the bonds that it has issued will probably rise and rise.

Are markets right to be so troubled about Ireland’s plight? With the problems of Greece far from over yet and given that the Euro is increasingly being seen as a powder keg waiting to blow-up it seems to me that unless the fast growing heat can suddenly be doused the answer to that question can only be yes. The renewed and to some, seemingly unreasonable pressure now being placed on the already struggling Irish government and that may yet be followed by similar pressure being brought to bear on other troubled Euro member states such as Portugal and Spain is clearly about belated attempts to avoid further contagion. Exposed for its failure to impose sufficient financial discipline on Euro members and for allowing a gaping wide hole to be blown through whatever strategy was in place to cope with such eventualities of economic collapse of an individual member state the credibility of the Euro and indeed, the EU authorities has probably never been lower. We may thus ask whether the Irish situation and how the Euro and EU authorities now handle to also be seen as a last ditch attempt to save the Euro itself? Possibly it very well is. And if that view turns out to be right some might even soon start to say we could be talking weeks and months rather than months and years before we are in a position to decide what the future really does hold for the Euro.

At this stage we do not know just how much external pressure really is being brought to bear on Ireland by internal EU and Euro authorities. We do know though that bond markets are saying that enough is enough and that they want some kind of formative agreed salvation to the Irish problem that brings things to a head. To do that means that if Ireland and its government is to maintain credibility in the eyes of those on whom its financial and economic future depends (bondholders) it probably has little choice but to go into some kind of arrangement with one, other or both of the IMF and the far from credible European Financial Stability Facility as directed by the increasingly hapless European Central Bank. I like is no less than you do but markets are always right – fail to listen and you will be the one that loses out. Throwing straws into the Irish wind hoping that the government plan will work would now be an absolute nonsense given the amount of debt that Ireland is sitting on and the increasingly worsening state of some aspects of the economy. This matter needs sorting now – meaning this week, this month rather than next!

Whilst painting a picture undignified gloom for the plight of Ireland and certainly Greece right now I do not share the same view that Spain will necessarily need to follow whatever route Ireland is persuaded to go although In would of course not rule anything completely out. However, the sad fact is that if markets believe that Spain is the next most serious pot boiling that in the interests of avoiding the spread of contagion further they will exert further pressure. Portugal too would surely benefit from seeking to protect itself better from market forces. But as a permanently weak economy with limited resources, a country that has always had limited export potential and in which some 90% of the population live on close to the coast Portugal’s problem is very different from the property based over expansion that currently ails Ireland and Spain. Arguably Portugal should not be compared with Greece – a country that lived beyond its means for far too many years. Put simply Portugal is an economy that almost did its best and failed which is another way of saying that it probably deserves help.

Thankfully I am not in the Alan Greenspan camp that (no doubt for self or should I say selfless publicity purposes) appears to believe the financial world is on the cusp of another disaster. The reference I guess is to bonds. To this I simply say buyer beware and that most of what Alan Greenspan says these days is merely an attempt to avoid the central issue of the damage for which he solely, as former chairman of the FED, bears responsibility and yet who resolutely fails to accept any blame. Meanwhile, whatever one thinks of the hapless Euro authorities and the EU as an instrument of combined governance (and who doesn’t!) we may do better to believe that somehow they will cobble enough together to avoid really destructive contagion to take hold.

This next two weeks will in my view be seen of a real test of EU and Euro currency authorities resolve. That the rescue package that they put together in the form of the European Financial Stability Facility for Greece lacked a certain degree of credibility right from the start and that both the Euro currency controllers in the form of the ECB and the separate EU authorities have seemingly failed every test that international markets have set through this past year matters less than accepting that to avoid contagion and further fall out will require the authorities to regroup if the glorious currency is to be allowed a credible future. Politically whilst everyone is battling to cover up differences from public gaze there is no doubt in my mind that the EU has reached a critical stage in its development from which, just like the future of its much loved currency the way forward from here may well be contraction.

We will see. For now though the matter at hand for markets isn’t so much the weakness of the dollar, FED policy in the form of even more questionable quantitative easing, the slowing pace of western recovery, the increasingly fast pace of economic power shift for west to east in the form of Chinese and other emerging nation growth, today it is about the avoidance of further deficit and debt contagion from semi-failed Euro member states. Markets want a change of stance and make no mistake, they will get it. The very fact that the troubled Irish government is perceived let alone in reality struggling to cope with deficit to GDP of 32% (if one includes the cost of funding Irish bank bad debt) not to mention a debt to GDP which is well over 300% has forced markets to take the bull by the horns. That Ireland doesn’t actually need to borrow any additional funding until next June matters not one jot. What does matter though is the avoidance of further contagion.