Euro

Capital markets are not loquacious storytellers. They condense the world into simple numbers. For this reason, the surge in Greek, Italian and Spanish bond yields could be mistaken for a mere technicality, a simple recalibration between the forces of demand and supply that happens in markets every day.

After World War II, Europe became a continent of great expectations and little ambitions. For decades, governments had promised their peoples a life free of worry. Free education and healthcare, good infrastructure, a social-security safety net, lifelong jobs in the public sector followed by generous pensions – that’s what Europeans expected from the state.

Here we are again, just a week after a supposed breakthrough for Europe, and the crisis is getting worse. First there was the alarming auction of Italian bonds last Friday; then the whole deal reached last week was effectively put on hold by the Greek prime minister on Tuesday. Expect more bad news in coming weeks and months as European growth stalls and ratings agencies will have another look at Italy, Belgium and France.

Merkel won last week’s debate by making a mockery out of democracy, but she lost leeway for any further bailout packages. Meanwhile, the German public has reached the end of its tether with politicians, Greece and the euro.

The core problem of Europe is not that its banks are fragile, its governments heavily indebted and its economy stagnant. The real problem is that Europe’s political leaders are still drawing the wrong conclusions from Europe’s many crises.

The euro has been a moribund currency for years. The remaining options to buy it more time have been blocked by the German constitutional court. To end this farcical tragedy someone needs to put the final nail in the euro’s coffin. Who will it be?

The attempt to make integration perfect has turned Europe into a disaster scene. Not even the Germans, with their inbuilt preference for tragedy over comedy, can be happy about this. And with their greatest ever humourist now gone, there is not much left to laugh about. For what lies ahead the Germans really need a sense of humour.

As it turns out, there is not much in the German manufacturing example that Australia should copy. We would be much better advised to make the best of our own comparative advantages of being a resource-rich economy in close proximity to the fastest growing part of the world economy.