The eurozone debt crisis has been described as akin to a “war” in Europe by commentators including Vincent Cable, David Cameron and others in the British coalition government. It has also caught on as a description in mainland Europe.
If Cable is right, we are now half-way through a 10-year recession and all that we can think about is the never-ending combat campaign. No one, it seems, talks publicly about the outbreak of peace. But that is being formulated in quiet right now, ensuring that all interested parties do not have equal access to stake their case.
Certainly for expense the eurozone debt crisis looks set to be far costlier than the defence against Nazi Germany of the 1940s and most likely longer than the entire World War II.
So far, the debt crisis has been on for nearly 5-1/2 years since it began in 2007. The crisis is documented from early August 2007 but the initial problems, including Bear Stearns and BNP Paribas mutual funds, goes back to January 2007 and even cracks emerging in late 2006. So on that basis we are nearly at 6 years into combat.
And just like World War II, we have endured a “Phoney War”, the stalemate period of late 1939-1940 when the Battle of Britain finally mobilised Britain’s defences against Nazi Germany and a period of monitoring the opposition, and building a strategy and radar at Dover. There have been false dawns and a slow period to react. Remember it was not until late 2008 when Bradford & Bingley and Northern Rock became issues that Britain’s finance minister of the time, Alastair Darling, beamed that he had nipped the crisis in the bud.
Well, he hadn’t. But at least he was a good three months ahead of reaction by Europe. And when reaction came, in the guise of a depositor protection scheme from Dublin, it was initially slammed by Germany as unacceptable. Later, some policy started to be formed.
But some commentators have suggested that, unchecked, the eurozone debt crisis could develop into severe violence beyond flashpoints like Athens.
For now, it is worthy to note that the latest Eurogroup agreement this week on Greece may help the banks, as Fitch Ratings explained today, but it doesn’t clear uncertainty in Europe.
So in terms of comparisons with a hostile military war, where does that leave us?
There have been numerous fix-it conferences which have not satisfied all parties. And there has been a lot of self-interest expressed in what is supposed to be a European collective cabinet responsibility. And Britain’s Cameron has instead found it expedient to win home support with his complaints about the excessive budget of the European Union beyond 2013.
Outbreak of Peace
It may be all one huge intractable problem in Europe, and about point scoring and buying time, but the eurozone debt crisis is coming to an end. And the outbreak of peace could be as tough as the campaign to save Europe since 2007.
Just like with WWII, there will be umpteen conferences and struggles ahead. People will complain that the bombing and the fighting never seem to end. There will be more blood-letting and war crimes trials and interest group lobbying. There will be more budgetary expense and of course, winners and losers and rehabilitation. Get this: the Greeks and Germans, for example, will have to become friends again.
And all the debt, the trillions of dollars of debt which replaced butter mountains, will have to start to be paid back not from international handouts from the IMF and EU but from economic growth. This will also come at a time when excess in liquidity will have to be managed out of the system. Tricky in a world which will be a very different landscape to the one we got used to until 2007.
We will see a rush higher for cost of credit, with interest rates jumping, and crippling everyone who thought we are never going to see the end of ultra-low interest rates.
At a guess, I would say that we have reached the Casablanca conference stage of the campaign. At January 1943, that would put us about three years before hostilities ended and peace sounded like more than a truce.
So we have the likes of FD Roosevelt and Winston Churchill attending but no Stalin who was holed up in Moscow while Stalingrad was under intense assault from the Nazis.
This is way before other highlights of WWII such as Operation Shingle, better known as the January 1944 Allied amphibious landing at Anzio in Italy in preparation for the assault on Monte Cassino, Bretton Woods conference in mid-1944, D-Day landings of Operation Overlord in June 1944, Yalta conference of February 1945, or Potsdam conference in July-August 1945 – before Victory over Japan was declared on 14 August that year.
We are going to see enormous changes when peace returns , in a few years.