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Friday, 14 September 2012

14 September 2012


Did you hear that huge sigh of relief, wafting across the Channel from Brussels yesterday?

Maybe not. Maybe you were still in paroxysms of post-Paralympic perfection, or mired in Murray-mania -- or perhaps, yesterday morning, you were simply numbed by the horror of the long-awaited Hillsborough report.

So let me draw your attention to matters European, because dull though they may seem, they are still likely to dominate much of the political debate between now and the end of the year.

First, on Wednesday morning, the German constitutional court said OK to the eurozone's financial bail-out plan, without which there was little hope of restoring even a smidgin of stability to EU economies.  (True, the court imposed a few conditions, but as is the way with these things, no one worries about the conditions until later.)

Then, on Wednesday night, as results started trickling in from the Dutch general election, it became clear that voters had turned away from the parties at the extreme ends of the political spectrum and decided to stay where they seem to be most comfortable: in the pro-EU middle.

There seems to be a bit of a pattern emerging in European elections these days: first, the opinion polls suggest that voter support is growing rapidly for anti-EU parties on the fringes, but then, on election day, the actual result favours the more traditional parties of the centre.

In May, that's largely what happened in the French presidential election; then the following month in Greece, the anti-austerity Syriza bloc was narrowly beaten at the last minute by the right-of-centre New Democracy party  -- and this week in the Netherlands, the two pro-EU centrist parties both did better than expected, with the anti-EU Freedom Party of Geert Wilders losing many of its seats.

You may be familiar with the old maxim about how financial markets work: driven either by greed, or by fear. When greed dominates, traders buy and markets rise; when it gives way to fear, they sell, and markets fall.

So here's the Lustig theory of European election patterns: instead of greed and fear, voters experience anger and fear. When anger dominates, they support anti-EU parties; but when anger gives way to fear, they tend to stick with what they know.

There's no shortage of anger in Europe at the moment: anger at high unemployment, at reckless banking practices, and at ineffectual governments who seem to have spent five long years failing to get to grips with the crisis that has swept across the continent.

But there's fear too: fear of being left out in the cold, if, say, Greece crashes out of the eurozone, or if the Netherlands turns its back on an institution it helped to establish 60 years ago, when it was one of the six founding members of the European Coal and Steel Community.

So, sighs of relief in Brussels. But not for long, I fear. Remember Spain?

It's only a week since the European Central Bank announced how it intends to use its muscle to shore up indebted eurozone countries by buying up their bonds if interest rates rise too high. (Not from the governments directly, however, which would be against ECB rules, but only on secondary markets.)

But here come those conditions again: the bank will start buying only if a government asks for help -- and that's something which until now, the Spanish government has insisted it won't do.

Mind you, according to a detailed analysis published by Reuters earlier this week, Spain may soon have little or no choice in the matter. It quoted one analyst as saying: "I think it is a done deal that Spain will seek assistance. They didn't raise nearly enough money in the markets in August and in fact I would argue that they are not even trying to avoid assistance at this point."

We'll probably know soon enough. Spain needs to refinance 27.5 billion euros worth of debt next month -- and the credit rating agencies seem to be just waiting for that formal request for assistance.

If it comes, and if the ECB rescue plan kicks in -- and works -- there'll be more sighs of relief in Brussels. If not, well, let's not go there.

Oh, did you ask about Greece? Good question … but not this week.

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