History will record that political incompetence compounded economic disaster. The compunding is quite literal. By adding debt to debt, they increased the amount of interest to be paid back on outstanding principal. Banks losses were transferred to central banks. As countries toppled, these were transferred to the state. Soon, confidence in the state itself eroded: commercial risk became economic farce and then political disaster.
At what stage are we? Political action is now proving to be an accelerant, adding to the flames. The dishonesty of leaders, unwilling to allow banks to fail, has brought their whole project near the brink. We are not there yet, but soon, soon. Italy and Spain are the next tests.
Today, markets are dropping as the price of risk is reassessed. The more mendacious and deceitful the political class, the worse the economic outcome. (And that also brings us to the taxes heaped on the backs of the poor in the name of climate change: different trend, same moral sump). Evans-Pritchard is scared that a recession will commence next year. Backwards looking economic indicators suggest that it is already here and that the austerity of tightened state budgets will contract demand. Raising interest rate as the European Central Bank did recently will be seen as an act of malevolent madness. Further inaction and political chaos leaves any resolution of the contagion as close to zero. We can only watch the endgame play out, with national authorities acting unilaterally once a pain threshold is reached. The opportunity of collective action for the euro is now at an end.