To judge from many commentators, the eurozone has been stuck at five minutes to midnight for the past two years. This week may have been when the clock started catching up with the alarmists.
Financial investors seem ready to give up hope. Equities may just be treading water, but most financial markets are plumbing greater depths of gloom. They took scant relief in the victory of one Greek party that wants to renegotiate the country’s rescue deal over another that wants to reject it outright: when European trading opened on Monday, Spanish sovereign yields shot up, with the 10-year bond breaking through the 7 per cent mark treated as a portent of death in eurozone financial kabbalism.
The same despondency is visible throughout the economy. German business confidence has hit its lowest level in more than two years. Eurozone economies are sputtering or shrinking faster. The oil price is down to $90 a barrel, down $5 in just a week, and almost 30 per cent lower than three months ago.
If this rapid deterioration of the European economy can decisively shake policy makers out of their complacency, the now-inevitable slowdown will at least not have been for nothing. The policy initiatives are certainly coming hard and fast. Central banks are reaching for ways to push the monetary accelerator even further through the floor: last week the Bank of England with new bank funding facilities; this week the Federal Reserve with another turn of “operation twist”. One hopes that the European Central Bank will follow their example soon. Spain has fast-tracked its banking capital needs calculation and Cyprus is seeking funds to prop up its banks.
More and more, the leaders of the single currency seem to understand the need for a game-changer, such as the mooted use of eurozone rescue funds to buy Spanish or Italian bonds. The pressure on them to act is stronger than it has ever been – and it comes not just from markets, but from the Group of 20 leading nations summit and the International Monetary Fund’s striking call for banking union and common short-term eurozone debt.
So next week’s European Council summit is shaping up to be one of the most significant yet in the crisis. For the first time a large eurozone country’s lockout from financial markets – which would be a disaster – is a real possibility. The single currency has the tools to calm its markets and its economies – what it has not shown is a convincing collective will to do so.
If the euro’s leaders want to end the crisis, the growth initiative promised by the four biggest countries on Friday is not enough. Next weeks’ summit should lay out a road map for where the euro area leaders want to go together in the coming years, and the steps they will take. It is not yet five to midnight. But the clock keeps ticking.