The ninth of August will mark the fifth anniversary of the beginning of the credit crunch: the day in 2007 that the banks found themselves frozen out of the debt markets, leading to the Northern Rock collapse and on to the more general banking crisis of 2008. By this stage of the Great Depression, western economies were not only growing again; they had surpassed the level at which they had peaked in the late 1920s. Unemployment was falling and the banking system had regained some solidity.
It is no longer accurate, therefore, to describe the economic crisis as the ‘worst since the 1930s’. On some measures it is worse than that. The banks are still far from safe and there is no end yet in sight to the second trough of Britain’s double-dip recession. On Wednesday the Office for National Statistics reported that national economic output had fallen by 0.7 per cent in the second quarter of 2012, a gloomier figure than even the most downbeat experts had anticipated. The ONS blamed the slump in the construction sector, the extra Jubilee bank holiday and the bad weather. But over everything hangs the black cloud of the euro crisis.
Every few weeks markets slide in response to a renewed surge in the borrowing costs which southern eurozone countries must pay in order to service their crippling debts. There is a summit, at which another rescue package is agreed. Then the problem drifts away again for a few weeks before, once again, investors do not like what they see. As we went to press the yield on Spanish gilts was pushing 7.65 per cent. It has shown few signs of settling below 7 per cent, the level widely considered to be sustainable. The game of preserving the euro is essentially up, yet as Daniel Hannan points out on page 20, those in power continue to fool themselves that the euro is the solution rather than the problem.
There has to come a time when eurozone countries ask themselves what they are achieving by putting off the inevitable. The markets have shown that their biggest fear is uncertainty. The endless drip, drip, drip of bailouts is killing investor confidence. The British can be thankful that we are not tied to the euro, but there is no doubt that we are part of the crisis. There is a sense across Europe that however bad things may be, there is possibly something even worse around the corner. As long as that sense persists, economies will never properly recover. For a country to leave the euro would create a spell of havoc. For the entire eurozone to crumple in a disordered fashion would be a crisis of infinitely larger proportions.
But then what? There would no longer be a euro to collapse. For the first time in years industries in countries which should never have been allowed to join a puffed-up euro would suddenly find themselves competitive. Property and other assets would be available for a song. Businessmen who would not now dare set foot in, say, Greece would see that the cost of investing in the country had suddenly plunged — at least for anyone with cash.
We have been through this process before. On the day that Britain was forced out of the Exchange Rate Mechanism it was hard to find anyone who thought it anything other than a national disaster. Yet within a few months a benign and sustained recovery had begun. It was a similar story when country after country was forced off the gold standard in the early 1930s: the result was national embarrassment, followed by the creation of conditions required for ultimate recovery.
Eurozone leaders buzzing from summit to summit give the impression that the crisis is doing their egos no harm at all: that they have grown rather addicted to the sense of importance it gives them constantly to be seen saving the world. But their egos are a large part of the problem. The sooner that they accept they have failed and that the euro is finished, the sooner they can allow the inevitable to happen. It won’t be pretty, but it will be the beginning of a long climb out of the abyss in which we already find ourselves.
Most sensible people had the same reactions to the results of the government’s first Happiness Index — which cost the miserable taxpayer £2 million. First, surprise. Apparently we scored 7.4 out of ten on the happy-o-meter — even though our economy, we now know, shrank again between April and June, and the country is riddled with debt and unemployment. Next, revulsion. What a daft and creepy idea the whole ‘Wellbeing Economics’ project is. It’s not possible to measure happiness, and even if it were, our happiness is none of the government’s business. The duty of government in a sane democracy is to protect our freedoms, which include the freedom to be unhappy, if we wish. Studies of general contentment are for totalitarian regimes and life coaches.
The final reaction should be anger: to spend money on a ‘happiness index’ is to imply that all the big problems with the country have been fixed: that there’s just a little mood manipulation to be done before it’s a utopia, and the Cabinet can hop off to Tuscany with a clear conscience. The news about the GDP gives the lie to that.
And here’s a thought to lower your happiness score: that arch-survivor Lord O’Donnell is to chair a commission to examine the policy implications of the Happiness Index. Expect massage vouchers and a public campaign to get people walking — while the country goes to hell in a handcart.