Summer of discontent

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.