Bill Carmichael: Goodbye to the euro life of debt

A week ago, we were told that yet another “final” deal had been struck to save the euro – this time 26 EU members had united against British intransigence to forge a new alliance that would tackle the debt crisis once and for all.

By this week, the optimism had largely disappeared. The euro continued its death spiral, French and German banks wobbled and there’s a strong chance of a wholesale downgrading of credit ratings across the doomed eurozone.

Meanwhile the Irish, Dutch, Finns, Swedes, Danes and Czechs began to have second thoughts about the blank cheque they had signed to hand over their sovereignty to the Germans, without asking their people or parliaments first.

Perhaps if they had a couple of years the EU could cobble together some kind of unrepresentative, undemocratic stitch-up, as it has many times in the past.

The problem is the euro doesn’t have a couple of years – it probably doesn’t even have a couple of months. By my reckoning, this is about the 16th “final” deal to solve the crisis – and each one has unravelled before the ink was dry on the agreement.

This is because EU is trying to use a short-term political sticking plaster to cover a gaping economic wound.

The eruption of anti-British bile from our European “partners” since David Cameron wielded his veto last week has been unpleasant to behold. But in reality it is completely irrelevant, as is the squabbling among the European leaders.

What we saw in Brussels was Cameron, Sarkozy and Merkel arguing furiously over the precise positioning of the deckchairs, as the ship steamed at full speed towards an iceberg. The difficulties in Europe have little to do with “ever closer union” or the euro – although these foolish pipedreams have made matters much worse.

No, as in America, our problem can be summed up in one word – debt.

Over recent decades, we’ve indulged ourselves in an unprecedented spending spree. We’ve paid out lavish unemployment and sickness benefits, retired early, worked fewer hours, taken longer holidays, and spent billions on education and health.

All very well if you are able to pay for such things – but we can’t.

We’ve been spending more than we’ve earned and we’ve plugged the gap with vast and unsustainable levels of borrowing.

Debt on this scale is not just bad economics and politics – it is morally wicked too. We have effectively stolen from our children and grandchildren to subsidise a standard of living we couldn’t otherwise afford. The EU’s answer to this is to borrow more. Yes, unbelievably, Europe thinks it can solve the debt crisis by further increasing the level of debt.

And so for the past two years it has staggered along from bailout to bailout, borrowing more and more and hoping the crisis will somehow solve itself.

The trouble now is that Europe has run out of money and, as Nicolas Sarkozy commented in a rare moment of insight “those that lend to us no longer want to lend to us” – certainly not the Chinese.

We are close to the end of the road. Probably the best we can hope for is an orderly break-up of the eurozone to allow indebted countries to default and devalue and then export their way back into prosperity.

The worst is that the eurozone collapses into chaos. Either way, it heralds the start of some serious spending cuts – not the puny ones we’ve seen so far.

It means the end of living beyond our means, the end of the European “social model” and possibly the end of the welfare state as we now know it in the UK.

Economists tell us that each credit bubble invariably ends with a painful correction, and the longer you put off the inevitable, the worse the suffering will be.

I fear the day of reckoning is close at hand – and it isn’t going to be pretty.