A stand-off between politicians and the markets is at best distasteful, but that is what the euro crisis boiled down to last week. Ultimately the markets won – and possibly to the benefit of us all.
The massive bailout mechanism agreed Sunday night by EU finance ministers is a desperate step. Half a trillion euros is an unimaginable sum, and not by chance: it is meant to be beyond the realm of reality, in order to assure the markets that no matter which direction they go, the euro will remain stable. If the step works, much of the money will not be necessary. If it fails, the euro will collapse and bring down the EU with it.
These are stark options. Six months ago there were others, such as addressing the Greek crisis fundamentally while looking at the mechanisms of the euro, but they were ignored. The crisis unfolded like a slow train moving determinedly towards the obstacle into which it would crash. The harsh reality of spiralling sovereign debts in a number of eurozone states combined with a lack of legal tools to deal with fiscal management of the euro – with minor attempts to change tracks. In fact, the attempts became a farce: repeated special summits of heads of state, ending in empty statements on determination and solidarity, backed up by no money and less political will.
The summits came to be notorious for the heads disagreeing in private and in public on everything but one fact: Greece had lied about its finances and was therefore to blame for its own troubles, and subsequently everyone else's. In the past six weeks the international markets and credit agencies have joined Greece as the blanket reasons for blame. In fact, it seems everyone but the EU institutions and the politicians who direct them from their capitals are to blame for this crisis – and the institutions cannot be blamed, since they have no legal basis for action on the euro, and the politicians cannot be blamed because they have elections to fight and publics to satisfy.
But publics are not that stupid. Much has been made of Angela Merkel's CDU party loss in the weekend local elections in North Rhine Westphalia, with a lot of blame for this attributed to public disapproval of the aid package for Greece. However, that is to ignore the fact that the Greens in the länder doubled their share of the vote to 12.5% – though they too voted for the aid package in the federal parliament. Moreover, the Greens are a pro-Europe party that is consistently gaining ground in Germany, and elsewhere across the union, so it is too simplistic if not plain wrong to blame the Greek crisis for the CDU's slide in popularity – or for the SDP's climb to near parity with it.
Indeed, the German election, rather like the UK one, delivered a clear result of dissatisfaction: the voters like no one enough to give them full power. They have tired of the petty politicking and lack of leadership. Above all, they are fed up with – and fearful of – their declining economic prospects, and they no longer trust the individual parties to deal with these, so they have effectively told them to do it together.
Ultimately, the same has happened at EU level: the markets have rejected the positions and promises of the individual states, and demanded the EU back the euro – collectively. There are no doubt speculators and pure gamblers are playing the markets, but there are also many solid players who deal daily with massive portfolios of relatively risk-free investments: the savings and pensions of the same voters who have had their say in Germany and the UK. And like those voters, these dealers have had enough of the grandstanding and empty promises of the individual states and leaders: they trust none fully, and in pressuring the euro mercilessly therefore told them all to work together, as the states of a single currency should.
As Larry Elliott pointed out yesterday, there is a lot of irony in this stance given most governments got us into this mess two years ago by pumping billions of taxpayers' euros into banks in order to save the financial markets. Humour was not much in evidence this weekend in Brussels, so possibly the irony was not appreciated – but the message was nonetheless clearly heard, since the union finally produced a package that reflected political, financial and economic will to fight for itself and its currency.
By all accounts this was not achieved without major disagreements – including some door slamming and less than diplomatic language – but that is hardly new in Brussels. What is new is the note of realism, even if it involves an unimaginable amount of money. Let's hope the realism lasts, and the money won't be needed.