With the perennially optimistic EU Commission compelled to cut its growth forecasts for the euro zone yet again, Ambrose Evans-Pritchard contemplates the policy stalemate in which the embattled currency union—now possibly facing a triple dip recession— finds itself. On the one hand there is most of the ‘northern’ bloc (that the Finns are no longer so hard line as they once were is an interesting story for another time) still resolutely defending fiscal and monetary discipline because (a) they feel it is the right thing to do and (b) they don’t want to risk picking up the tab for the extravagance of others. And on the other hand there are the southerners caught in a deflationary spiral that is making their debt problem worse not better.

Evans-Pritchard:

The [European Central Bank’s] North-South clash mirrors the political breakdown of monetary union after six years of depression and mass unemployment. France’s Front National now has twice as many Euro-MPs as the ruling Socialists….
Italy is also edging closer to an inflexion point. The Five Star movement of Beppe Grillo – which won a quarter of the vote in 2013 – has grasped the elemental point that zero inflation and falling nominal GDP is pushing Italy into a debt-compound trap. For a long time Mr Grillo wrestled with the EMU issue. There is no longer any doubt. “We must leave the euro as soon as possible,” he says….
Spain’s insurgent Podemos party has come from nowhere to top the polls at 28pc. It is not anti-euro. Its wrath is directed against a corrupt “Casta”. Yet the party’s reflation drive and furious critique of Spain’s “internal devaluation” is entirely at odds with EMU imperatives, as is its €145bn plan for a universal basic income, which would lift Spain’s fiscal deficit to 20pc of GDP.
…Mr Draghi is of course right to force the issue. The ECB is missing its 2pc inflation target by a mile, with crippling effects on the crisis states. This itself is a violation of the ECB’s legal mandate. The refusal of the German-led hawks to do anything serious about this is indefensible…

On the contrary, it is very defensible. For the ECB to go even further than it already has is to descend even further into lawlessness and, effectively, to sidestep Germany’s exemplary democratic and constitutional order, an order that was supposed to be what 1945 was all about.

Evans-Pritchard:

Tucked away in the report is a nugget that Britain alone accounted for almost all the EU’s growth in 2013, half in 2014, and will still be the biggest contributor by far in 2015. This implies that the UK’s net payments to the EU budget – already up fourfold since 2008 – will become ever more skewed. Or put another way, the more EMU makes a mess of its affairs, the more Britain must pay to prop it up.

David Cameron’s perfect storm keeps getting worse.

Evans-Pritchard:

Europe’s leaders and officials have run monetary union into the ground. Mr Draghi has bravely tried to bring them to their senses and contain the damage. He seems to have hit the limits of European power politics.

That last sentence is true enough, but I’m not sure that it’s fair to say that the monetary union has been run into the ground by European leadership. The true fault lies with the way it was designed from the beginning, incoherent, unfinished and boasting very little in the way of democratic legitimacy. A reckoning was always headed its way.