Much of the recent stock-market turbulence can be put down to renewed concerns over the euro-zone crisis that ended in (depending on who you choose to be believe) 2010, 2011, 2012, 2013, or 2014. Demand has been crushed, growth has stalled, large swaths of the currency union are at or near deflation, and Germany itself is faltering.

Writing in the Daily Telegraph, Liam Halligan takes stock of where things stand:

Last week’s turmoil on global markets, which saw Greek bond yields pushed above an eye-watering 9pc, mean the eurozone crisis is back. As sovereign borrowing costs across several member states spiralled – not just Spain, Portugal and Italy, but France too – yields on 10-year German bunds plunged to an all-time low of 0.72pc, as panicked investors searched for safety.
This sharpening divide, or “yield-divergence” in the jargon, means that vast multibillion euro sums are being bet, once again, on the prospect of a eurozone break-up.

In my view that necessary moment (even its first stage: the creation of a northern euro) remains very far off, but there’s no doubt that the unease is back, as it should be, not least thanks to the economic and political flaw that was the euro zone’s original sin.

Halligan explains:

Long before 2007, it was clear to anyone with a reasonable knowledge of failed monetary unions throughout the ages, that the eurozone suffered from a deeply-ingrained flaw. A single currency shared by separate national democracies can only hold together with regular and substantial fiscal transfers between member states. And such transfers will only be remotely legitimate if the ultimate aim is to unite and become one country.

Well, that’s what those running the show want (de facto, if not de jure), but we should note the low bar that Halligan is setting: All he is talking about is the euro zone “holding together”; for it to flourish, well . . .

To return to an example I have used before, Italy has been in a full political and monetary for more than a century and a half: And Naples is still not Milan. How long will it take Athens to become Berlin?

In any event, the peoples of the euro zone rightly do not want this sort of “ever closer union,” and they are, as Halligan notes, becoming more vocal about saying so:

Germans are increasingly wondering why they should bail out profligate “Club Med” nations, while peripheral countries that have taken the pain of tough budgetary reforms now openly complain about “core” countries that use their political clout to refuse.
Marine Le Pen’s Front National attracted 26pc in the latest opinion polls. Le Pen – who openly advocates eurozone exit – would beat incumbent President François Hollande in a two-headed run-off for the Elysee. Even in Germany, where a sense of obligation to the “European project” runs deepest, the anti-euro Alternative fur Deutschland (AfD) won 7 of the 96 seats in the European elections in May. In the tight coalition politics of Germany, the entry of AfD into the Bundestag, which seems inevitable, will seriously complicate Berlin’s Parliamentary arithmetic…. The [Chavezista] Syriza party, which opposes bail-outs and any form of adherence to related fiscal discipline, could soon come to power in Greece.

And in Spain, there’s Podemos, and so it goes on . . .

Back to Halligan:

A lot of people now argue that the eurozone is only in a mess because the ECB has been “unimaginative” compared with other major central banks, resisting the urge to engage in massive monetary expansion. Ergo, if the Germans loosen up, and allow big-time euro-QE, everything will be fine.
Such an argument, while it serves the banks and investors that get rich on QE, while allowing politicians to bury their problems, is wrong on so many levels.

Legally, for example, and, for that matter, democratically, but back to the economics . . .

The eurozone is flirting with deflation not because QE hasn’t been big enough, but because Europe’s zombie banking sector remains awash with bad debts, resulting in a lending contraction every single month since the start of 2012.
That’s what lies behind the eurozone’s economic torpor, not a lack of virtually printed money. Rather than insisting on painful debt write-downs, and forcing a necessary restructuring of the banks, the ECB – massively panicked by the prospect of a single currency meltdown – now looks set to hose down its banking sector with yet more virtually printed money instead, just in time for the stress tests.
That will boost asset markets, of course, but do nothing to prevent Europe’s ongoing economic stagnation. It won’t solve the underlying structural problems of the single currency – problems that will ultimately result in a break-up.

One size, still not fitting all.