Italy and Spain won agreement to allow European institutions to recapitalise banks and purchase sovereign debt directly.
But when financial markets had a closer look it became clear that little of substance had been achieved – and the borrowing costs of Italy and Spain again approached forbidding heights. Meanwhile, the Spanish government has imposed fresh austerity, breaking its promises to the electorate. Unemployment in the eurozone continues to rise, exceeding 11% on average.
It is now a fair guess that the European monetary union is heading towards break-up or collapse. In Greece, Portugal, Ireland and Spain there is despair at the ever-deepening recession. In France and Italy there is opposition to austerity. In Germany there is frustration at feckless southerners.
A global slump is in the offing for nexr year. The large economies of Europe, including Britain's, are entering recession, largely as a result of austerity policies.
After three years of festering, truly drastic action is now required. Peripheral countries must abandon austerity and raise productivity; financial institutions must be taken into public ownership and debt written off.
Yet Europe's leaders, hidebound by neoliberal economics, will continue with austerity, privatisation and liberalisation. The financial markets have sensed disaster ahead.
It is likely to start in Greece, which is in an unprecedented depression made largely in Brussels. The bailout programme is missing its targets; recession has reduced tax revenues.
Still, the EU insists Greece must stick with the failed programme by imposing huge cuts in public expenditure in 2012-2014. The aim is to achieve a primary surplus at the earliest date. If the cuts do take place and a global slump follows, it would be an economic and social catastrophe for Greece: general unemployment is already at 23% and 52% for the youth.
The Greek government is incapable of dealing with the crisis. It won the June election by playing on middle-class fears about returning to the drachma and losing savings. It also promised to renegotiate bailout terms, knowing full well that renegotiation was impossible as long as the framework of the bailout was accepted. In practice, they are about to impose the spending cuts demanded by the EU while selling public assets in the hope of boosting growth.
But as depression worsens in the next six months to a year, Greece will again confront the impossibility of sticking with the bailout policies. This time the decision is likely to be final. At some point, Greece will default on its debts and exit the eurozone. And then the unravelling will start in earnest. – © Guardian News & Media 2012
Costas Lapavitsas is a professor of economics at the school of Oriental and African studies at the University of London