Another year, another train crash between politics and economics in Europe. One year ago, at 1am on Monday, May 10, 2010, the leaders of the EU took what seemed their boldest step yet towards the creation of a full-scale European political federation, bolder even than the launch of the single currency in 1999. This was the creation of a €750 billion fund, guaranteed collectively by all European taxpayers, to protect EU nations from the choice facing Greece that night: to abandon the euro or to declare itself bankrupt by defaulting on its government debts.

A year later, it is clear that the Greek bailout failed. Europe has, therefore, decided to repeat it.

Greece has missed most of its economic targets. It has exhausted €75 billion of the €110 billion emergency loan and its Government acknowledged last week that another huge bailout will be required to meet next year’s debt repayments. Dissident German officials are judiciously leaking suggestions to the financial media that Greece could be expelled from the eurozone or that Athens will soon default. And indeed, the few private lenders to Greece who have not unloaded their bonds on to the European Central Bank or the EU bailout funds now face a 60-75 per cent probability of default. Meanwhile, the ECB and the European Commission continue to ridicule any idea of default or restructuring as “unthinkable”, as they did a year ago.

There are, however, four important new elements to this rerun of the European financial crisis. The first is that instead of Greece alone, three, perhaps four, countries now face bankruptcy or expulsion from the eurozone: Greece, Ireland, Portugal and possibly Spain. Moreover, it is now much clearer that a Greek devaluation or default would trigger similar events in Ireland and Portugal and that Spain and Italy would be extremely vulnerable if the first three dominoes went down. Read full article at The Times or in Presseurop's nine other languages...