All quiet in Europe?

Europe seems to have gone out of the headlines for a while, with the Greek default / bailout, Mario Monti making some progress in Italy and the other Mario, Draghi of the European Central Bank, flooding the market with a trillion euros of cheap 3 year loans to the banking system. They have bought themselves some time.

But how do we stand, in real terms? It doesn’t look too pretty.

Greece. Lucas Papademos, the man chosen by Merkel and Sarkozy to be the Greek leader, has made optimistic noises to the effect that Greece will start paying its way in two years. Unfortunately no one seems to share this view. The latest IMF report on the bailout makes it fairly clear that Greece simply can’t hack it. Further cuts of some €12 bn – more than 5% of output – need to be made in the next three months, and there are elections coming up in which the people are unlikely to forgive the existing leaders. If Greece doesn’t make these savings – and I can’t see how it can – the IMF will withhold its aid payments and the whole pack of cards will come tumbling down.

Portugal. It seems inevitable now that Portugal will seek a second rescue package this year. GDP will shrink by at least 2% this year, unemployment is 14% and rising and all this despite 20% cuts in public spending. The idea was that Portugal would be saved by the rescue package and then export itself out of trouble. Its main export market is Spain.

Spain. Budget deficit will exceed the limit imposed by the new pact, as Prime Minister Rajoy simply ignored it. In the middle of a recession Europe wants Spain to reduce public expenditure by 5.5% over two years and it does not seem likely this can be done. The banks are nearly bust due to the collapse of the property market, and it is likely to fall further.

Italy. Mario Monti has made progress but is gaining a reputation for giving in too easily. It seems likely that the new labour market reforms will be watered down. Italy’s debt is still rising at an alarming rate and entered recession at the turn of the year.

The Pact. The Merkozy agreement to limit deficits and for indebted countries to put this in their constitutions seems to be breaking up. Spain announced a breach on the very day they signed the pact, François Hollande has announced that he will renegotiate it, and the Dutch have declared they will follow suit. Slovakia didn’t sign it and the Irish are holding a referendum.

Europe has been undone by the indecisiveness of its leaders and it has come up against democcracy, as it was always going to: the people don't always choose what is best for them.

There is a pause in the shooting, but the European Army is surrounded and out of ammunition.