Presented by Robert Peston, the BBC’s patron saint of financial crises, The Great Euro Crash was a world away from the measured scepticism on show in Michael Portillo’s programme on the same topic the previous week. In that episode, Portillo spoke to lots of people who were conscious of Europe and the euro’s defects but who wanted to keep it.
Viewers were left with the over-riding impression that, while things were bad, hopefully the peoples of Europe would pull together and muddle through to come up with a solution – and hopefully not just another final solution.
There’s no such positive message with Peston’s programme. It begins with news footage of burnt out cars and riots in Greece, over which Peston, with his customary nasal drone, ramps up the tension as he explains that for the past two years, Europe’s major economies have been on the edge of a financial precipice.
But beneath Peston’s customary style of over-dramatising economic misery, The Great Euro Crash has substance in spades. It provides a simple account of the roots of Europe and the euro after the Second World War and the motivation behind Europe’s leaders in setting it up.
As Peston stresses, the origins of the monetary union were not just about money – they were about avoiding the type of discord that resulted in the rise of fascism and plunged nations around the globe into a destructive world war.
So where did it all go wrong? Once again, the villain of the piece is the financial system and it’s the description of its role in the current crisis that is probably the most interesting part of the programme.
Initially, when the conditions of the monetary union were being set up, it was ruled that any country that had debt in excess of 60% of gross domestic product could not participate. That would have kept the scale of the single currency small and pivotally shut the door on many of the smaller southern economies.
But it would also have kept out Italy, which was deemed too important not to be involved in the project, so the rule was ditched. Instead, countries just had to show they were reducing their debt.
There was also another safety valve that a government had a borrowing deficit of 3% of GDP, which was a further hurdle for some countries. But as an Italian economics professor called Gustavo Pigo discovered, banks were helping governments using complex derivatives to understate their true borrowing deficit.
These derivative contracts were being used to reduce public deficits today to increase them 10 to 15 years down the line, and Greece, with the help of good old Goldman Sachs, is described as turning this into an art form.
So the foundations of the euro were rotten from the start but the fallout from the downturn, as Peston puts it in suitably apocalyptic terms at the end, could be the type of economic and financial depression that hasn’t been seen since the 1930s – all of which is worrying, so just to reiterate, anyone suffering from a nervous disposition should stay away.
But for anyone under the mistaken assumption that talk of a recession and ructions in the Med are a fantasy cooked up by the media, Peston’s programme shows why this crisis is bad news.
Review by Robert Thickett