The price of saving the eurozone

There is no end in sight to Spain's recession

A few things have happened in the weeks since I was last here, so there may be some merit in reflecting - briefly - on where we find ourselves at the beginning of the new school term (so to speak).

On balance, the biggest risk to our prosperity, total meltdown of the eurozone, has diminished, though it has not been extinguished.

As you'll know because I've bored you to tears about it many times, there is a compelling argument that the long-term survival of the eurozone requires its national members to cede considerably more autonomy than they have hitherto done on the management of their economies and public finances: it requires the eurozone being transformed from pure currency union into a political union that looks more like a federation.

So what was most important over the summer is that there have been greater moves in that direction than at any point in the eurozone's inglorious history.

So today there exists a roadmap towards much more aggressive support by the European Central Bank for governments like Spain struggling to borrow through its planned Outright Monetary Transactions (OMT).

An agreement in principle has been reached for eurozone banks to be policed by the ECB and - ultimately - supported and quarantined in the event of crisis through the pooling of "resolution" or rescue resources.

And even on the table is discussion of a new discrete eurozone budget, to be funded by pan-eurozone taxation, which would be able to make transfers to member countries mired in recession.

If all of this were to happen, it would be big stuff. Predictably agreement on the detail is now bogged down in spats, which can generally be characterised as supplicant, struggling southern nations wanting easier terms for potential rescues than the rich north would prefer.

But the eurozone is less at risk of uncontrollable messy fracture than it was just two months ago.

All that said, not all members of the currency union head into winter insulated from potential shocks. Today's Greek general strike is a timely reminder that agreement has still not been reached on the latest phase of its succession of life-saving bailouts. And its economy continues to contract at an alarming rate.

If anything, for the rest of us, it is the economic, financial and political weakness of Spain that is most alarming. There is no end in sight to its recession, or diminution of its devastatingly high unemployment.

We will learn at the end of the week how may extra tens of billions of euros are needed to prop up Spain's banks. And there is a growing danger of national, political disintegration, as the Catalan government makes plans for a plebiscite on secession.

When you aggregate all this it yields the prediction that the eurozone is - on balance - likely to hold together (just), but at an enormous social and economic cost for Spain, Greece and a few others.

This is probably the least-worst outcome for the UK. That said, the creation of a federal eurozone might lift one of the great potential threats to Britain's economic rehabilitation and simultaneously generate something of a political and constitutional dilemma. It would present the British people with a tricky choice between becoming even less influential within the EU than is currently the case or contemplating becoming detached, like Switzerland or Norway.