All euro solutions will cost a lot

We all know by now that a single currency area requires a single economic government. It also requires citizens in the more prosperous areas to be reasonably content for subsidies to flow from them to the poorer areas. This requires a sense of single nationhood.

Yet within Spain we see Catalonia voting for more autonomy from Madrid. The Catalans feel they are subsidising the rest of Spain too much. Italy too has a North South divide, with the Northern League wanting separation from the poorer South.

Southern Spain and Southern Italy don't live within their means. Nor do (for instance) Greece or Portugal. Economists propose new "European" bodies which would issue "European" bonds or engage in other financial transactions. But these are castles in the air unless countries such as Germany, France and The Netherlands are ultimately liable for these financial instruments.

This doesn't mean the governments, it means the taxpayers. There is no such thing as government money, only taxpayers' money and borrowed money.

Southern Spain and Southern Italy can't devalue against the northern parts of their countries. Nor can Greece or Portugal devalue against the northern eurozone. So German, French and Dutch taxpayers face the prospect of endless subsidies to the south.

If Spaniards want to cut subsidies to Spaniards, when will northern taxpayers tire of subsidising other countries in the southern eurozone?

But kicking the delinquents out of the eurozone isn't a painless solution. Lenders to the delinquent countries would take huge losses on their loans. Banks in France and Germany have been among the big lenders. So (whisper it) have banks in the UK.

Which, then, would hurt Germany more? Stumbling on with the status quo, paying as little as possible to buy time and protect their banks? Or axeing support to countries in trouble and staunching the direct flows of money from taxpayers, only to see some banks stagger from the blow that debt default by weaker eurozone countries would cause them?

Germany must surely be modelling scenarios such as

- continuing to muddle through and avoiding grasping any nettles
- expelling weak countries from the eurozone
- leaving the eurozone themselves.

At present the French and German governments claim rhetorically that no one should underestimate their determination to support the euro, while rejecting any proffered solutions, because they would cost money and votes.

The next few years will be a good time to be in Opposition.