Perry Anderson's assessment of European monetary union, in his typically ecumenical The New Old World, was that its results were "inconclusive" but thus far "disappointing" on its own terms. Its benefits, including lower transaction costs and more predictable returns for business producing more investment and superior growth, had been vastly oversold. Growth, far from taking off, initially slowed and only recovered modestly between 2004 and 2007. But something started to take place in late 2007 that has made Anderson's provisional assessment look blithely optimistic. We all know what that something is, and it disclosed some hitherto unseen aspects of the 2004-7 'boom'. It was based on a massive expansion of public and private debt (the former concealed by accounting boondoggles), especially in new entrants to the Eurozone, based on deceptively low rates of interests. This was what funded consumption during the boom for those countries. Germany, as the major exporter with a sizeable current account surplus, was the major beneficiary of this consumption boom, as befits its restored role as a regional hegemon since reunification. This is one reason why the Merkel government's affected astonishment at Greece's fiduciary improprieties has always reeked of hypocrisy.

Now the Eurozone has agreed on a 'rescue' package to reassure the holders of Greek bonds - the biggest holders are in France, Germany and Switzerland, though the UK's stake is not inconsiderable - that if anything seriously bad should take place in Greece, the EU powers will intervene. Essentially, it's a bailout package for bond traders based in the Eurozone core and, as it must be unanimously agreed upon by Eurozone members, it has an inbuilt veto for the larger powers, specifically Germany which would contribute the most of any European state. Much has been made of talk of rescue plans. It is often said (eg) that such would contravene a no-bail-out clause (article 104b) in the original Maastricht Treaty which paved the way for monetary union. Thus, perhaps, the abdication of rules originally conceived for a very different kind of political-economic conjuncture demonstrates some potentially fatal fault lines in the project of monetary unity. But if you look at the report of what has been agreed and compare it to the Treaty, I suspect you'll agree that a tort lawyer would have no difficulty interpreting the rescue package as a legitimate activity under article 103a, section 2. There are serious structural tensions within the EU, but there is no reason to doubt the legal adroitness of those who framed this latest agreement, nor their commitment to sustaining union in its original format. It's not as if they have a blindingly obvious alternative at the moment and, if overall growth in the Eurozone has been unimpressive, the arrangement has nevertheless profited Europe's larger powers.

In a highly recommended read, Costas Lapavitsas (et al) [pdf] note that the leading would-be creditor, Germany, has benefitted from the uneven way in which financialisation has taken place across Europe. It has been able to squeeze its working class harder through various reforms to benefits pushed through by Schroeder and Merkel, without bringing about the elevated household debt of other EU countries, principally because other countries purchased German products and thus sustained economic growth. In the mid-2000s, Germany was the world's leading exporter (China took over last year). Peripheral economies have been bound by the tight fiscal rules of the Stability and Growth Pact, and thus have not been able to support production and growth to make up for the competitive gap with bigger economies. They have had to make up for competitiveness in other ways, principally by following the prescriptions of the European Employment Strategy, which mandates a flexible labour market and an increase in part-time, temporary work. Thus, workers have been squeezed across the board - albeit in different ways and at different tempos depending upon social and political histories, and the capacities of national working classes to resist. With such downward pressures on wage incomes, the only way to sustain growth for less competitive economies has been to drive up household debt to support expanded consumption (or in the case of Ireland and Spain, to stimulate real estate bubbles). Because German consumers were not as debt-ridden as their other European counterparts, it was less urgent for the German state to engage in stimulus spending, thus it has not had to borrow as much. That has driven up the gap between the cost of borrowing for peripheral economies and for the German government, which leads us to the sovereign debt crisis.

The sovereign debt crisis that now affects Greece and other peripheral Eurozone economies resulted from a speculative attack that in other circumstances would have focussed on the national currency. Speculators drove down the buying price of government debt, thus driving up the yield (the difference between what the government would receive from creditors and what it would pay back), and effectively raising the cost of borrowing for the Greek government to prohibitively high levels. That raised the prospect of future speculative attacks on other Eurozone economies, including the UK which - because of depressed tax revenues and high household debt - has had to borrow massively to sustain consumption even at its currently unimpressive levels. And the threat is not over. For example, many big banks have a major interest in Greece defaulting on its debts because they've been getting 'innovative' again. This innovation involves the use of credit default swaps, which is an insurance taken out against a debt that you hold if you think the debtor might default. It amounts to a bet that they will in fact default. (You can then make derivative bets on the providers of those credit default swaps defaulting, and further bets on those...). Throughout this crisis, the value of credit default swaps on Greek bonds has soared and soared, and they have actually increased two points after this announcement. Talk about perverse incentives - the rentiers have found yet another way to make big money out of catastrophic economic collapse.

As Lapavitsas et al also note, the current disposition of EU ruling classes, despite grumbling about German pressure, is to solve this problem with another attack on the working class - reducing public expenditure, cutting wages and raising taxes. Such austerity measures can be imposed precisely by such means as the 'rescue' plan mentioned above, which provides credit at reduced cost in exchange for substantial EU surveillance of the Greek state, and a commitment to the most devastating cuts package. This will further advance a race to the bottom as far as wages are concerned, with the peripheral economies having to hammer wages (and combat working class resistance) particularly vigorously in order to make up the current accounts deficits.

The recently integrated economies of eastern Europe, which have been pioneering flat taxes and enticing producers such as Peugeot and Volkswagen with low production costs (Anderson points out that wages in the auto-industry in Slovakia are one-eighth of what they are in Germany), are in an impossible position in this respect. How can they drive down wages any lower? How can they cut the state down any further? And if they do, will not their workers take advantage of the EU's relatively liberal internal migration regime to seek higher wages elsewhere? They have already been suffering from sometimes severe political instability, and explicitly fascist movements are doing very well in Hungary, Romania and Slovakia (by contrast, radical leftist challenges in the east are emerging belatedly, and only germinally). The political leaderships they have elected have often been not only embarrassing for the EU but actually obstructive, cf Poland's terrible twins. The anti-EU backlash coming in recent years from both right and left across Europe, is likely to accelerate and will be particularly advanced in the east.

Thus, the rescue plan might save the holders of Greek debt from undue pain (and who could object to that?), but it is part of a process and a political programme which is even now generating the basis for an almighty rupture in the EU. The debased utopia of a social liberal Europe of perpetual peace and prosperity, once fervently advocated by New Labour idiotologues, now looks more unworldly than ever. The EU is an accelerating centrifuge, and it surely cannot be long before some of its constituents start flying off in various directions.