More money has been created to support the Spanish banking system.  The immediate market reaction is positive.  This action had become inevitable but. whilst the acute symptoms are addressed, the chronic illness is not.  A succession of sticking plasters is not enough to remove the underlying uncertainty.  We also need to root out the deeper infection of debt.  At some point, the debt write-offs and interventions have to go much further.

The debate between austerity and growth continues across the continent and more allusions to the 1930s are being made.  Ultimately, debt is paid by rising incomes and taxes.  Future incomes and taxes depend on economic growth.  Economic growth comes from a combination of advances in productivity and employment.  Both are driven by businesses and consumers having the confidence to invest and spend.  That fundamental confidence is lacking.  Austerity to salve the mood of the bond markets will not build enough confidence to restore growth.  Demand is now key and, when the private sector lacks the incentive to act independently, demand must start with the state.  Once the private sector responds, the state must get out of the way.

At time like this, then, political leaders make their historic reputations – for good or ill.  We may need more sticking plasters but most of all we need more aggressive intervention to clear the infection and staunch the wounds.  Do we have the statesmen and women we need in these desperate times?