The British are notorious in eurozone circles for having expressed doubts about the eurozone project from the start. And my Continental European friends have lost count of the number of times the imminent demise of the entire construction has been predicted on this side of the Channel.

However, there have been some honourable exceptions. One of them is the London-based firm of economic analysts Llewellyn Consultants, headed by John Llewellyn , formerly of the OECD, and his colleague Russell Jones.

Unlike many other British commentators, Llewellyn Consultants have never underestimated the strength of the political will behind the eurozone. I recall particularly a conversation with Dr Llewellyn way back at the time of the Delors Report (1988), which preceded the preparations for the euro and what became known as the Maastricht process.

greece bailout, greece protests, athens
Greek Prime Minister Alexis Tsipras reacts during a parliament session in AthensAris Messinis/AFP

Llewellyn worked closely with Jean-Claude Paye, who was director general of the OECD. Monsieur Paye, a distinguished French diplomat, convinced him of the determination of the French establishment to use the single currency to bind France and Germany even closer together.

The big mistake, which the Greek crisis has underlined all too vividly, was to extend the range of participant countries whose economies were in no way obvious candidates for membership of a monetary union.

Now, after many years of correctly observing that critics were mistaken to sound the death knell of the eurozone every time there was a mini crisis, Llewellyn Consulting have come out with a disturbing but all too convincing conclusion: whatever patching up takes place with regard to Greece in the coming weeks and months, the chickens are coming home to roost.

In their weekly Comment dated 22 July, Llewellyn and Jones have pulled no punches, and minced no words. Entitled Europe's Tragedy, they have produced a damning verdict on the handling and consequences of the Greek crisis. "Lousy process" and "Lousy outcome" are strong phrases from analysts who usually favour more understated judgements.

They note that the task of European policymakers in 2010 with regard to Greece was "First, to stabilise a small economy - equivalent at a mere 2% of euro area GDP to the US state of Arizona - that was profoundly uncompetitive, consistently spending 10% or more than it produced, and whose public finances had run out of control and, second, to embed procedures that would prevent such imbalances and excesses in future."

greek man crying
The image of Giorgos Chatzifotiadis crying outside a Greek bank was seen across the globeSakis Mitrolidis/AFP/Getty Images

Yet the requisite 10% reduction in expenditure "was realised only at the cost of a peak to trough decline in output (GDP) of 25% or more." As Llewellyn and Jones point out "This is the largest peacetime reduction of output in an advanced economy since the Great Depression."

The result is a far higher public sector debt - 200% of GDP - and a country that is "browbeaten, miserable, and humiliated; its policy autonomy minimal. In effect, it has become a vassal state seething with resentment."

And the political will that Llewellyn and Jones have never underestimated? They conclude "This time the challenge is of a different order and magnitude; it is not just the economic and financial instructional arrangements that have been found wanting. It is the area's very governance, and it is not clear that sufficient political will exists to fix it in the time available."

They agree with the growing view that political union is the logical next step, but conclude "All of this implies a significant loss of national sovereignty. But it is becoming clear that major countries in Europe are far from ready to cede this."


William Keegan is a journalist, academic, and the senior economics commentator at The Observer. He has published his latest work – Mr Osborne's Economic Experiment - Austerity 1945-51 and 2010 (published by Searching Finance) – which can be purchased on Amazon.