Spain

Yesterday, Fraser wrote that 'reporting of European issues tends to ignore public opinion'. Today, Philip Stephens has neatly illustrated Fraser's point in his Financial Times column. Musing on Britain's possible exit from the European Union, Stephens writes: 'I am not sure this is what the prime minister intends; nor, when it comes to it, that British voters will accept such an outcome.' Stephens' conjecture ignores the European Union's own polling, which, as Fraser says, shows most Britons to be hostile to the EU. That said, Stephens' article is substantial. He argues that 'fiscal union carries its own remorseless logic: the progressive exclusion of Britain from Europe’s economic decision-making'.

The expected triumph of the centre-right Popular Party in today’s Spanish elections promises to have some interesting consequences for British politics. The PP have been in close touch with the Tories here and plan to introduce an emergency budget based on the Osborne model: a clear deficit reduction plan combined with an increase in the retirement age. They hope that this will reduce the ever-upwards pressure on Spanish bond yields. Certainly, if the PP approach does succeed in gaining Spain credibility with the bond markets, it will bolster the coalition’s arguments about the importance of sticking to Plan A.

We've got two interventions by high-profile European politicians in the British papers this morning. In the FT, German foreign minister Guido Westerwelle lays out Germany's stance, providing a taste of what David Cameron can expect when he meets Angela Merkel in Berlin today. He begins by underscoring the importance of keeping the eurozone together: 'The eurozone is the economic backbone of the European Union. Its stability directly affects non-euro states and global financial markets. An erosion of the eurozone would jeopardise Europe as a political project, and with it the chance to make our values and interests be heard in the new power set-up of the 21st century.

Across Europe, the bien pensant are worried. They fear that the Eurocrisis could lead to the rise of populism — whatever that means — and even extremism. The spectre of the 1930s stalks a lot of discussions, as the FT's Gideon Rachman found out at a lunch with a hedge fund manager who thought the break-up of the Euro would lead to “the next Great Depression and a resurgence of Nazism”. But is there real cause for fear or is this a matter of people projecting a particular history onto the future? Economic dislocation has in the past led to populism but not uniformly, or at least not in numbers that have made a historical difference. It was not the case in the United States in the 1930s or, more recently, during Japan's ‘Lost Decade’.

For all the debate about Theresa May and border security, the big news has not been at Westminster today. Instead, people have been watching what is happening in Italy. For it is far from certain that Europe, or the Western world for that matter, has a bucket bigger enough to bail out a country that owes more than Greece, Ireland, Portugal and Spain do combined. As the New York Times reports, the European Central Bank is reluctant to step in and start buying Italian bonds because it fears that its previous bond buying efforts have simply enabled the Italians to avoid necessary reforms. It feels that only market pressure will make the Italians actually act. But this is a dangerous game to play because if Italy falls, France will be left teetering on the brink. BNP Paribas has 12.

Most of today’s papers carry reports of a deal to relieve the European sovereign debt crisis. The details are varied, but it seems that 50 per cent of Greek debt will written off and the currency will be allowed to remain within the single currency. This means that banks that are exposed to Greek debt will incur potentially ruinous losses. The EFSF mechanism will probably be extended to cover those losses and guard against contagion. Estimates vary, but it seems the fund will have to increase to somewhere around 2 trillion euros if the mounting crises in Italy and Spain are to be contained. Britain's exposure remains unclear at this stage.

As if the budget and Libya weren’t enough, the UK Government woke up today with another major challenge on its hands – yet another flare-up in the eurozone debt crisis, which has been continuing to bubble away under the radar.   Yesterday, Portugal’s Prime Minister José Sócrates literally walked out of Parliament, during a debate on EU-backed austerity measures. The austerity package was subsequently voted down and shortly afterwards Sócrates announced his resignation. Portugal is now facing the prospect of being without a government for months, as its electoral rules require a 55 day break between the dissolution of Parliament and new elections.