The three Cs

Convergence,cohesion,contagion. These are the words that have historically defined the European Unions smaller economies. Or at least the first two have and concerns have begun to grow about the third. Convergence was the original aim for these economies: the hope that Ireland,Greece,Portugal,Spain the EUs less efficient,poorer and more marginal economies could be eventually brought up to match the federations northern powerhouses. How could this be done? Through,it was hoped,cohesion funds,transfers from the rich economies to the poor ones.

The Irish miracle,in which over the course of the 90s the island nation leapfrogged from being one of the poorest countries in Europe to one of the richest,worked because it opened itself up to European capital,fuelling growth through debt. Leverage,however,can turn on you swiftly. It makes the booms boom-ier. But the crashes,as we can see now,are correspondingly greater pileups. Smaller economies,the ones that benefited most from openness,are now hurt the most; they simply are too small for international investors to believe their reserves will ensure their debt will always be honoured. Other governments could stave off disaster by manipulating their currency. But these dont have that option,as theyre in the Euro zone another blessing that,this once,isnt helping at all. And so,as sovereign debt agencies slashed Greeces debt to junk status on Tuesday,and downgraded Portugals too,fears of the third C began to take hold: of contagion,that Greeces debt woes would spread,even to larger,but massively indebted,Spain.

So,even as the long boom coloured in the advantages of European integration,the bust outlined its limits. Indeed,the split nature of the European experiment is at the heart of the problem. Ever-closer economic integration,it was argued,could take place without political integration. But political integration means that larger countries would have been forced to bail out smaller countries in bad times. Investors think this is not going to happen; and thats why all of Europe is paralysed in fear.