The last few days have reminded me of the speculative attacks on sterling and the Italian lira in September 1992. Europe’s finance ministers and central bankers at the time reacted with anger and incomprehension. Sterling’s central parity in the exchange rate mechanism was as unsustainable then as Greek public finances or Spanish wages are today. Today’s financial markets correctly perceive the eurozone as not addressing the imbalances. They are confused by shifting signals from Germany and France about a bail-out. Investors have concluded that the probability of a contagious default is rising. They are right.

What has not changed since the 1992 crisis is that European policymakers and their economic advisers still lack a basic understanding of how financial markets react to policies or, in this case, to a lack of policies. At the moment, it is totally unclear what would happen should one eurozone country become unable to refinance its debt. I suspect there will be a bail-out, but I am no longer as certain as I once was.