After many agonising weeks and months, Portugal has become the latest country to concede defeat to the financial markets and request an EU/IMF emergency loan. Despite ostensibly doing as the markets told them and passing three austerity budgets, the Portuguese continued to have their credit rating cut. The cost of borrowing is now so high that they were left with little alternative.
Portugal's tragedy is that its government did what it was told and still got punished. It slashed public spending, wages and pensions to appease the financial markets and the austerity hawks who dominate European politics. Furthermore, the need for a bailout became inevitable when the minority Socialist government was brought down by the refusal of the conservative and other minor parties to support its latest austerity budget.
Portuguese conservatives have since taken to the airwaves to decry the failure of the Socialist government, conveniently ignoring the fact that an EU/IMF bailout will impose far more stringent cuts and a high interest rate on any loan it grants. This disgracefully cowardly move by the EU Commission president José Manuel Barosso's own party deserves to bring punishment for the party by the Portuguese electorate when elections are held, presumably after the bailout is finally agreed.
With characteristic bravado, George Osborne used Portugal's misery as proof the Britain would be in similar danger if his austerity plans were not followed. The sheer dishonesty of this has already been exposed by the likes of George Eaton and Will Straw.
The strength of UK government bonds is envied the world over. While Portugal was struggling to get even six-month loans at below 5 per cent interest rates, Britain is charged around 3.4 per cent on bonds that mature every 14 years.
In fact, however, the case of Portugal shows that austerity simply is not working. On the BBC's Question Time on 7 April, the Culture Secretary, Jeremy Hunt, and the Lib Dem MP Jo Swinson trotted out the coalition line that the coalition's front-loaded spending cuts are the only way to cut the Budget deficit. This is what the markets have told Portugal, Spain, Ireland and others to do. It has not worked. On the contrary, all have suffered a series of credit rating downgrades. These countries, like Britain, are not growing and so their deficits will remain large. It is no coincidence that Britain's public-sector borrowing requirement has been revised up several times by the Office for Budgetary Responsibility.
What the Portuguese case has also shown definitively is that elected politicians, particularly in smaller countries, are now completely powerless in the face of financial capital and the credit rating agencies. If the past few years have proved anything, it is that there is one rule for big banks and another for countries. Anyone who doubts this should ask why European banks continue to be allowed access to unlimited loans at 1 per cent interest rates from the European Central Bank, while the likes of Greece, Spain, Ireland and Portugal have had their borrowing costs soar in some cases to 10 per cent.
Indeed, it is little reported by the media what big banks have done with these blank cheques. As well as using them to cover the black holes in their balance sheets caused by the sub-prime crisis, they have pumped billions into buying up short-term government debt at high interest rates. In doing so, they've made a fortune, and because of the EU's "bailout" fund, they are able to keep doing so in the knowledge that the EU will not allow any of its member states to default.
The only conclusion to be drawn is that the financial sector is too powerful and too big to fail, and has offloaded its risks on to individual countries and the EU. This is a profound threat to democracy.
Now the focus of the financial markets, scenting blood in the water, will most likely move to Spain. Unlike Greece and Ireland, Spain has sound public finances and is several years into a concerted plan to reduce government borrowing. Its systemic problem is its unemployment rate, which is the highest in the EU and has reached 40 per cent among 18-to-25-year-olds. Yet Spain is not the only country in the EU with a systemic problem. Italy has high unemployment and a huge government debt-to-GDP ratio.
The challenge for the left across Europe is to use this ammunition to win the debate on how to reduce budget deficits and show the public that we have yet to tame the financial sector.
In his New Statesman interview this week, Nick Clegg talked of how the Liberal Democrats are working to "rebalance the British economy". They are doing no such thing. In fact, the financial sector has returned to business as usual. Flush with cheap money that it has ploughed into offering small government loans at eye-watering expensive prices, it is loading enormous debts on to millions of Europeans and their children.
There are two very obvious lessons from Europe's debt crisis. One is that austerity and the obsession of deficit fetishists is not saving indebted countries. The second is that the financial sector has found a new way to make easy money and hold countries to ransom at the same time. If these lessons are not learned, and fast, Europe's debt tower will eventually collapse.
Benjamin Fox is political adviser to the Socialist and Democrat group in the European Parliament.