As President Sarkozy weighs politically unacceptable but fiscally vital cuts in services and tax rises this morning (according to Parisian media and contacts) he personifies the dilemma of every EU politician: with consumers already fed up of bad news, they’ll now have to pay more for everything – and get less in return. This is where The Daily Delusion -seemingly the only newspaper our leaders read – ends up after all the pain alleviation has been exhausted: painful political suicide. But as the saying goes, turkeys don’t vote for Christmas.

The men in Brussels are unelected and therefore inviolate. I understand George Osborne was rather surprised, on his first official visit to the Belgian HQ, to learn that next year’s EU budget is to increase by 6%. I also hear he arrived back and told Vince Cable the EU mob were “a mixture of mad and arrogant”. Young George is growing on me…especially after last night’s speech to the CBI.

A 6% rise in the EU budget probably won’t play that well in Greece, where workers and police are bracing themselves for another General Strike. This is the side of unfolding events generally ignored by financial commentators, but the politics of rising prices and unemployment will have an effect….and it involves those politicians we started off with further up this column.

If history is anything to go by, the political classes will do everything they can to avoid what’s necessary, take no responsibility for what’s happened, and look for somebody to blame. Those voting for (or against) them won’t need much encouragement to start disliking foreigners (thi is already happening in at least a dozen different forms) and then the recriminations will start in earnest.

In that context, reading Bloomberg’s summary of the eurozone situation this morning, the whole thing sounds like a vaguely bracing walk in the park. This isn’t Big B’s fault – they’re just reporting what the usual assortment of optimistic analysts and bankers have to say. Later today or tomorrow or next Monday, the next stage will be reached, and this same group will be panicking again.

For me, reaction to this, the eurozone’s little breather, is a classic example of a financial community which, by and large, is either too greedy to care (a tiny percentage of the total) or totally ignorant of social anthropology. The one (known) company that falls into the first category but not the second is Goldman Sachs. Its philosophy is not so much ‘if you can’t beat ’em, join ’em’ as ‘let’s play for both sides and bet on both results’.

And you know the really odd thing is, it’s quite hard to catch them at it – or trace what they’ve been up to. Give the Devil new technology, you see, and he can capture souls at an exponentially higher rate.

Yesterday saw a 10-12 hour trading period during which somebody who – for the sake of argument – had been talking up the euro all week could buy big to ‘directionalize’ the market….and then sell big once the saps had followed suit. Actually, ‘saps’ is a bit unfair – they’re largely ordinary, small investors who haven’t yet grasped that electronic megaquick trading and unfeasibly dark liquidity pools mean that, for much of the time, the result is a foregone conclusion.

The only way to beat the stitch-up is to be an insider trader looped into the advice of the insider traders; but that advice is expensive…and they may well still screw you anyway. It all depends on which way the wind’s blowing: as they say in the mafia, “it’s nothing personal – just business”.

If all this sounds a bit world-weary and up itself (sour grapes perhaps?) we should look at some of the economic realities on which currencies used to be based before crooked investment houses started radiating bullshit rather than reflecting market factors.

Australia is a country hugely rich in mineral and energy wealth at exactly the right time. It survived the 2008 crisis without a single bank failure and has the best rate of economic growth outside China. Switzerland is, well, Switzerland: very, very wealthy, a dark liquidity pool of a country, and a well-run (if boring) haven for the rich that stays out of both wars and mickey-mouse currencies.

These two powerhouses lost 2% and nearly 1% against the euro yesterday. The biggest,most productive nation in history was off by somewhere in between.

This in the context of a maverick (and potty) decision by a confused German leadership to ban naked short-selling. (What do you do if there’s a ban on short-selling coming? Directionalize the market. Win-win. No, sorry – make that winwinwinwinwin etc etc). This in the context of an economic zone digging deeper into it’s black hole with every squabble and liquidised signal. This after three months of the inexorable rise of every currency against that euro. This after PIMCO has pulled out entirely, and Athens is now openly admitting a default is on the cards. And most telling of all, this is a global situation where every single market crashed on the German ‘ban’ news.

This morning, some sane observers are having their say. Hans-Guenter Redeker, global head of currency strategy at BNP Paribas, said the euro will – indeed must – fall further…and stick at lower levels “for at least three, maybe four years”. Charles Wyplosz, head of the International Centre for Monetary and Banking Studies in Geneva remarked, “the euro’s long-term fair value is between about $1.10 and $1.20…..my bet is that the euro still has ample room to go down before it goes up.”

In some ways, the realities get sillier: the Merkel shorts ban set off an instant capital flight to Switzerland: €9.5bn flowed into Swiss franc deposits in a matter of hours on yesterday morning.
The Swiss Bank intervened to keep the SFr’s price down….but a senior banker based there told The Slog last night that the aim was to keep their Franc down – not watch it plunge. And why the same reaction from every other currency?

Let’s see how long the breather lasts….and who starts selling euros big-time in the next few days. And an hour from now (or so) The Slog will be offering a plain-man’s guide to market directionalization.

Stay tuned.