Soros has said that we are now entering Act II of the financial crisis. I presume that he means that the banking crisis has morphed into a sovereign debt crisis, as these things often do. But I am not so sure.

Just look at whose borrowing costs have gone up. Of the big economies, only the PIIGS have really suffered — the UK, the US, Germany, and even Japan, which is in an appalling fiscal situation, have seen their bond yields fall during this crisis.

What is happening is that a Eurozone crisis has been caused by the foolish actions of politicians — primarily the architects of the Euro, which is a daft idea in itself, and secondarily by the current crop of European politicians who don’t know their arses from their CDO’s (and still think that the world is simple enough that good economic policy can be deduced from moral considerations — a nasty hangover from the last century). The situation is being widely misinterpreted as a sovereign crisis. But in years to come, this episode could come to be seen either as a precursor of a much wider crisis, or as a storm in a teacup, depending on whether we have a proper sovereign crisis or not.

Will we have one? One can imagine it coming about because politicians keep up the stimulus for much too long, or for not long enough. The Japanese experience and the seriousness of the financial crisis that we have just been through argue for erring on the side of “too long”. I suspect too long is actually a very long time. Sadly, at present the fashion is to err on the side of “too soon”. That could be disastrous for long-term debt/GDP ratios.

It’s not all doom and gloom, however. Central banks are still printing, to the eventual benefit of developed-world exporters. And the authorities in the US appear still to be in the “too long” camp, albeit within the constraints placed upon them by the political situation.