Eurozone deal reached without UK

[Skybird]

Great Britain Saves Itself by Rejecting the EU

The French and Germans may howl with outrage, but David Cameron did the right thing in pulling up the drawbridge to a continent on the verge of collapse, says Niall Ferguson.

by Niall Ferguson | December 9, 2011 11:00 PM EST

To listen to some conservative commentary in London on Friday, you
would think the British Prime Minister David Cameron just morphed into
Winston Churchill, valiantly upholding England’s ancient liberties
against German aggression. In fact, what happened in Europe this week was nothing so grandiose.



David Cameron’s refusal to back a Franco-German plan to revise the European Union treaty was the culmination of a consistent Conservative policy, dating back to Margaret Thatcher and continued under John Major. That policy has been to resist any steps taken in the name of European integration that would in practice lead to Britain’s becoming a member of a federal Europe.



Cameron is not—despite the opprobrium that has been heaped on his head by everyone from the French President Nicolas Sarkozy to the shadow foreign secretary Douglas Alexander—a pathologically insular Little Englander. Like Margaret Thatcher, he believes in the single European market. Like John Major, he opposes British membership of the European monetary union. As over the Schengen Agreements on passport-free travel, as over the euro, Britain has once again reserved its right to retain sovereignty over key areas of policy.


Nor is this an exclusively Conservative policy tradition. Gordon Brown, too, resisted the siren calls of the Europhiles in his own party to take Britain into the EMU. I don’t think he did this out of high principle, mind you. I suspect it was partly to spite Tony Blair, partly to maximize the economic power he retained as chancellor of the Exchequer and partly to please his friends in the City, many of whom were rather put off of monetary union by the trauma of Britain’s brief membership of the Exchange Rate Mechanism. Nevertheless, Brown’s preservation of the pound was his single greatest achievement. Had he yielded, the British economy would now be suffering a far more agonizing economic contraction, because we would have lacked the monetary flexibility that was so successfully used by Sir Mervyn King to mitigate the impact of the 2008-9 financial crisis.


So it is not that British policy has dramatically changed. The real historical turn is the one now being taken by the 17 euro zone members and the six non-euro states that have chosen to follow them. For there should be no doubt in anyone’s mind that what they have just agreed to do is to create a federal fiscal union. Moreover, it is a fundamentally flawed one. The only surprising thing is that so few other non-euro countries—Sweden, maybe the Czechs and Hungarians—have joined Britain in expressing reservations. I quite see why countries with the euro are prepared to give up their fiscal independence to avert a currency collapse. But what on earth is in this for the others?


Nicolas Sarkozy, as usual, bad-mouthed the British prime minister in the hope of maximizing his own personal glory at the expense of la perfide Albion. “Very simply,” declared the French president, “in order to accept the reform of the treaty at 27, David Cameron asked for what we thought was unacceptable: a protocol to exonerate the U.K. from financial-services regulation. We could not accept this as at least part of the problems [Europe is facing] came from this sector.” This is claptrap of the lowest order.


To see why, you need to read the “international agreement” announced in the early hours of Friday. The stated aim of the agreement—which would have been the aim of EU treaty revision had Cameron rolled over—is to establish and enforce “a new fiscal compact and strengthened economic policy coordination” in the euro area. The phrase “fiscal stability union” is explicitly used. It is to be based on “common, ambitious rules” and “a new legal framework.”


How will this work? The answer is that there will be a “new fiscal rule”: “General government budgets shall be balanced or in surplus; this principle shall be deemed respected if, as a rule, the annual structural deficit does not exceed 0.5 percent of nominal GDP.” This balanced budget rule is to be adopted in the national constitutions of euro zone members. But there will also be an “automatic correction mechanism,” enforceable by the core EU institutions—the commission, the council, and the court—if member states violate their own constitutions.


Moreover, the document states that there will henceforth be “a procedure … to ensure that all major economic policy reforms planned by euro area Member States will be discussed and coordinated at the level of the euro area” with regular euro zone summits to be held at least twice a year. The French and Germans leaders have made it clear that they envisage harmonizing labor law, taxation, and financial regulation on this basis.


This, in sum, is the founding charter of the United States of Europe. Notice two problems however. First, it is not clear how the European Commission, Council, and Court can act in this way, policing a 23-member fiscal union that is not covered by any treaty. Second, the balanced-budget rule is nuts. As it stands, it’s a recipe for excessive rigidity in fiscal policy—unless you think the rest of the Brussels Agreement implies a significant centralization of fiscal policy. Because you cannot have a balanced budget rule for member states if you don’t also have a federal government with flexible fiscal rules (as in the U.S.).


So where is the clause describing the new USE Treasury, with the right to issue bonds as well as to transfer resources from the more productive to the less productive member states? The answer is there isn’t one because the German voter refuses to countenance such a thing. That means one of two things. Either it’s going to be created by stealth—or this is a federal union that will be dead on arrival. I think it’s supposed to be the former, but I am not sure.


0Remember, none of this would be happening if it wasn’t for a disastrous crisis of the Eurocrats’ own making. Twelve years ago, I was one of a small band of commentators who warned correctly that a monetary union without some fiscal component would fall apart after about 10 years. Four years ago, I was also one of a handful of people who pointed out that the German banks were in worse shape than the American banks and needed urgent attention. Europe’s leaders ignored these arguments. The result has been an entirely predictable combination of fiscal crisis and banking collapse.

In the past few months, incompetent leadership has brought the euro-zone economy, and with it the world economy, to the edge of a precipice strongly reminiscent of 1931. Then, as now, it proved impossible to arrive at sane debt restructurings for overburdened sovereigns. Then, as now, bank failures threatened to bring about a complete economic collapse. Then, as now, an excessively rigid monetary system (then the gold standard, now the euro) served to worsen the situation.


For some time it has been quite obvious that the only way to save the monetary union is to avoid the mistakes of the 1930s. That means, first, massive quantitative easing (bond purchases) by the European Central Bank to bring down the interest rates (yields) currently being paid by the Mediterranean governments; second, restructuring to reduce the absolute debt burdens of these governments; third, the creation of a new fiscal mechanism that transfers resources on a regular basis from the core to the periphery; and finally the recapitalization of the ailing banks of the euro zone.


The problem is that the Brussels Agreement only does these things in the most half-hearted way. Aside from new borrowing, euro-area governments have to repay more than €1.1 trillion euros of long- and short-term debt in 2012, with about €519 billion of Italian, French, and German debt maturing in the first half alone. Meanwhile, the European banks need, we are now told, €115 billion of new capital—of which €13 billion is required by German banks.


Yet the European Financial Stability Fund has been capped at €500 billion, of which more than half has already been committed. The International Monetary Fund is to be given (by whom?) just €200 billion to recycle back (to whom?). And the ECB has committed itself to spend no more than €20 billion a week on bond purchases in the secondary market.


It is all, quite simply, too little. And the result is that the euro zone is about to repeat history. In the absence of sufficient resources for the new federal model, the new rules about budgets (and bank capital) are going to lead to pro-cyclical fiscal and monetary policies, deepening rather than alleviating the economic contraction we are witnessing.


“Eurozone Deal Leaves Britain Isolated” trumpets the Financial Times, for many years an ardent proponent of monetary union. But if David Cameron can succeed in isolating Britain from the disaster that is unfolding on the continent, he deserves only our praise. For once the old joke—“Fog in the Channel: Continent Cut Off”—seems applicable. There is now a Depression on the other side of the channel, and it is indeed the continent that is cutting itself off—from sane economic policies.


Last month I warned that the disintegration of the European Union was more likely than the death of the euro. You now see what I meant. The course on which the continent has now embarked means not just the creation of a federal Europe, but a chronically depressed federal Europe. The Eurocrats have exchanged a Stability and Growth Pact—which was honored only in the breach—for an Austerity and Contraction Pact they intend to stick to. The United Kingdom has no option but to dissociate itself from this collective suicide pact, even if it strongly increases the probability that we shall end up outside the EU altogether.


Many more brickbats will rain down on David Cameron in the days to
come. But he has done the right thing. And he will swiftly be vindicated by events on the cut-off continent.

http://www.thedailybeast.com/article...-eu.print.html

That could very well be, regarding the events on the cointinent. My quesiton is if an economyx with raising unemployment, high deficit, high debts, and sending almost 50% of its exports to said conteint, is set up sufficiently to afford a position of de facto total isolation and exclusion from European decision-making.

[Jimbuna]

Originally Posted by Skybird

And another critic who is angry that those Germans do not will to just sit and pay for the debts of all others to give the market another 3-day rally before it gets bored again!

Let us be frank with everyone on here Sky....the Germans (or should I say Merkel) have took it upon themselves to be the panacea of all the EU ills, and for the strength of me I don't know why because I suspect the German people/taxpayers had very little say in the matter.

Mr Sarkozy has quickly jumped on the bandwagon because IMHO he has sensed Merkel may eventually be overeaching herself and that of the German people, at little or no expense to that of his own.

The sooner one or the other come to the realisation........meltdown.

I doubt many of the 'hangers on' countries are all that bothered because in the short term they gain, without little or no cost to themselves.

Croatia for the win (for example)....I'm sure they'll bail your country out when you run out of money to waste/burn LOL.

Sad really that it will probably eventually come to this.

[Hakahura]

If this all pans out to a logical solution, then I think the UK will eventually free itself of the EU.

Good for Britain, but good for the EU? I doubt it.
Whilst many would be glad to see the back of the UK, will they be glad to see the back of our financial contribution?

Britain is the 2nd biggest net contributor to the EU budget.
Only Germany pays more in and gets less back.

Its very hard to find numbers that agree and obviously the EU itself does not make a big noise about it, but anyone who thinks the EU does not need the UK should investigate this.

If and when Britain leaves I will celebrate, but also feel sorry for the German people, as I think they will be forced by their government to pay alot more to prop up the EU.

UK referrendum now!

[joegrundman]

Originally Posted by Hakahura

If this all pans out to a logical solution, then I think the UK will eventually free itself of the EU.

Good for Britain, but good for the EU? I doubt it.
Whilst many would be glad to see the back of the UK, will they be glad to see the back of our financial contribution?

Britain is the 2nd biggest net contributor to the EU budget.
Only Germany pays more in and gets less back.

Its very hard to find numbers that agree and obviously the EU itself does not make a big noise about it, but anyone who thinks the EU does not need the UK should investigate this.

If and when Britain leaves I will celebrate, but also feel sorry for the German people, as I think they will be forced by their government to pay alot more to prop up the EU.

UK referrendum now!

I think the UK will shuffle further away from the EU too over the next few years. The die is cast. Britain is no longer at the top table, so...

I think it is better for the EU too. Whether they can or cannot make something more solid and lasting out of this crisis is yet to be seen, but they are more able to put things into practice without Britain.

The absence of Britain's financial contribution would be felt. However this may be the last thing to go, and may never actually go, but remain in some form as the price of trading privileges and good will.

But even without that, supposing Britain does want to become a rentier state dominated by our much loved financial services industry. Then that same financial services industry will be doing international business. It won't be doing America's work since they have Wall Street. Mostly I expect it will still be doing business for Europe.

Imagining an optimistic future in which Europe survives, deals with the present problems, and integrates into a real federation of some sort, I think Britain can successfully piggyback between the security and financial opportunities provided by the US and an integrated Europe, and prosper based on the offer of freewheeling financial services that Europe may have legislated itself out of doing.

Britain as a hub of free-wheeling financial deals for the countries around it is a role sort of like a supersized Hong Kong of the 80s.

But don't make the mistake of thinking that by leaving the EU Britain is seeking to preserve her democracy.

The reason for leaving the EU is to preserve the financial sector (according to Cameron, anyway), and the financial sector which has recently demonstrated its superiority over the rest of Britain's body-politic, will accordingly continue to increase its influence over British politics.

Looking at the big picture I think it could work, and if you are in the financial sector, the prospect must be exciting. London would be a very thrilling place. If you are not in the financial sector, you might find life becoming more depressing.

just my little vision of the future...

[Skybird]

Originally Posted by jimbuna

Let us be frank with everyone on here Sky....the Germans (or should I say Merkel) have took it upon themselves to be the panacea of all the EU ills, and for the strength of me I don't know why because I suspect the German people/taxpayers had very little say in the matter.

Indeed - last representative poll by Emnid (the major poll-institute here) that I read maybe 3 weeks ago on the matter, said that three of four Germans are against this madness when being asked for the role Germany plays in saving the Euro. A majority of the Germans did not want it from all beginning on!

I explained earlier why the German "elite" (hahaha) of artists, feuilleton-writers and politicians made it their favourite hobby to let Germany dissolve in a "higher Europe". It is the bad conscience deriving from WWII. That'S why first the EU got declared an issue of peace and war, and when the the Euro had arrived and came under pressure, they started the same claim about the Euro: abandon the Euro, and you will see a Europe turning to war. They now have the new variation of the slogan released: let the fiscal union collapse, and there will be wars in Europe.

If the EU does not get it's will, there will be war.

And if you see some of the reactions in Greece and Britain, the many pictures and posters with German politicians ridiculed as being depicted as a Hitler 2.0 and all that stuff about a Fourth Reich, you must admit that there is plenty of anti-German sentiment indeed, deriving from the war. Or take your own yellow press on the days before a meeting of the English and German soccer team. That is a media world in wartimes.

For Germans, it also holds another lesson. During the 70s and from then on, maybe Germany could be seen as the hotspot in Europe of "Anti-Americanism" - and I mean Anti-Americanism not as constructively meant, fact-oriented criticism (like I attacked the US and the Bush gang heavily over Iraq 03, nevertheless said again and again I do not see mysyelf as an Anti-Americanist), but as an ideologically misled, mostly leftist irrational hostility that amongst other features includes a strong envy for the power of the US that enables(/d) them to do as they want for quite often a time. By that, America did a lot of silly things, yes, but it also did a lot of good things and secured the safety of the Western world - even that of anti-American Germany and Europe. When now Germans will be paying the bills of the Euro and effectively safe the continent from loosing the Euro (maybe), we certainly should not expect that our neighbours will be thankful and pleased by that. Like America earned more hostility then sympathy at times, the same will happen to us, and others will become the greedier at our options the more we do for others. Anti-Germanism runs very strong in Europe, and the EU, and it was just invisible when the Germans did not use their immense power and sat put and just payed the bills one gave them. Now that Germany - from the perspective of the pro-Euro faction - has no other choice than to raise a higher profile and finally - after much German resistence and many opportunities it gave ground and more ground and the more - take the lead: the pack starts howling and fears the storming Nazi-Hun again.

We repeat the experience the Americans have made in the past decades, seen this way. There is just one difference. American mentality is different, and it became stronger by being faced with this pressure. German people, I mean the wide public opinion - do not dare to appear as strong and will always deny they are. For us and our self-pewrception, a strong German is an evil German. Never never again may Germans ever dare to be strong again.

Think you get my point, yes!?

[Oberon]

[Torplexed]

Events are heating up in Britain vs the Continent. Various Euro officials are making some hot comments indeed about Britain needing to be punished, isolated, taught a lesson (I've seen the old "perfidious Albion" being used more that once. ). Ambrose Evans-Pritchard on the British side absolutely blows his stack here:

http://blogs.telegraph.co.uk/finance...m-flam-treaty/

So that's heating up. And here's some more on the banking system stress:

http://www.telegraph.co.uk/finance/f...-collapse.html

Bloomberg:

http://www.bloomberg.com/news/2011-1...akup-risk.html

It's clear capital flight has started. The next step will be capital controls, with various countries under stress enacting emergency measures to keep money inside their borders. It's sort of the captain trying to stop the rats from leaving the ship. The threat of such controls will only increase the impetus to get out before it's too late. But from the stand point of the country involved, it's death for it's banking system if they don't stop it.

[Skybird]

One of the EUropean diseases thse days is the trend towards mandatory, obligatory, enforced uniformity and collective one-opinion-streamlining. Soldiarity is no longer voluntarily given on the absis of reasonable assessement, but it is being demanded and commanded, no matter for what. It has become a tool, a battle-term for the goal to establish the centralist, almost dictatorial governing regime of the EU: one continent, one sphere of rulership, one opinion, one identity, one whatever. I called the EU turning totalitarian and uniform repeatedly, and I mean it. It is no propaganda slang by me, but a sober, content-focussed diagnosis.

Other terms get abused for the purpose of doing political warfare, too. "Social justice". "Tolerance". Both go down your throat easily, they are glibbery and sweet and it is almost joy to swallow them. But both get used to just justify the arbitary regime of the established few over the many, and denying the public, the many, the right for a different opinion or demand to run different policies than those the few at the top enforce against the many, since that opinion would show "intolerance" and "social injustice". In other words: using these terms today serve the demonsiation of the one with a different political viewe on things than the EWU demands, and extreme radicalisation of the conflict.

Self-justification it also is.

[Jimbuna]

Originally Posted by Torplexed

Ambrose Evans-Pritchard on the British side absolutely blows his stack here:

http://blogs.telegraph.co.uk/finance...m-flam-treaty/

They have to whip up a witchhunt against somebody, so why not Anglo-Saxon bankers? Nasty reflexes are at work. German and French politicians in particular should be very careful about inciting populist hatred against a group that makes such easy prey. We have been there before.

No doubt these dramatic events will be uncomfortable for Britain, but this will all be swept away by bigger events before long. The Europols have not begun to work out a viable solution to their deformed and unworkable currency union, and perhaps no such solution exists. The system will lurch from crisis to crisis until it blows up in acrimony.

Merkozy

But the vain and hysterical little man now in the Elysée will soon be gone.

Love it

[joegrundman]

well, just to keep it balanced, Will Hutton blows his stack at what he thinks is Cameron's stupidity, trading Britain's influence in Europe to save a tiny percentage of financiers from having to accept some controls

Cameron has made a crucial misjudgment, simply to appease the City and his own jingoistic rightwingers

http://www.guardian.co.uk/commentisf...rong-on-europe

[Kongo Otto]

What i dont understand in this whole story is this: When the UK is so against the EU, and they have been against everything since they joined, why did they join the EU anyways back in 1973?
I think DeGaulle was right when he said "The UK shouldnt be an Member of the EU, because they are the Trojan Horse of the USA" back in 1963 and 1967.
For whom is Cameron demanding special rights?
For the Banks and the finance industry, ah ok and to whom do they belong mostly? To the US Finace industry.
Aaaaaaha so this is all a "Dont bite the hand whos feeding you" thing!
DeGaulle was absolutely right when he said in the 60's the UK is not more as an vassal state from the USA. This has been approved by Mr.Camerons behavior on the EU Summit acting as an speaking trumpet for the mostly US dominated UK's Bank and Financial industry.
So Bye bye UK, surely nobody will miss you in the EU.

[Jimbuna]

Another good article and obviously to be expected when there are those that are for and those that are against.

To each individual there own position/viewpoint on the subject

Give the electorate a referendum!!

[Oberon]

So the UK is being seen as the bad boy of Europe, whilst the UK is looking on at France and Germany as being the new leaders of Europe.


How is this different from any time over the past seven hundred years?

[Jimbuna]

Originally Posted by Kongo Otto

I think DeGaulle was right when he said "The UK shouldnt be an Member of the EU, because they are the Trojan Horse of the USA" back in 1963 and 1967.

And how grateful he was of the fact only twenty odd years earlier

[Kongo Otto]

Originally Posted by jimbuna

Give the electorate a referendum!!

A very good idea, should be done in every EU State!
I'm pretty much fed up with paying my hard earned money in form of taxes for Broken States like Greece or Italy etc.
What do we get out from the EU? Nothing we are just good enough to pay for the whole bunch of crooks!
Those taxes from the German taxpayer could be spend much better for all the stuff still to do here in Germany.
Theres absolutely no reason to waste German taxes for unwilling states like Greece, Spain or Italy, they deliberately lied about their national finances before they joined the Eurozone and now they should see where they get the money from.
Most of the newer states in the EU just took way more out as they paid in and all the EU did was enabling wage dumping by their EU subsidies to the new EU Members, destroying German Jobs!
Why should the German Taxpayer be responsible for the incompetence and the deliberate deception of most of the EU States prior to their joining of the Euro Zone?
EU does not mean Germany is paying for your after work Party costs!