The way ahead for the EU?

[Lippytarian]

Merkel and Sarkozy to unveil eurozone rescue package.

Finally here we are. The crisis is going to force the Eurozone countries to accelerate their integration. They will have to synchronise their macroeconomic fiscal policies. A framework of rules will be agreed and countries will have to conform to the targets or face sanctions. People with a certain kind of twist in their mind will characterise this as a horrendous shift of sovereignty from national capitals to the European level. But by any rational measure this is a good thing because the only thing countries will be forbidden from doing is bu33ering it all up for themselves and for everyone else.

Once that has been agreed it will then be possible for the ECB to stand behind these economies and guarantee their debts. Locked together in this way the Eurozone's debt level and economic performance in total is good enough for confidence and stability to return. Already, in anticipation of this agreement now that these negotiations are under way, the immediate market pressures have receded.

The crisis has stripped away many figleaves and exposed the true nature of the beast. The UK surrendered its place at the top table when it chose not to join the Euro. This imminent quantum leap in integration will leave the UK further isolated - even more a spectator when future decisions governing our continent are taken.

The Eurozone countries have to take immediate action, there isn't time for the usual grinding EU processes of consensus, compromise, quid pro quo, slowly finding ways to allay individual country's concerns - this is set to be much more brutal. The indications are that non-Euro countries will be offered the opportunity to sign-up to the new fiscal framework, but it is hard to imagine the UK would opt to do that.

Europhobes may revel in the schadenfreude of the EU's difficulties and dream their dreams of "powers" being repatriated, but the elephant in the room is that the UK's supposedly independent economy is tanking and doing no better than the Eurozone. No doubt at this historic moment the focus of attention here will be firmly on the trivia:
# the troubles the Tory elite has knowing that the UK should be on-board the train instead of standing on the platform giving the EU Express a V-sign as it accelerates away
# the troubles the Tories have suppressing the infantile backbench clamour for "powers" to be repatriated while the Eurozone grown-ups are attending to something important.
# the troubles the Tories will have explaining to Little England why the Treaty change that will be required [despite what Sarkozy is now saying] won't mean we get the promised referendum.

[Lippytarian]

Blimey. Didn't take long for the squabbling to break out, did it. The agreement hasn't even been agreed and No 10 is already bickering not with mere back-benchers but a Cabinet Minister and insisting there will be no referendum. Maybe the thread should have called "Fiddling while the Treaty of Rome burns".

Downing Street has rejected Iain Duncan Smith’s suggestion of a European Union referendum, insisting the Government is under no obligation to hold a public vote on Franco-German moves to create a “fiscal union”.

[Lippytarian]

The leaders of France and Germany say the EU needs a new treaty to deal with the eurozone debt crisis.

Well there it is. It is to be a new Treaty."A forced-march", lol, that should get the spittle-flecks a'flyin'. And only 3 months for the 17 Eurozone nations to flesh out the details and convince themselves they want to ratify the new Treaty. Quite a challenge for everyone including for Sarkozy and Merkel considering their domestic political situations. It would be wrong to consider this a done deal.

Cameron says he will take part in the negotiations, defending the UK's interests. He'll be talking to himself. Maybe they'll put him in a room on his own. Most of the other non-Euro nations are committed to joining the Euro when they can, so they will be participating while we only watch.

[Roger Cooper]

The leaders of France and Germany say the EU needs a new treaty to deal with the eurozone debt crisis.

Well there it is. It is to be a new Treaty."A forced-march", lol, that should get the spittle-flecks a'flyin'. And only 3 months for the 17 Eurozone nations to flesh out the details and convince themselves they want to ratify the new Treaty. Quite a challenge for everyone including for Sarkozy and Merkel considering their domestic political situations. It would be wrong to consider this a done deal.

Cameron says he will take part in the negotiations, defending the UK's interests. He'll be talking to himself. Maybe they'll put him in a room on his own. Most of the other non-Euro nations are committed to joining the Euro when they can, so they will be participating while we only watch.

There is nothing to say that this will even work. The whole of Europe, the UK included as our financial situation is in a precarious state as well, are up to it's neck in debt. If the Euro were to fail, it would be a catastrophe and would result in a financial meltdown that nobody wants. whether others like it or not, Europe has no real choice but to move in this direction, and it is in all our interests that they succeed. No doubt you are right, the whingers will whinge more, but in reality, they will have little to complain about if stability is the final result.

But those that think being out of Europe is going to make our situation better are seriously deluded. Our present circumstances are a damn sight worse then most of the Eurozone countries that are in trouble. Should the markets lose confidence in the UK, then even Italy's credit rating will look pretty damn good.

[John]

Should the markets lose confidence in the UK

Not much sign of that at the moment though is there? S&P have warned Germany and France that they could lose their triple A rating but did not mention the UK.

[Lippytarian]

So the thing that the UK balked at was bringing in measures to curb and to tax the financial services industry. It will be interesting to learn exactly what measures the rest of the EU wants to bring in. Because this only reinforces the appearance of the UK govt wanting to bail out its friends in the City, the people that caused this mess, wanting to make the innocent pay for the sins of the guilty with their jobs, their public services and their welfare benefits and wanting to make sure nothing whatever is done to change anything. We may very well be excluding ourselves not on the basis of our national interest, but on the basis of blocking wise and necessary reforms. But maybe that is the subject for another thread, because the rest of the EU has moved on.

Whether for good reasons or bad the UK has manoeuvred itself into a position that doesn't work on any level. The "half in and half out" model of membership which the UK favours works less and less well as the ever closer union progresses. With this latest step towards integration we see that the single market, the trading arrangements that the UK is broadly in favour of, will now be governed not by the UK but by a faction comprising only 23 or perhaps in the end 26 of the 27 nations. The UK, perhaps Hungary and maybe one or two others will be outside that group, choosing not to influence things that are key to their national interests.

The UK is in the same position as it always was. Dithering about whether it wants to be in or out and in doing so failing to play its role in influencing what the EU should become.

It was a bit confusing to see the leader of the ECB still insisting yesterday that even if there is an agreement the ECB will not use its big bazooka to print money, devalue and inflate the problem away (as the US and UK have done). I am not certain but I suppose that will have to happen to stop the sovereign debt crisis. Might his point have been that he is not permitted to do that under the Treaty rules under which the ECB currently operates and that a Treaty change will be required? Or maybe he hopes it will be unnecessary if confidence returns following a credible political settlement?

[Tattie]

Just a suspicion that this is more about posturing by the Franco-German clique than trying to resolve the immediate crisis, the debt mountain. A bit like being eaten by a shark and planning not to go swimming again.

Or maybe it is a non too subtle scenario designed to intimidate fiscal control away from the parliaments of the sovereign state members. I thought that legislation already existed that imposed financial constraints? But (hey-ho) nothing like another Euro jamboree summit to strut one's stuff at.

Asides from being a stealth tax, what possible use would a financial transactions tax be? It would have some merit if it was adopted world-wide but the chances of that happening are nil. So a sector that contributes massively to our GDP would be compromised?

Clever. 

[Lippytarian]

Just a suspicion that this is more about posturing by the Franco-German clique than trying to resolve the immediate crisis, the debt mountain.

Why not simply accept that all this is exactly what it appears to be? Countries negotiating together to find a way ahead that benefits all of them. There is no requirement for altruism in any of this - the Germans want a stable prosperous single market where they can sell their cars and everyone wants to avoid a sovereign debt meltdown which would bankrupt every bank in Europe. There is no machiavellian plot, there are no shadowy bureaucrats from Brussels running the show pulling Merkozy's strings. There is only the directly elected leaders of 27 sovereign countries doing what they think is for the best. Nor is there any coercion. The UK has chosen not to be a part of it and any of the other 26 can choose to do the same.

The true nature of the EU is being revealed under the stress of what is occuring. Which does make a nice change.

Asides from being a stealth tax, what possible use would a financial transactions tax be? It would have some merit if it was adopted world-wide but the chances of that happening are nil. So a sector that contributes massively to our GDP would be compromised?

It would not be a stealth tax. It would be a tax. We do really need to know what exactly the proposals are that the UK rejected. A transaction tax, an improved framework of regulation, and a requirement for better capitalisation in the financial sector have been mentioned. The point of disagreement is what should now be done in response to the devastating failure of unfettered market capitalism that has occurred. It is possible that the UK is getting it right and the other 26 are about to get it wrong, but I wouldn't bank on it.

[Lippytarian]

Clearly there will be a price to be paid for wielding the veto in terms of influence, goodwill, and participation. On the other hand the reason Cameron gave was that this will benefit the City. But will it? The point of a single market is that everyone goes there to trade on a level playing field, with one price, one set of rules. If the other 26 nations are operating a single market in financial services, and the UK is operating a different single market of its own, doesn't that mean the financial hub of the EU will over time be moving from London to Frankfurt?

Here is some informed opinion on the subject:
http://www.independent.co.uk/news/business/news/city-warns-cameron-veto-may-come-back-to-haunt-it-6275092.html
http://www.guardian.co.uk/business/2011/dec/10/business-reaction-cameron-eu-veto
http://www.ft.com/cms/s/0/ba7f2868-2285-11e1-8404-00144feabdc0.html#axzz1gDm9FAT4 *
http://www.telegraph.co.uk/finance/financialcrisis/8948470/Britains-veto-cant-stem-flood-of-City-regulation-from-EU.html

* Regstration seems to be required to see more than one page of the FT.

[marianne]

in many ways, the veto and the reactions to it by the right reflect the 'them and us' attitude within the UK. This can be found throughout society, always very confrontational, rarely co-operational. The whole process was not a way of subjugating the UK or the city to the will of the Germans nor the French, but  a way forward, a path to the future. Whatever the little Englander might believe, the glorious days are past and we now can only find strength with a larger unit. For this larger unit to work for the benefit of all, certain rules and regulations are necessary.

P.S.: Libby, I like your posts :-)

[Lippytarian]

in many ways, the veto and the reactions to it by the right reflect the 'them and us' attitude within the UK. This can be found throughout society, always very confrontational, rarely co-operational. The whole process was not a way of subjugating the UK or the city to the will of the Germans nor the French, but  a way forward, a path to the future. Whatever the little Englander might believe, the glorious days are past and we now can only find strength with a larger unit. For this larger unit to work for the benefit of all, certain rules and regulations are necessary.

For the Europhobe the EU is something separate, out there, inevitably a malign presence, looking for ways to do the UK down. But is Cameron part of an evil 26 country plot to subjugate and impoverish the people of Latvia, or of Slovakia, or of Sweden? No of course not! They just don't get that the EU is a club of which the UK is itself a leading member and that the arrangements between the members are symmetrical.

Cameron wielded the veto at least in part because of the pressure he was under from the City to resist the imposition of this transaction tax - they claimed the sky would fall in if the tax was brought in. But if this veto has set in train a sequence of events which sees the UK becoming isolated and even eventally withdrawing from the EU, then what reason is there to suppose the UK would fare any better on its own now than it did in the 1970s? We only joined in the 1970s because we were rapidly becoming an economic basket-case on our own. It was the Tories then who took us in, serving as they do the money interests. The Labour Party was for the most part against it.

You don't see the City shouting their praises for the PM after what he's just done for them do you. How can that be? Maybe they think the silly clot has brought the roof down on everyone. A case of "be careful what you ask for....", perhaps?

P.S.: Libby, I like your posts :-)

Thanks.

[Tattie]

And what has been achieved in addressing the debt issue?

Also(quote from Robert Peston)

"Update, 1545: The Treasury is more than a bit miffed by the French accusation that it was trying to protect the narrow, short-term commercial interests of the City by watering down financial regulation as part of the protocol that the prime minister wanted in exchange for allowing an EU treaty change.

In fact, one important demand made by David Cameron was that the UK should have the ability to impose tougher regulations than the standards contained in forthcoming directives.

In that sense, the big banks should probably be cheering for the French rather than for HM Treasury or the PM.

As I've noted here before, the Treasury has been concerned that the new Financial Policy Committee at the Bank of England would be prevented by EU legislation from forcing banks to retain more capital relative to their assets as a dampener on incipient lending booms.

The Treasury is also concerned that some of the Vickers recommendations, which go much further in limiting banks' room for financial manoeuvre than EU rules, could be blocked by EU rules.

So perhaps the City should be grateful to President Sarkozy for rejecting the proposed British deal on financial services - although maybe many of the rest of us should be slightly anxious, if there is scope for the EU to hobble attempts to sanitize the City."

Rather spoils the Europhiles handwringing(if it's true, of course)

[Lippytarian]

And what has been achieved in addressing the debt issue?

The other 26 countries (including 9 who are not currently in the Euro) have agreed that they will conform to a fixed set of fiscal rules governing how they will set their macro-economic policies. These rules will be a lot more comprehensive than before and they must be enshrined in domestic legislation. They will be enforced by EU-level authorities and there will be sanctions for non-conformance. In essence this is "fiscal union"- people will be forced to conform to "German levels" of prudence and governance. It would be wrong to assume that the details will easily be agreed and it will be no cake-walk for all the governments to overcome domestic opposition to this quantum leap in integration.

Although only the UK has rejected the deal at this stage, Euro-scepticism is by no means unique to the UK and the current crisis has led many people to question whether the Euro and an ever closer union is the right way forward. For many this will be an unacceptable loss of national sovereignty. Don't forget that the Constitutional Treaty (subsequently repackaged as the Lisbon Treaty) which by comparison now looks like a trivial thing, was rejected in referendums in both France and the Netherlands. France has an election in the Spring, this new Treaty of 26 might become an election issue there. The Netherlands has continued to lurch the right, with nationalism even more in ascendency than it was when the Constitutional Treaty was rejected. Expect the names of these countries and maybe a few others to come to the fore over the next few months.

There are 2 ways in which this deal, if it can be carried through, addresses the debt issue. Firstly it is the political settlement which people including the markets have come to realise is a necessary precursor to solving the debt crisis. It signals genuine intent among EU members to do whatever is necessary to resolve the situation. If the markets conclude that this attempt is going to succeed then the pressure on Italian and Spanish bonds will lessen because defaults look less likely. And if the banks look less likely to take losses on sovereign debt defaults then they no longer have to be scared of each other and the money-go-round can start turning normally again. Second, despite what the head of the ECB is saying, the expectation is that after fiscal union it will then be possible for the ECB to perform the same role for the 26 nations as the Bank of England does for the UK or the Federal Reserve does for the US. And that is to be the lender of last resort, guaranteeing without limit the sovereign debt and it turns out in practice also the banking debts of those countries. Ie it could if necessary print money to devalue/inflate certain kinds of problems away.

Also(quote from Robert Peston)..... Rather spoils the Europhiles handwringing(if it's true, of course)

Cameron says he rejected the deal to protect the City. Peston is implying that Cameron's counter-proposals which the EU rejected were even more damaging to the City than the EU ones. If that was the case then it makes a nonsense of what Cameron did - refusing to sign-up to something he said was bad unless it was made even worse!

[Lippytarian]

Cameron today set out what the threat was: at 22:30 into this recording...

http://news.bbc.co.uk/democracylive/hi/house_of_commons/newsid_9658000/9658872.stm

... Cameron said "if you allow a new treaty of 17 members within the EU without proper safeguards there is huge damage that can be done to the single market and the financial services".

I'm still none the wiser. What threat? What huge damage?(One thing we know for sure is that it was not after all this proposed transaction tax, because the UK would have retained its veto over any tax whether or not the Franco-German Treaty change was agreed.)

[Tattie]

Although only the UK has rejected the deal at this stage, Euro-scepticism is by no means unique to the UK and the current crisis has led many people to question whether the Euro and an ever closer union is the right way forward. For many this will be an unacceptable loss of national sovereignty. Don't forget that the Constitutional Treaty (subsequently repackaged as the Lisbon Treaty) which by comparison now looks like a trivial thing, was rejected in referendums in both France and the Netherlands. France has an election in the Spring, this new Treaty of 26 might become an election issue there. The Netherlands has continued to lurch the right, with nationalism even more in ascendency than it was when the Constitutional Treaty was rejected. Expect the names of these countries and maybe a few others to come to the fore over the next few months.

There are 2 ways in which this deal, if it can be carried through, addresses the debt issue. Firstly it is the political settlement which people including the markets have come to realise is a necessary precursor to solving the debt crisis. It signals genuine intent among EU members to do whatever is necessary to resolve the situation. If the markets conclude that this attempt is going to succeed then the pressure on Italian and Spanish bonds will lessen because defaults look less likely. And if the banks look less likely to take losses on sovereign debt defaults then they no longer have to be scared of each other and the money-go-round can start turning normally again. Second, despite what the head of the ECB is saying, the expectation is that after fiscal union it will then be possible for the ECB to perform the same role for the 26 nations as the Bank of England does for the UK or the Federal Reserve does for the US. And that is to be the lender of last resort, guaranteeing without limit the sovereign debt and it turns out in practice also the banking debts of those countries. Ie it could if necessary print money to devalue/inflate certain kinds of problems away.

So it hasn't addressed the debt issue at all?

It's going to talk about addressing the debt issue over the next few months.................

That'll reassure the financial markets, won't it?