Two days ago, I wanted to write an article stating that the United Kingdom could better leave the EU, as there was too little British love for the EU and the other European countries. I was tired of all the excuses that the UK had found in the recent past and present for not cooperating with the rest of Europe.
And I was tired of all brainless rants and jeering of Anglo-Saxon politicians, economists, journalists and bloggers that declared the Euro to be a failure and stated that everybody and their sister would leave the Euro-zone and return to their own currencies very soon.
These conclusions were as useless as the statement that humanity better could not have invented the atomic and hydrogen bomb. And concerning countries leaving the Euro-zone; it didn´t happen and it probably won´t happen too.
And then I read the letter of PM David Cameron to the Times (link can be found here) and found the contents reasonable and sometimes even very right in its conclusions. It was not unreasonable that Cameron wanted to protect the London City against unfavorable new legislation and taxes.
And Cameron was very right when he said that the current plans did nothing about the imbalances between the core Euro-zone and the peripheral countries (i.e. Portugal, Ireland, Italy, Greece and Spain) where it comes to trade and capital imbalances.
I quote the most important paragraph of David Cameron’s letter and my reaction to it:
Our requirements will be practical and focused. But eurozone countries should not mistake this for any lack of steel. Fundamentally, the problem with the eurozone is a problem of competitiveness, with countries that have large trade deficits coexisting with Germany, which has a huge trade surplus. These imbalances have to be addressed. Without this there will be no lasting solution. We fully support the eurozone's determination to reform its own rules and structures, but not if they are just papering over the cracks and threatening Britain's own interests in the single market
I wish the German and Dutch governments would express Cameron´s understanding of the fundamental problems within the Euro-zone. However, I´m not optimistic about this: PM Mark Rutte of The Netherlands and Chancellor Angela Merkel will probably decide to ignore these imbalances totally and to go on with their blame game of Southern-Europe.
And therefore – after reading this letter – I changed my opinion and praised Cameron for his leadership and willingness to cooperate as much as possible with the other EU-countries, as he was stuck between a rock and a hard place.
After yesterday’s and today’s disgraceful meetings on the European debt crisis with all parties scoring in their own goal, I must again change my opinion on PM David Cameron and the UK in general. The Financial Times (www.ft.com) draws the right conclusion after last days’ negotiations
European leaders are struggling to cope with a profound split over crisis plans for the eurozone, leaving the UK isolated as the rest of the European Union agrees to press ahead with new fiscal rules to balance budgets.
The measures propose “automatic consequences” for countries whose public deficit exceeds 3% of gross domestic product and cap countries’ structural deficits at 0.5%. The tighter rules will be enshrined in national constitutions.
The 17 countries of the eurozone signed up to the new agreement after all-night talks, with nine other countries including Denmark, Sweden and Hungary agreeing to consider joining after considering their national parliaments.
Britain’s refusal to agree to a full treaty change for all 27 EU members unless there were safeguards for the UK’s financial services industry caused a standoff in the early hours of Friday morning with David Cameron, UK prime minister, Angela Merkel, German chancellor, and Nicolas Sarkozy, French president.
“I really don’t believe David Cameron was ever with us at the table,” Ms Merkel said. “We’re very pleased with the result. Yesterday was no weak compromise for the euro.”
“We wish them well,” Mr Cameron said. “My judgment was that what was on offer just wasn’t good enough for Britain. It’s better to allow those countries to do their own thing on their own.”
Without agreement among all 27 countries, it remained unclear how the new fiscal rules the summit leaders promised to follow would be enforced. EU institutions – most importantly, the European Commission, which oversees and passes judgment on such rules in Brussels – legally cannot have a formal role in any agreement outside the EU treaties.Senior EU officials acknowledged it would be difficult to give Brussels new powers over eurozone national budgets outside the EU treaties, and diplomats expressed concern financial markets would not see the new pact as credible.
Several diplomats said Mr Cameron emerged from Friday morning’s negotiations deeply wounded, angering fellow EU leaders and getting no trade-offs for British interests.
Mr Cameron held out for hours, diplomats said, in the hope of getting concessions for London’s financial services industry.
“Very simply, 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 UK from financial services regulation,” said Mr Sarkozy. “We could not accept this as at least part of the problems [Europe is facing] came from this sector.”
Mr Cameron insisted that he had not ruptured relationships with his counterparts.
“I had to pursue very doggedly what was in British national interest,” he said. “It is sometimes the right thing to say, ‘I cannot do that, it is not in our national interest, I don’t want to put that in front of my parliament because I don’t think I can recommend it with a clear conscience, so I am going to say no and exercise my veto’.”
Two days ago I stated that I could understand that Cameron was standing firm for the interests of the London City. This region earns €49,250 GDP per capita, compared to an average of €29,600 for the whole UK and €20,543 for the poorest six regions.
This is by far the highest rate of the large European cities. And of the countries, only Liechenstein (€105,000) and Luxembourg (€61,000) score (much) higher with their GDP per capita, but these can be considered banks disguised as tiny countries. If the London City would lose its financial attraction, this would be a disaster for the UK.
But the unfortunate truth is that Germany has Frankfurt, France has Paris and The Netherlands has Amsterdam as a financial center. These countries would not allow the London City to have an outlier´s position when it comes to taxes and regulations. I didn´t realized this enough two days ago.
The result was that there has been a giant clash last night and all parties involved lost in the end. If you read the red text above, you realize that these people don´t even agree on the amount of damage that is done by their actions. But unfortunately PM David Cameron, although perhaps a ´hero at home´, will be the fall guy, who will get all the blame.
And the UK is in reality half way out of the EU. And nobody in Europe will probably shed a tear if the UK totally leaves the EU, except for the English that will see their anemic economy further deteriorate: outside the London City the UK doesn´t have so much of an economy anymore. So the UK might become the loser after all.
But also the rest of Europe lost dearly yesterday: PM Mark Rutte of The Netherlands, Presidént Nicolas Sarkozy and Chancellor Angela Merkel did unfortunately exactly what I expected: not addressing the structural trade + capital imbalances in Europe at all.
They only bashed the PIIGS-countries without actually mentioning them. Their mantra? Budgets in balance and automatic penalties for offenders of the 3% budget deficit rule. Congratulations with that wonderful result.
And for the other parts of the agreement, I again quote the aforementioned FT article:
• Each government to adopt a “golden rule” to ensure balanced budget (a structural deficit of no more than 5%)
• European Court of Justice to ensure that national fiscal rules comply
• Automatic fines for governments that breach 3% deficit limit, unless qualified majority decides otherwise
• Rapid deployment of leveraged rescue fund, the €440bn European Financial Stability Facility
• European Stability Mechanism, the new €500bn fund, to come into effect from July 2012
• No agreement to run the two funds simultaneously which would have increased total firepower, but this will be reviewed in March
• Eurozone and other EU countries to lend €200bn to the International Monetary Fund via their central banks
• The requirement to get private bondholder to share burden of future rescues will be dropped from European Stability Mechanism treaty
• The ESM will be able to make bail-out decisions according to an 85% majority, if Commission and European Central Bank conclude a decision is urgent.
This is the perfect example of a Pyrrhic victory that is celebrated as a real one. And I am surely not the only person that thinks that the two rescue funds ESM and EFSF are useless water-pistols that wouldn´t even impress the Icelandic government. And that nobody answered the question yet how these rescue funds will actually be supplied with sufficient money.
The two rescue funds are flying ´on a wing and a prayer´: In the end everything will come down. Nobody (not in the least the BRIC´s Brazil, Russia, China and India) wants to fill the rescue funds up with real (not leveraged) money.
And there is no Marshall plan for the peripheral Euro countries. No initiatives to help these countries to improve their economies. No debt destruction and no private haircut, borne by banks and bondholders. And no ´war against tax evasion and corruption´ in southern Europe. In Dutch there is a beautiful proverb for this:
We drank a glass, scratched our a*se and everything stayed the way it was!
The Euro won´t come down this weekend and it won´t come down this year. But the Eurozone lost again a golden opportunity to solve the European debt crisis for once and for all. And now this will come back again, with an even bigger vengeance.