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Splendid Isolation?

Greece is due to receive its 8-billion-euro loan tranche this month; it has to meet two major bond maturities: one for 1.2 billion euros on December 19 (today) and another for 4.6 billion euros on December 29. In other words, Greece will pay out a total of 5.8 billion euros to its lenders this month, which is exactly the same amount that it is borrowing from the eurozone.

How is Greece’s debt problem being addressed?

Ireland, the poster child of the eurozone’s austerity drive, saw its economy shrink in the third quarter, according to the latest national accounts from Dublin. Irish GDP contracted by 1.9 per cent, on an annualised basis, in the three months to September, throwing an impressive run of two consecutive quarters of growth in the first half of 2011 into a sharp reverse.

How is growth going to be re-established?

I’m increasingly of the opinion that no matter who the British PM had been at Brussels last week and no matter which party they had represented, they would have found a way not to support a new treaty which was 100% doomed to failure. This goes for the reprehensible Nick Clegg who knows very well he’d have done the same as Cameron.

As it was EU leaders promised that all future government budgets will be “balanced or in surplus” and that annual structural deficits will “not exceed 0.5 per cent of nominal gross domestic product”. There is as much chance of shit from a rocking horse that Greece, Ireland, Portugal, Italy et al can deliver this.

All the stuff in the last week about Britain being isolated is exactly the kind of thing which was said when Blair and Broon decided that they wouldn’t join the Euro. In hindsight one of Gordon’s better decisions.

Were Cameron’s demands simply a bargaining chip which he knew would be rejected to give him the excuse of not supporting the 26 in their desire to spin the European money ferris wheel off its mountings? I wouldn’t be surprised.

I’ve blogged about the EU and the euro in the last few years predicting the kind of mess which they are both now in.

My Euro scepticism has consistently come from an incredulity that ever closer union would somehow solve any differences of opinion by national leaders and paper over cracks and chasms. Incredulity that somehow the cobbled together and unwieldy monetary union could work in so many wide and disparate economies and cultures and without establishing fiscal union first.

That’s not xenophobia or Daily Mail style hysteria, its pragmatic reality.

The UK of course is not immune from the fire about to engulf the EU’s economy (ies) as the rebarbative rhetoric emanating from France in recent days has pointed out.

However, it looks increasingly like Cameron took the only stance he could have last week.

Sources: Ekathimerini, The Independent

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5 Responses

  1. ‘Rebarbative’ You had me running for my Chambers dictionary for that one Rab!!!

  2. Do you sell litter trays for rocking horses?
    I am not sure about the other countries, but I know that Spain and Ireland have , in the not too distant past, operated within the parameters set in the Treaty (both the structural deficit one and the borrowing contraints).
    Cameron’s reason for not signing up was simply short sighted self interest.
    He wanted to protect the City of London. He didn’t object to the macroeconomic objectives of the treaty that you bring up. in fact, they would be right up his street.
    His objections were based on a desire to save the City of London from regulation and a tax on financial transactions.
    Given the events of recent years, and the main reason for the mess that we are in, I would have thought tackling the problems that led to this would take priority. But no, business as usual in the U.K. A transaction tax is specifically designed to reduce speculative trading. It has the added bonus of raising revenue from a sector that has relied quite a bit on government bailouts recently.
    The most effective way to curb the excess of the markets is at a European level. Do you really think that the U.Ks opportunism is a good thing and that no major reform is required in the City?

    As for fiscal union? I think sceptics and Europhiles alike knew that this would be a necessity one day. Had it not been for the major, once in a generation, economic shock, then the Euro would have trundled along nicely and required nothing more than a tweaking here and there on occasion.
    The stage we are at now has presented an opportunity to both sides of the argument.
    Collapse will see the sceptics argument strengthened and quite possibly a reversal of some of the integration that has occured (most likely taking the form of a two tier EU).
    If, as looks less likely, though not impossible, the Euro survives intact, Fiscal Union will have been acheived by the backdoor.
    On the whole, I don’t think the majority of the half billion people in the EU really care so much. As long as the stability and prosperity returns.

  3. Bobby, thanks again for your comment. If I may address the points as I see ’em?

    “I know that Spain and Ireland have , in the not too distant past, operated within the parameters set in the Treaty”

    Well yes, until you consider that those budgets were balanced via taxation on money which was quite frankly not real. In the case of Ireland it was collected on vastly inflated property prices, and on money recklessly lent by banks. The day of reckoning came as it was always going to.

    “(Cameron’s) objections were based on a desire to save the City of London from regulation and a tax on financial transactions.”

    But surely such a tax will have to be paid if the transaction is with a country where the regulation applies? Surely Cameron knows this?

    As for the transaction tax itself, would that it were just a measure to reduce speculative trading (almost like Mr Pitt’s assertion that the introduction of income tax was a temporary measure to pay for a war effort).

    This would be the start of M Van Rompuy’s much cherished pan European tax. It would (will) only be a matter of time before a transaction tax became/becomes applicable to every credit and debit card transaction. After all there would be no infrastructure cost – every shop and business on the continent already has the card reader and every business will collect it unpaid.

    A cent or penny levied on each debit card sale or 1% on credit card transactions doesn’t seem like a big deal and that’s why it will be introduced if the principal of European taxation is accepted. And then watch it go!

    You’re quite right that fiscal union is a pre-requisite for a single currency with the emphasis on the PRE. If it was recognised that fiscal union were not possible before the implementation of the single currency, how is it going to be achieved in the white heat of an economic meltdown? The answer is that it isn’t

    I don’t agree that is was ever possible for the Euro to trundle along nicely for any significant period of time, in fact my only surprise is that it took so long for it to hit the buffers. The main reason for that are the denial and fudges which characterise the modus operandi of the EU and eurozone in general and France and Germany in particular.

    “I don’t think the majority of the half billion people in the EU really care so much. As long as the stability and prosperity returns.”

    A very prescient observation and one for which I would point out the corollary. Unless stability and prosperity return there will be many of those half billion people caring rather a lot. I would keep my eye on France where the revolutionary spirit tends to manifest itself via civil unrest. If the French as seems likely, elect socialist Francois Hollande then the ball will be up on the slates. As M Hollande says “This accord is not the right answer,If I am elected president, I will negotiate, renegotiate this accord,” “Without economic growth we will achieve none of the targets on deficit reduction,” Hollande in an interview added the accord was both insufficient as a short-term answer and long-term solution.

    At the moment there is an uneasy closing of ranks of the 17 and the 26.

    It won’t last.

  4. The main reason Cameron rejected the deal is that it would have cost the UK 30 billion euros.

    I notice that Cameron has said they’d be prepared to contribute to the IMF but not the ECB and on the evidence of todays events that’s a very wise decision.

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