Monday, December 12, 2011

This post is entirely about the EU and the euro. Switch off now if you're not interested.

The side-issue of the UK veto has naturally distracted us for a while from the real issues addressed at the summit. Below I cite several articles on these from today's UK press, with selective quotes from each of these.

The Guardian editorial: "The future of the euro: when summits solve nothing".

Before last week's summit in Brussels turned into a crisis of the European Union, it was meant to resolve the crisis of the euro. How did it score on that primary task?

The answer is: badly. What emerged from Brussels is an agreement that failed to fix the structural flaws that threaten to destroy the euro. Indeed, in many cases, the accord may make those flaws worse.

The best that can now be hoped is that the European Central Bank will paper over the cracks, holding things in place till next March's summitry. The worst that can be realistically imagined remains dire. And using a veto certainly won't protect David Cameron and Britain from the economic damage.

Last week's gathering of European leaders was the eighth to take place this year. The comprehensive package that emerged at the end was the fourth since this January. And yet it represents a very small advance. The analysis of the crisis presented in Friday's final statement is the same stuck record as Angela Merkel and Nicolas Sarkozy have been playing for the past two years

Click here for the full article.

Jeremy Warner, writing in the Daily Telegraph.

In all the hullabaloo over Britain's use of the veto, and whether the UK has once more cut itself adrift from the rest of Europe, it seems to have been forgotten what was actually being voted on here – an almost wholly inappropriate set of treaty changes which in themselves will do absolutely nothing to prop up the euro or save Europe from a crippling recession.

To the contrary, the pro-cyclical fiscal austerity which is now being hardwired into European law through the balanced budget requirement seems to condemn much of the European periphery to prolonged depression.

On the current trajectory, this is a project which is heading towards certain oblivion. It is still possible that the sort of things that might save the single currency will eventually be agreed – central bank intervention and debt mutualisation – but it is a brave man who banks on it. Personally, my faith in Europe's ability to sort out its mess grows weaker by the day.

Click here for the full article.

Boris Johnson, the Mayor of London, writing in the Daily Telegraph.

They aren’t really angry with us for opposing the new Treaty for Fiscal Union. The reason our brother and sister Europeans are so chronically enraged with the British is that we have been proved completely right about the euro. For more than 20 years, British ministers have been coming out to Brussels and saying that they just love all this single-market stuff, but that they doubt the wisdom of trying to create a monetary union. And for more than 20 years, some of us have been saying that the reason a monetary union won’t work is that you can’t do it without a political union – and that a political union is not democratically possible.

We warned that you would need a kind of central Euro-government to control national budgets and taxation, and that the peoples of Europe wouldn’t wear it. Now look. It wasn’t the Anglo-Saxon bankers who caused the trouble in the eurozone, Sarkozy mon ami. It was the utter failure of the eurozone countries – starting with France, incidentally – to observe the Maastricht rules. It was the refusal of the Greeks to control their spending or to reform their social security systems.

Click here for the full article.

Ambrose Evans-Pritchard, writing in the Daily Telegraph.

Many of those EU leaders who went along with this summit accord - including France’s Nicolas Sarkozy - must know that it is Medieval leech-cure treatment and can only drain the lifeblood from large parts of wasted Euroland.

It is not remotely a fiscal union. There will be no joint debt issuance, no EU treasury, no shared budgets, and no fiscal transfers to regions in trouble.

Nor was there any change in the mandate of the ECB, not even a tweak towards growth, nor a hint that financial stability (not manipulating short-term prices) is the ultimate duty of a central bank. They are rewriting the Treaties, yet still refuse to correct the most dangerous single failure in the construction of monetary union: the lack of a lender of last resort.

What the ECB can do is pull out all the stops to save Euroland’s €23 trillion banking system, and that is what it did last week by extending unlimited credit to banks (LTRO’s) to three years, halving the reserve ratio to 1pc, and relaxing collateral rules to allow banks running out of eligible "kit" to pawn almost anything at Frankfurt’s lending window.

This is the closest we have come a "game-changer" in two years of rolling crisis. The banks can play the "carry trade", borrowing at 1pc until 2015 with gearing to buy Italian debt at 6.4pc. That is how you rebuild a shattered banking system, and how to finance governments covertly without breaching any Treaty clause.

Click here for the full article.

Wolfgang Munchau, writing in the Financial Times.

The European Union last week destroyed the illusion that the eurozone and the UK could happily co-exist within the EU. That may have made it a historic summit. But the decision to set up a fiscal union outside the European treaties will do nothing whatsoever to resolve the eurozone crisis.

Remember what everybody said a week ago? To solve the crisis, the eurozone requires, in the long run, a fiscal union with a prospect of a eurozone bond and, in the short run, unlimited sovereign bond market support by the European Central Bank. What we now have is no treaty change, no eurozone bond and no increase either in the rescue fund or in ECB support.

The EU fell short on every element of a comprehensive deal.

Last week, Europe’s leaders created a diversion. We will be talking about the UK for a while. The crisis, meanwhile, goes on.

Click here for the full article.

Louise Armistead, writing in the Daily Telegraph.

Whichever side of the dichotomy you’re on, it ain’t Cameron you should be praising or blaming, but Angela Merkel and Nicholas Sarkozy. The truth is, Cameron hasn’t stood-up for Britain or quit the eurozone debate: Britain has been kicked out.

Click here for the full article.

Katinka Barysch, writing in The Guardian, under the headline "Believe it or not, Angela Merkel has a plan to tackle the Euro crisis.

Are Merkel's fiscal union plans beside the point at a time when debt and interbank markets are close to meltdown? Not quite: they are a political necessity to give Merkel more room for manoeuvre at home and to allow the European Central Bank to step up its role in stabilising the eurozone.

While Merkel's vision for a fiscal union is not the tool to stem the crisis, it might turn out to be a necessary ingredient of a bigger package to save the euro.

Click here for the full article.

Personally, I have no problem in admitting I have no idea whether the eorozone will eventually be stabilised by whatever the appropriate measures are. As Jeremy Warner has said:- It is still possible that the sort of things that might save the single currency – central bank intervention and debt mutualisation – will eventually be agreed but it is a brave man who banks on it.

Long-time reader Moscow (see recent Comments) may be well be brave enough to bank on the EU staying intact and coming up with measures which are not only appropriate but also politically feasible. In contrast, it seems Ambrose E-P has run out of patience - "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."

Which is not what anyone wants, of course. So, let's hope that the summit really does serve as a stepping stone to something rather more productive. Soon.


Perry said...

Colin said...

Thanks, Perry.