Eurozone maintaining the status quo

Monday, 8th August 2011, 3:01pm

As Pete has noted, George Osborne has been making headlines while braving rollercoasters in California. The chancellor's view that the Eurozone must accept ‘the remorseless logic of monetary union that leads from a single currency to greater fiscal integration’ marks the moment when the British government began to campaign for a two-tier Europe, which would allow Britain to sit on the periphery of the union. No doubt a wry smile will have danced across Bill Cash’s lips, because this arrangement was first envisaged by the Maastricht rebels all those years ago.

The Eurozone, however, appears intent to remain on its current course of half measures. Francois Baroin, France’s new finance minister, rejects Osborne’s belief that Eurobonds must be created to quell disquiet on the markets. In a statement made earlier today, Baroin said that the EFSF, the Euro’s emergency bailout fund, would be expanded if necessary to resist contagion. This merely restates the terms of the deal that was done on Greek debt last month and reflects the fashion for accord between France and Germany. Angela Merkel is understood to oppose Eurobonds vehemently because they would weaken the German economy and further impair her chances of re-election.

But, as I wrote last week, the markets openly doubt that the EFSF can stop contagion. Indeed, there are signs that Brussels agrees with the markets: the indication that the ECB will restart its bond buying programme in Italy and Spain was a response to those concerns and the ensuing speculation.

As France and Germany seem determined to resist costly integration at this stage, it seems likely that the ECB will have to continue risking its credibility by purchasing bonds from endangered countries. The price of this is that it deflates buoyant German bonds, which explains why the Bundesbank is apparently sceptical about the strategy. Perhaps Merkel sees this as the lesser of two evils; the feverish markets, though, do not.

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The Laughing Cavalier

August 8th, 2011 3:23pm Report this comment

We must thank our lucky stars that Blair was so keen on plunging Britain into the Euro. If it hadn't been for that Brown would not have been against it. Strange isn't it, the one thing that the Scotch Loon did right in his years at the Treasury was done not for economic reasons but to harm his Prime Minister?

Rhoda Klapp

August 8th, 2011 3:49pm Report this comment

And who told George he could announce UK policy on the hoof? Is this agreed in cabinet? What is for us in a two-tier Europe? Why is it good? What would be the terms, by which I mean what would we be trying to achive with it? Shouldn't there be a national debate BEFORE the chancellor puts his great big stupid foot in it? (Trying hard to conceal my partiality. Think I got away with it.)

Uncle Bob

August 8th, 2011 4:30pm Report this comment

Well Rhoda :-

1.> It's the only thing that's going to stabilise the eurozone and avoid a messy round of default in the PIGS.

2.> It put's us well out of it with hopefully a far looser arrangement with the EU. We have the whiphand in negotiating this as they desperately need our acquiesence on this.

Publius

August 8th, 2011 4:45pm Report this comment

I suspect the Chancellor is among those who realise that the "remorseless logic" is in pratice unworkable.

I suppose he is constrained to come out with this nonsense.

strapworld

August 8th, 2011 4:45pm Report this comment

Well written Rhoda.

Dimoto

August 8th, 2011 4:59pm Report this comment

Rhoda - grow up.
A "national debate" eh ? Led by the BBC, Guardian, Independent and Balls, no doubt.
Real national debate is now impossible in this country.

Rhoda Klapp

August 8th, 2011 5:08pm Report this comment

Uncle Bob. Where is the debt going to go? I see the PIIGS as my feckless brother-in-law. I will not help by lending him more money, and I don't want to help him get another credit card. I surely do NOT want him moving in with me. With his family and his bills. Best he goes bankrupt. Creditors paid something, and a new start.

Your second point is well-made, except that is not the way negotiations ever go with the EU, is it? I simply do not trust George and Dave to get a deal. Based not on my scepticism, but on their track record. I do want a far looser arrangement. In fact, so loose as to be, well, non-existent.

denis cooper

August 8th, 2011 5:53pm Report this comment

"... the moment when the government began to campaign for a two-tier Europe, which would allow Britain to sit on the periphery of the union."

And how long do you think that could last?

When:

1. No EU country which has joined the euro is ever allowed to leave it.

2. Every EU country which has not yet joined the euro is under a treaty obligation to eventually join it, apart from the UK and Denmark.

Do you see where this must end up unless the 1 and 2 are changed, which means changing the treaties?

So why is George "get a grip" Osborne encouraging the formation of a federal union of more or less the whole of Europe against us?

Rhoda Klapp

August 8th, 2011 7:08pm Report this comment

Denis, you know this sort of stuff. Is the current action of the ECB illegal? Buying up bonds, that is? If that denotes the solidity of EU law, then they won't mind if we bend a few of their regulations, will they?