Further tension in the Eurozone
David Blackburn 11:00am
The Eurozone’s political crisis is deepening. Further to the news that individual
member states were seeking their own bilateral deals with Greece to insure their taxpayers’
money from default, the FT reports that disagreements are emerging over how these deals should
be conducted. Holland objects that Finland’s accord with Athens relies on Greece using EU bailout funds as collateral. “The Netherlands is no supporter of this
proposal,” Jan Kees de Jager, the Dutch finance minister, said. “It is not compatible with the principle of equal treatment of all euro countries.”
Moody’s, the credit rating agency, has said that this affair “confirms that Europe is conflicted over the very decision to provide financial support to its members, not just the amount of support.” The Dutch, who favour bilateral terms with Greece in principle, have indicated that they may veto the second bailout, which is yet to be ratified by member states. That eventuality is likely to spook the already nervous markets.
This story reinforces the analysis that the Eurozone crisis is as much the effect of political weakness as it is economic frailty. Member states would not be seeking bilateral deals with Greece if they had confidence in the debt package and Greece's ability to repay. Confidence might be fostered were there the structures to bind the Eurozone closer together — mechanisms that forced states, among other things, to budget responsibly. Instead, there is just a political morass. Each day, it seems, brings news of greater incoherence and disunity as national governments look nervously over one shoulder at their disgruntled electorates and at jittery markets over the other.
A senior diplomat recently told me that the markets are clear that they will only be satisfied by closer union. Northern states are not necessarily opposed to integration, but reckon that their electorates will reject what appears to be a debt union funded by their taxes. It might be standard European practice to ignore the People, but thirty years of democratic deficits have dispelled apathy; the Eurocracy wouldn't get away with it this time, or so the thinking goes. For example, Angela Merkel’s current struggle over the second bailout in the Bundestag arose because many German politicians calculate that the European issue will turn the forthcoming election, a point made by Anthony Browne in a recent cover piece for the Spectator.
Unable to forge an obviously closer union in this political climate, Merkel can only offer the markets a steady drip of half-measures. (The latest seems to be "greater commitment" from the rest of the EU.) As Moody’s have intimated, it may not be enough.
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Nicholas
August 23rd, 2011 11:15am Report this comment"The Eurozone’s political crisis is deepening."
Good.
Dennis Churchill
August 23rd, 2011 11:21am Report this comment“It is not compatible with the principle of equal treatment of all euro countries.”
Except the Franco-Germans. The others need to wake up to what they are: quasi-colonies.
Greenmamba
August 23rd, 2011 11:23am Report this commentIf the EU collapses is there a risk that the UK will need to do some bailing out of somebody somewhere, because 'it's in our national interest'?
GIven the massive UK trade imbalance in favour of the EU the other EU countries should be concerned not to let the UK economy crash and burn while trying to be ever so helpful here there and everywhere in the world.
Hard Heartless Romantic Perry
August 23rd, 2011 11:31am Report this comment@ Nicholas - you took the words right out of my mouth.
Good indeed! or as they say in the langwidge of all 'good' BBC progs (against a background of non-stop innane 'music') 'Brilliant' 'Fantastic' 'Great' (etc)
Holly ......
August 23rd, 2011 11:37am Report this commentOh dear, never mind.
John Bracewell
August 23rd, 2011 11:55am Report this commentThe path that seems to be appearing is:
More fiscal union of the Eurozone.
More political union of the Eurozone.
The Eurozone still has imbalances in it, so attempt to drag in the rest of the EU countries which means the formation of the United States of Europe(USoE).
How long this takes is open to discussion.
At some point, the UK will have to decide whether it is in the USoE fully, as a second tier member or gets out completely.
I hope that the people of the UK will be asked to make that decision and it is not just forced through and rubber-stamped by our so-called elected representatives (MPs and MEPs) as the Lisbon Treaty was.
I do not trust the political elite to allow the people their say.
2trueblue
August 23rd, 2011 11:59am Report this commentAnd Clegg is in the chair this week!! Oh dear. Time to keep quiet and carry on.
Tom (Bristol)
August 23rd, 2011 12:20pm Report this commentAll we need now for the final nail in the coffin of the EuroZone is for Jonah McDoom & Ex-Pres Bliar to be given unbridled airtime on there personal medium of the Biased Broadcasting Company aka BBC that will really spook the markets.
The commentators who fore saw this diaster of trying to keep 17 different horses all in line within the Euro Zone must be rubbing there hands if they placed bets on its eventual demise & proves what a real basket case the EU has become, but of course the over paid parasites & pimps in Brussels will be well insulated against this mayhem, perhaps they have secret agreements tobe rewarded in GOLD, but its only the over taxed peasants who will be the real losers & those P & P won't lose any sleep over them.
Of course if the UK had a PM who had some real backbone he would politely tell them to jack off when they call with there violin cases demanding even more bale out funds to pour down the euro black hole which will never be filled.
In2minds
August 23rd, 2011 12:24pm Report this commentThe risk is that flush from his 'success' in Libya Cameron will now want to save the Eurozone.
TomTom
August 23rd, 2011 12:39pm Report this commentWhat Finland has imposed was in the agreement and perfectly compatible with it. It is old news. The Finns are offering LOANS not GIFTS.
Germany does not need Greece or France when it has a global trading network with Russia, Brazil and China. It should push the French out to sea so they can merge with Britain into a North African Federation. Why don't you look at Libya in terms of Blair's 1998 St Malo Agreement for Anglo-French Armed Forces ?
startledcod
August 23rd, 2011 1:40pm Report this comment'It might be standard European practice to ignore the people, but thirty years of democratic deficits have dispelled apathy.' except, for some inexplicable reason' here.
Why isn't it obvious to David Cameron as it is to many, many others that he could cruise to a decent majority on some robust, practical and well-planned Euroscepticism. Unfortunately he obeys Hannan's First (?) Law that no-one is Eurosceptic in office. The LibDems Euroromance will condemn them more than their cosying up to the coalition.
joe
August 23rd, 2011 3:21pm Report this commentMay I respectfully suggest that there is some confusion here between what is feasible in the short term and what may produce a long term solution ?
In the short term, a Eurobond guaranteed by Club Germany and France could probably raise the funds required to adopt all, or at least some, of the Club Med and Irish debts. In Germany, the effect would be to raise the cost of borrowing across the board, and to force the German taxpayer to stand as guarantor of the new debt. In return, Germany gets a cheaper currency than it would have with the d-mark.
For France, however, such guarantees could well be enough to lose its AAA standing, and force interest rates generally onto a higher level. In return, it gets a currency higher than a notional franc would sit in today's market. Lose - lose.
In the longer term, there is no reason to believe that productivity gains in Club Med can keep pace with Germany's, never mind exceed them. You would therefore have an increasingly distorted economic area, with Club Germany permanently the producer/exporter and prosperous, with Club Med the permanent welfare addicted importer.
In the U S, these imbalances between the Rust Belt and the Sunshine States are resolved with massive transfers of income and of physical and human cpital. In other words, people move.
For any number of cultural reasons, this isn't about to happen in Europe. For that reason alone, but amongst many, the euro is and always has been doomed to failure. Post hubris, nemesis.
Augustus
August 23rd, 2011 3:23pm Report this comment"Unable to forge an obviously closer union in this political climate, Merkel can only offer the markets a steady drip of half-measures. (The latest seems to be "greater commitment" from the rest of the EU.)"
Those who cannot see that in the Eurozone a big endeavour is taking place, an important masterplan, on which realization we are only allowed to collaborate as faithful servants, certainly has to be blind. Because
now, it seems, all weaklings will be bailed out forever.
Vulture
August 23rd, 2011 4:06pm Report this commentUntil the peoples of Europe do to their political masters what the peoples of Arabia have been doing to theirs this year they will continue to be conned and fleeced.
'Democratic deficit' is an elegantly dishonest description of no democracy at all - ie. dictatorship. Britain and Sweden are the only EU countries NOT to have experienced dictatorship and/or military occupation at some point within living memory so they are sort of used to it.
It's what they do.
Hard Harshly Romantic Perry
August 23rd, 2011 5:13pm Report this comment@ Vulture - excellent!
Our very own twist on the 'Arab Spring' - we could call it a 'Brussel's Bash' , a 'RumpyPumpy-Rout' , a Cameroon Comeuppance - or far better names suggested by more able people.
TGF UKIP
August 23rd, 2011 6:47pm Report this commentAnd this is the Europe at whose heart our One Continent LibDem government wishes to be.
AliC
August 23rd, 2011 11:02pm Report this commentIf Libya can free itself from a despot, perhaps we can free ourselves from Brussels (currently a failed state, with no government...)
Baron
August 24th, 2011 9:36am Report this commentJoe @ 3.21:
good stuff, the short term argument could hardly be bettered, the take on things over the longer horizon less so for the simple reason it largely disregards the fanatical obsession f the Europhiles with the concept of federal Europe whether for ideological, strategic, personal reasons, these pseudo-liberal fruitcakes will not be put off by repeating all over Europe what we have within each country anyway, instead of calling it Glasgow Eastend, it will be known as Greece, no movement of people, why should they.
if you doubt it, my blogging friend, just track the flow of funds from the EU budget (still unaudited) till now, all in one direction from richer to the newly admitted poorer east, south; in the end, the totality of Europe (any definition possible) will be roughly at the same level of wealth consumption regardless what any of its constituent chunks contribute to its creation.
the Zorbas cannot lose, someone should tell them to calm down, go have a siesta.
Marcher Baron
August 25th, 2011 8:53pm Report this comment"The LibDems Euroromance will condemn them more than their cosying up to the coalition." Indeed, startledcod. I told the LibDem candidate here at the last election that there was no way I was voting for him since Clegg had run away from the opportunity to back a referendum on the EU. I suppose Cleggy didn't want to jeopardise his pension, and never mind the welfare of the country.
Anne England
August 28th, 2011 12:48pm Report this commentFirstly, when did we vote for Angela Merkel and Nicholas Whats-his-name to run the show?
Secondly, if our three political parties- who all want to remain in the European Union and try to find its heart-which is where they obviously want to be-the people will take them-selves out of the EU. If that happens, just as once before, what happened to the British Monarchy then, will happen to the House of Commons and all in it. The people will not be ignored for much longer.
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