The euro crisis is an opportunity for Cameron

Gerard Baker has written the cover piece for this week’s magazine and it’s a must read. In it, he explains why ‘closer fiscal union’, as Rompuy terms it, is not to Germany’s advantage:

‘Any attempted fiscal union might well yield to Germany the biggest single vote in how much to raise in taxes and how to spend it. But it could still be outvoted by an alliance of smaller countries. Such a set-up would become an institutionalised mechanism by which German taxes will be siphoned off permanently to weaker European states. The nightmare for Germans is that an unholy alliance of Spanish, Greeks, Italians and Portuguese will be able to tell the good people of Bavaria exactly how much of their taxes they can spend in Bavaria and how much they must transfer to their needy cousins down south. Instead of a union in which the disciplined Germans call the tune, the system entrenches the bailout culture Berlin has insisted could never be a part of the single currency.’

As John Redwood observes ‘you can’t have an effective single currency without having a single economic government’. This crisis has concentrated minds and an effort at closer fiscal integration seems inevitable. Rompuy wants it; Barosso wants it; the basket case economies want it. Of course, that means more treaties. Alistair Darling’s final act as Chancellor was to contribute funds to a euro bailout scheme according to the Lisbon treaty’s demands. If we’re realistic, Britain will not avoid a similar fate in future unless it finds common cause with a significant ally.

The German quandary mirrors Britain’s precisely – though their exposure is greater. Angela Merkel’s weak government faces opposition from resurgent German euroscepticism as the solutions to this crisis become ever more unpalatable to the Volk. Merkel could either block integration or cripple the euro scheme, which amounts to the same thing. From what I hear, the FCO is ‘nudging’ Berlin.