Monday, May 21, 2012

UK government to Merkel: move to fiscal union or else...


Regular readers know what we think of the UK government's peculiar habit of lecturing the eurozone on the need to move to a full fiscal union (meaning eurozone governments completely running over their own electorates). Well, over the weekend, the Coalition moved from dropping hints to - it seems - issuing outright instructions.

Here's Nick Clegg in an interview with Der Spiegel (at least qualifying his remarks):
"You have to have something which creates a fiscal accompaniment to monetary union. Whilst I have a huge amount of sympathy with German taxpayers and German politicians who are reluctant, understandably because Germany is the paymaster of the European Union, to entertain these ideas, I fear that they are unavoidable. It is not sustainable to believe that the eurozone can thrive through fiscal discipline alone - it also has to, at some level, include an ability to either share debt or to deal with shocks in one part of the system or the other through fiscal transfers."
And here's George Osborne, writing in the Sunday Times,
"The eurozone needs to follow what I described a year ago as the 'remorseless logic' of monetary union towards greater fiscal integration and burden-sharing. I mentioned eurobonds as one possible mechanism, and there are others."
Meanwhile, David Cameron followed up last week's comments that the eurozone need to increase the bailout funds, move to"fiscal burden sharing" and the ECB starting to act as lender of last resort (quite a wish list), by saying that the forthcoming Greek elections have to become "a moment of clarity and decisiveness for the eurozone" noting that,
"We now have to send a very clear message to (the Greek) people - There is a choice, you can either vote to stay in the euro with all the commitments you have made, or, if you vote another way, you are effectively voting to leave."
To be fair, Shadow Chancellor Ed Balls was quick on the lecturing too. While telling the BBC Today Programme that:
"I don't think David Cameron's posturing helps at all, I think it just makes it worse"
He did some posturing of is own, telling Sky News' Murnaghan Show, however:
"In the end... somebody has got to persuade Germany that this is a catastrophe for Britain, Europe and the world and that Germany has got to change course...The problem is, the German people went into the eurozone 10 years ago on the clear promise that they weren't going to bail out Italy and the central bank wasn't going to play this role. Both things have got to change." 
So how did the German commentators and politicians respond to his unusual show of cross-party consensus in the UK (minus London Mayor Boris Johnson, calling the UK government's stance on eurozone fiscal union "unbelievable"), in favour of more European integration? Barely a whimper. There were a lot of talk of Hollande, and one mention of Clegg's interview, but apart from that, the German press was deadly silent on this issue, although hinting at a Cameron U-turn, Süddeutsche's Nikolous Piper has this to say:
"Two years ago, at the summit of the G-20 leaders in Toronto, Merkel was able to enforce the requirement that developed countries should cut their budget deficits by 2013. She was supported by the then newly elected British Prime Minister David Cameron. In the meantime, Cameron’s austerity policies led Britain into a recession, with a corresponding loss of credibility."
We get it. British euro lecturing is for domestic consumption, but is this really where Cameron wants to be in Europe (the perception isn't exactly helpful)?


8 comments:

Bugsy said...

Sadly Balls is right, only Germany has the financial clout to bail Greece etc out, it would of course beggar Germany. That is the whole point, which the G8 can't seem to grasp as individuals or collectively, the situation is past the point where any bailout will work. An orderly movement of the PIIGS out of the Euro may save the Euro for a time. However the serious damage already done to both European and other nations financial systems may mean a total failure can't eventually be avoided. The time to start is now, doodle about for another year (as the EU has been doing, all talk, no action) and it will be too late. A crash that makes the great depression look like a boom.

Rik said...

1. First I donot think German politicians really pay a lot of attention to what UK politicians say.
2. However imho the situation needs a sort of shock in the EZ/EU combined preferably with some 'friends' (could be US, Russia, Turkey, could be Poland and Skandinavia co, could be Germany, Holland) to get a serious reneg on EU membership on the table.
Greece leaving the EZ with rumours that that might mean leaving the EU as well could clearly be such a moment. Everybody will know that the UK leaving at the same time will make the EU look to fall apart (something they cannot afford at that point and probably even now). Just one of the things that could happen that offers a chance.
3. Basically everybody has 'Germany should pay' solutions. These are simply not realistic. This is a decade or longer problem in the spotlight.
Meaning referenda and elections galore. And doing something against the will of the majority in a major country like Germany is simply asking for disaster. Likely need a referenda in Germany and that as it looks at this moment would very likely mean E-rescue exit completely.
4. Starting from there if you go for a solution it should be a realistic one and not being buying time on Germany's account at the end leaving them bankrupt as well.
5. As you mention Germany was promised no-bail out. As we have already seen, this basically means that the rescuefunds and Co will most likely pass on (at least try to) part of the bill to others and the UK is one of the first to pass it through.
And strict legally there is more reason to pass it to EU countries as there is to pass it EZ countries. First have a help/assistance paragraph the second a no-bail out clause.
This way the UK brings itself in the frontline.
6. Anyway to sort of join the South EZ alliance, is from an other angle not too clever.
-They are the least important countries;
-losing even more power in this process;
-unuseful to get things done for the UK;
-as markets rapidly losing importance as their economies will likely tank.
Imho simply betting on the wrong horse. Golden rule: never bet on a horse with 3 legs.
7. Very naive to think with blaming Germany for this and this way will get them of the hook with their own electorate. It is too obvious and too many things went wrong to set that straight with a thing like that. Make less mistakes and do what voters really want might do the job. This will not.

Rik said...

@Bugsy
Germany could easily bail out Greece if there was support for that.
Problems:
-there is simply no support for that (and we are talking 80-20 or so);
-it doesnot solve the crisis, you most likely would have to bail out Italy and Spain (and Portugal, Ireland, Cyprus) as well.
The latter simply looks beyond Germany's financial powers even if the want to.
-it is for Germany most likely much cheaper is more certain to work to rescue your own systemic banks iso countries that are clearly not able to get their financial house in order. Might be the only 'affordable; rescue possibility.

Rollo said...

I expect the Germans think of Cameron much as we Brits do: an ignorant boy, with no knowledge of the world, who will say anything that he thinks will curry him favour with voters. But it does not work. People even prefer to listen to Balls, the bloke who helped get us in to the mess we are in.

christina Speight said...

Rollo is absolutely right. Cameron has a very low attention span and 3 days is about his limit as he is distracted by video tennis games, fruit Ninja, snooker and trying to distract Obama from talking business when he wants to talk tennis.

He is in full steam right now lambasting the eurozone and gaining friends by being rude about them in public. He's not going to influence them that way. He ought to be more concerned about the fact that he presides over Britain which is increasing its debt faster than anywhere else in Europe and borrowing more over five years than Labour did over 13. His "cuts" are mostly rhetoric - -0.9 per cent from Brown’s peak. If Britain’s state spending were cut back to 2004 levels studies suggest our economy would be able to grow at twice today’s speed.

Patrick Barron said...

The question of why Cameron, et.al. advise a draconian fiscal union for the EMU countries can be explained by the tendency of all governments to support other governments, no matter how stupid their policies. This is simply one elite (in Britain) showing support for another elite (the Euro-federalists). Everyone should give such pronouncements the attention they deserve--none at all.

David Barneby said...

These reported views of British MPs , suggest two things to me , bearing in mind that Britain is not in the Eurozone .
Firstly , solving the Euro debt crisis , by whatever means , will save Britain from the Tsunami effect of a collapse of the Euro .
Secondly , Eurobonds endager the whole structure of the EU , the breakdown of the German government , voted out by the people . Germany and Hollanad might very well leave the Euro , then who is going to be paymaster , France ?
I suspect Cameron of speaking with a forked tongue , if he is inteligent enough , on the one hand trying to protect the British very frail economy and on the other to damage the foundations of the EU .

majorie said...

The muppets Cameron & Glegg ought to be endorsing how to get us out of Europe. Our own country is a shambles thanks to these two usless twits. The sooner Greece and the other Euro basket cases default and leave the euro, the sooner we can move on. It will be a 7 day wonder if the euro collaspes, and then back to business and a speedy and genuine recovery for all. There has been too much scaremongering and panic regarding the damage Greece leaving the euro will do, mainly to keep the Europhiles and their master in their lucrative non jobs and, for Germany and France's pet project to keep rolling along like a giant snowball gathering up our money.