Euro crisis: barking up the wrong tree

2011-12-15 00:00

ONE senior European politician said angrily that British Prime Minister David Cameron was “like a man who comes to a wife-swopping party without his wife,” and there was some truth in that. Britain does not even use the euro currency, shared by 17 of the 27 EU members, but Cameron insisted on being part of the discussion in Brussels about how to save it. And in the end, he vetoed the solution that all the others had agreed on.

It was the eighth crisis summit of the EU’s leaders this year, and it produced the fourth “comprehensive package” of financial measures to deal with the debt crisis (the other three have already failed). And if you judged the importance of the meeting by the scale of the uproar when Britain vetoed the EU treaty that was meant to stop the rot, it must have been a very important summit indeed.

But in fact, they were all barking up the wrong tree in Brussels: the financial crisis over the euro will roll on, and the collapse of the common EU currency continues to be a real possibility. What the summit actually showed was how divided, distracted and deluded Europe’s leaders still are.

Cameron went to Brussels knowing that his partners intended to come up with a treaty that would enshrine new financial rules for EU members, in order to reassure the “markets”, who have been demanding higher and higher interest rates to roll over the debts of EU members. He also knew that the nationalistic, “europhobe” faction in his own Conservative Party would never vote for such a treaty. They want out of the EU, not further in.

The only way out of Cameron’s dilemma, therefore, was to make sure that there would not be such a treaty. His stated reason for vetoing it was to avoid more stringent regulation, and possibly taxation, of the London financial markets, but his real reason was naked self-interest: a new treaty would split his own party and probably destroy his government.

His stated reason was nonsense. Any new financial regulations that would affect the London markets would have to be agreed unanimously by the EU countries at a later date. There was no need to veto the treaty if he just wanted to protect the free-wheeling “casino” aspect of the London markets that had done so much to precipitate the crisis in the first place. Cameron just needed a cover story.

The other EU members feigned great anger at this, but some of them were secretly quite grateful for Cameron’s bad behaviour. They agreed to adopt the same rules anyway, but to do it outside the legal framework of the EU in order to get around the British veto. This had two great advantages: it meant that no referendums would be necessary and if these new measures failed to reassure the markets, they could all blame Britain.

What were these fabulous new measures? They were all about “balanced budgets” in the eurozone countries, which would face sanctions if they let their budget deficit exceed three percent of GDP. They would even have to submit their national budgets to the European Commission, which would have the power to ask that they be revised.

These are exactly the steps that will be needed if the euro is to have a long-term future: it cannot survive if the countries using it do not have a unified fiscal regime. But the markets don’t give a damn about the long-term future of the euro, they just want to know for sure that they will get back the money they lend to eurozone countries, and until they have that assurance they will demand exorbitant interest rates on their loans.

In this context, the decisions taken in Brussels this week are merely a displacement activity. The bigger EU governments are using the crisis as a pretext to force through centralising measures that they have long wanted to impose on the weaker economies. But they are still not doing what the markets want, which is to take responsibility for the weaker countries’ debts.

Can it really be that simple? Can they really be that irresponsible? Yes, and yes again. Tip O’Neill, former Speaker of the United States House of Representatives, explained why this sort of thing happens in politics seventy years ago: “All politics is local,” he said, and that is true in spades in Europe today.

It’s not just Cameron who is putting his local political interests above the interests of a broader European community. So is German Chancellor Angela Merkel, who refuses to allow the EU to make a collective commitment to honour the debts of the weaker members.

That’s the only thing that will calm the markets, but Merkel’s voters are fiercely opposed to hard-working, thrifty Germans covering the debts of lazy, spendthrift Greeks and Italians (as many of them would put it), so she will not permit it. And so the euro crisis rolls on interminably.

But don’t worry: interminably is not the same as forever. Sooner or later there will be a real crash, and all these people will be duly punished for their fecklessness. Unfortunately, everybody else in the EU will be punished too.

• Gwynne Dyer is a London-based independent journalist whose articles are published in 45 countries.

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