Cameron to Eurozone
Dec 26, 2011, Vol. 17, No. 15 • By IRWIN M. STELZER
"A man attending a wife-swapping party without his wife.” So a very annoyed French negotiator at the latest European summit characterized British prime minister David Cameron’s refusal to trade the future of his nation’s financial center for the approval of the 26 other members of the European Union. Since revision of the basic European Union treaty requires a unanimous vote, Cameron forced the other members to cobble together a new treaty creating a Fiscal Union, rather than draw on existing Brussels institutions to cope with the mounting crisis of the eurozone. An FU to replace the EU, noted more than one wag.
I know—let’s ask God to save the euro.
Cameron’s was a considerable achievement, but one he will have to defend from the Brussels bureaucracy, the Europhiles in his Liberal-Democrat coalition and in his Foreign Office, and the German chancellor. Angela Merkel wants to move control over the EU members’ finances—tax policy, spending, labor market regulation—from national capitals to Berlin, with Brussels serving as a fig leaf to avoid stirring up old anxieties about German dominance of Europe. History matters.
Cameron’s win included the following:
(1) He realigned himself politically with the majority of his party, and of his country.
(2) He at least made it more difficult for France and Germany to push through amendments to the EU treaty that would be extremely damaging to British interests, including new taxes on and regulation of the City of London, which accounts for 10-12 percent of Britain’s GDP, and which represents the Merkel-Sarkozy bête noire, a functioning, sensibly regulated, but essentially free market.
(3) Finally, Cameron just might have taken the first step on the road to liberating Britain from the web of regulations and taxes that doom Europe to slow or no growth. It is possible that we are witnessing a huge change in the focus of British economic and foreign policy—from a focus on Europe, with its declining population, increased Islamization, rising taxes, and flawed currency, to one of reaching out to the growth areas of the world, as befits a great trading nation. The notion that the EU can retaliate against Britain for the inconvenience it has caused the ever-tighter-union crowd is a bit of a stretch: Europe runs a trade surplus with Britain, and the rules of the World Trade Organization make it difficult for the EU to discriminate against British goods (not impossible, but difficult). This may well be a situation in which Britain can align itself with the world’s growing economies, rather than sclerotic Europe, turning an old joke into a statement of fact: “Fog in Channel, continent cut off.”
The practical and durable effect of Cameron’s move remains to be seen. For one thing, the Conservative prime minister’s Liberal-Democrat coalition partners, Europhile to their core, plan to make sure he goes no further in getting out from under EU regulations. For another, it is always a mistake to underestimate the tenacity of a Eurocracy that has a huge personal stake in pay, perks, and power—jobs for the boys, as an American ward heeler would put it—and a theological belief that only a united Europe will prevent another war. José Manuel Barroso, president of the European Commission, has already announced that existing EU institutions in Brussels can administer most of the new fiscal pact. It should be noted that this discovery of how the fiscal pact can be administered came before the pact itself was drafted and well before its scheduled approval in March. The drafting chore has been assigned to Herman Van Rompuy, president of the European Council (the Eurocracy includes more than one president). Don’t fuss with the details: Just note that the ashes of the treaty vetoed by Cameron weren’t even cold before the Eurocrats began their Phoenix-like rise.
More important than the Cameron-EU imbroglio is the failure of the eurozone countries to agree to any new program that will unhorse the bond vigilantes, who quickly saw the summit for the failure it was. It did not even attempt to address the fundamental problems that are at the root cause of the eurozone crisis:
n the noncompetitiveness of the periphery countries (except Ireland, which is back in business as a major exporter and magnet for investment, the latter because of its refusal to bow to Franco-German pressure to raise its 12.5 percent rate of corporate income tax);
n the perilous condition of undercapitalized German and French banks, which have loads of Greek and other uncollectible debt on their balance sheets, and have sold $238 billion of insurance against sovereign defaults, a ticking time bomb;
n the cumbersome nature of eurozone decision-making, which has led to the inconclusive crisis meetings that have shattered investor confidence in the eurozone leadership;