Europe's Blithering Idiots

Ambrose Evans-Pritchard Daily Telegraph December 10, 2011

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By Ambrose Evans-Pritchard Economics Last updated: December 9th, 2011

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Merkozy has bulldozed Britain out of the EU (Photo: AFP)

What remarkable petulance and stupidity.

The leaders of France and Germany have more or less bulldozed Britain out of the European Union for the sake of a treaty that offers absolutely no solution to the crisis at hand, or indeed any future crisis. It is EU institutional chair shuffling at its worst, with venom for good measure.

It is risky to reach instant conclusions on a fast-moving story but it looks as if the EU may soon be reduced to a shell, with a new union forming among the core.

Much has been said about whether David Cameron handled this well or badly. I leave that debate to my colleagues. What strikes me as a former EU correspondent is how threatening this is to the EU Project itself.

A country – and a large one – may start to disengage for the first time. The aura of historical inevitability that has swept Europe towards ever closer union for half a century has been punctured. Yes, Croatia will soon join, as Sarkozy chirped triumphantly, but that is not quite the same thing (no offence meant to the South Slavs).

Utter confusion will ensue over the legal structures of the EU. For whom will the European Commission work? For whom the European Court? It will be chaos for a while. This is the nightmare that fonctionnaires have always feared.

And what for? All this upheaval for a mess of pottage, a flim-flam treaty? The deal is not a "lousy compromise", said Angela Merkel. Well, actually that is exactly what it is for eurozone politicians searching for a breakthrough.

It tarts up the old Stability Pact without changing the substance (although there will be prior vetting of budgets). This "fiscal compact" is not going to make to make the slightest impression on global markets, and they are the judges who matter in this trial by fire.

Yes, there is more discipline for fiscal sinners, but without any transforming help. Even the old "Marshall Plan" of the July summit has bitten the dust.

There is no shared debt issuance, no fiscal transfers, no move to an EU Treasury, no banking licence for the ESM rescue fund, and no change in the mandate of the European Central Bank.

In short, there is no breakthrough of any kind that will convince Asian investors that this monetary union has viable governance or even a future.

Germany has kept the focus exclusively on fiscal deficits even though everybody must understand by now that this crisis was not caused by fiscal deficits (except in the case of Greece). Spain and Ireland were in surplus, and Italy had a primary surplus.

As Sir Mervyn King said last week, the disaster was caused by current account imbalances (Spain's deficit, and Germany's surplus), and by capital flows setting off private sector credit booms.

The Treaty proposals evade the core issue.

Did France and Germany really have to cause this rift by throwing in an assault on the City that has precious little do with the EMU crisis? Yes, I suppose they did.

Given that Merkozy cannot bring themselves to accept that Europe's debacle stems from the euro itself, from a 30pc currency misalignment between from North and South, and from an over-leveraged â?¬23 trillion banking bubble that German, French, Dutch, Belgian regulators allowed to happen… given that, yes, I suppose they have to find a scapegoat.

They have to whip up a witchhunt against somebody, so why not Anglo-Saxon bankers? Nasty reflexes are at work. German and French politicians in particular should be very careful about inciting populist hatred against a group that makes such easy prey. We have been there before.

No doubt these dramatic events will be uncomfortable for Britain, but this will all be swept away by bigger events before long. The Europols have not begun to work out a viable solution to their deformed and unworkable currency union, and perhaps no such solution exists. The system will lurch from crisis to crisis until it blows up in acrimony.

By then, a separate cluster will have emerged (not the 10 "outs" against the 17 "ins", always a ludicrous concept), but rather a loose Anglo-Nordic-Swiss grouping that may not do so badly on the fringes and may begin to solidify into a seductively comfortable outer tier.

The mere existence of such a constellation might change the calculus of isolation for Spain should it finally tire of Franco-German dictates and depression, or should the Portuguese at last conclude that enough is enough.

Does France, for that matter, really want to be locked into a clammy embrace with an ever stronger Germany? The whole purpose of monetary union for Paris was to tie down a reunited Germany with silken cords. France now finds its own hands tied because of EMU, reduced to a humiliating side-kick.

But the vain and hysterical little man now in the Elysée will soon be gone. A leader will emerge once more with a "certaine idée de la France".

As for Britain, let us seize the moment of liberation, and enjoy it.

Tags: Angela Merkel, Croatia, david cameron, emu, EU, European Central Bank, European Commission, France, Germany, greece, Nicolas Sarkozy

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