Thursday, December 15, 2011

The EU's self-destruction, Thursday edition

Tony Barber elaborates on what a schmuck British Prime Minister David Cameron showed himself to be at last week EU summit in Euro summit was British diplomatic debacle Financial Times 12/13/2011 :

The nation that prides itself on a Rolls-Royce diplomacy appears triumphantly capable, at critical moments of EU history, of driving itself straight into a ditch. This is what happened in Brussels last week when David Cameron, the UK prime minister, found himself outnumbered by 26 to 1 at a summit of European leaders. ...

That said, the EU summit in Brussels stood out for the way that Mr Cameron and his Downing Street inner circle appear to have excluded from their calculations whatever advice Britain's professional diplomats were ready to supply. Responsibility for the isolation in which he found himself lies squarely with Mr Cameron and his entourage's closest members: William Hague, foreign secretary, and Sir Jon Cunliffe, the prime minister's European affairs adviser, who has a hard-edged Treasury rather than a silky diplomatic background.

In a broader sense, responsibility for the debacle lies with the anti-EU die-hards that make up a larger and more vocal element of the Conservative parliamentary party than at any time since Britain joined the old European Economic Community in 1973. Their influence is all the greater because Mr Cameron depends on them for his House of Commons majority.

Neither Mr Cameron nor his advisers appeared to grasp, in advance of the summit, how spectacularly a last-minute attempt to exploit the eurozone's debt crisis to extract regulatory concessions for the City of London [the British financial industry] would backfire on Britain. In everyone else's eyes, the point of the summit was to approve swift, forceful steps for preventing the eurozone's collapse - a scenario with immeasurable consequences for the world economy. [my emphasis]
He also notes that Cameron "waited until the summit to present his fellow [EU] leaders with the detailed British demands".

The PBS Newshour interviewed Hague on Monday, presenting his talking points for an American audience, oozing smugness and arrogance. (British Foreign Secretary: 'We Should Be in Europe but Not Taken Over by Europe' 12/12/2011). I don't see what he has to be smug about. The British public may have initially reacted with rally-around-the-flag sympathy. But Cameron's performance at the summit was a debacle, and a dumb one at that. And one that may have negative consequences for Britain for decades to come.

The current weakness and apparently eminent downfall of the European Union a disaster of historic proportions. Germany's Angela Merkel and France's Nicolas Sarkozy are the first and second in line for the main responsibility for this 1914-level of bad leadership. But Britain was the third of the three major partners in the EU, and they bear major responsibility for the current failure as well, especially after Cameron's performance at the summit and since.

Nartin Wolf writes, "We are witnessing a lethal interplay between fears of sovereign insolvency, emerging sovereign illiquidity and financial stress." (Germany has to make a fateful choice Financial Times 12/12/2011) And he explains:

In the absence of strong institutions, the attitudes and policies of the core country have become crucial. I admire Germany's reconstruction after the second world war and after unification, the commitment to economic stability and its first-class exports. Unfortunately, these are insufficient. German policymakers persist in viewing the world through the lens of a relatively small, open and highly competitive economy. But the eurozone is not a small, open economy; it is a large and relatively closed one. The core country of such a union must either provide a buoyant market for less creditworthy countries when the latter can no longer finance their deficits, or it has to finance them. If the private sector will not provide the finance, the public sector must do so. If the latter fails to act, a wave of private and public sector defaults will occur. These are sure to damage the financial sector and exports of the core country itself, as well.

The failure of Germany's leaders to explain these facts at home makes it impossible to solve the crisis.
And he mentions what is so little discussed in the current crisis but is nevertheless critically important, the effect on Germany itself of the eurozone disintegrating and Germany going back to the D-mark or a euro with just a few countries, if any other countries would be so foolish as to agree to that:

The German people should be made aware the results would include a soaring exchange rate, a massive decline in the profitability of Germany's exports, a huge financial shock and a sharp fall in gross domestic product. All this would be apart from the failure of two generations of efforts to build a strong European framework around Germany itself. ...

Germany must choose between a eurozone disturbingly different from the larger Germany it expected, or no eurozone at all. I recognise how much its leaders and people must hate this choice. But it is the one they face. Chancellor Angela Merkel must dare to make that choice, clearly and openly.
I would question whether earlier Germany leaders expected the eurozone to be a "larger Germany". The moralistic Angela Merkel, cheerfully subservient to the greedy and self-destructive European financial lobby, clearly has been treating it that way.

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