Warning: Euro-iceberg approaching

August 24, 2011 9:33 am

icebergFreethinking with Rob Marchant

As we pass an unusually newsworthy summer on the domestic front with phone-hacking and riots, not to mention economic wobbles in the US and China, let alone Libya, it might be wise to return for a moment to the iceberg edging towards our own continent, its long-term significance for Britain ultimately liable to outstrip all these things.

For a measure of just how significant, you must admit that it is newsworthy, not to say deliciously ironic, when that full-blooded Tory George Osborne finds himself somewhat sheepishly agreeing that

“the remorseless logic of monetary union leads from a single currency to greater fiscal integration”. In other words: you Euro-chaps really should get cracking on giving away more sovereignty.

Excuse me? As Nick Cohen relates:

“We have become so used to hearing it that we fail to notice the strangeness of a eurosceptic Tory chancellor begging Europeans to integrate faster…Osborne is panicking because the theories of what will happen if the EU tries to keep muddling on and a major European country defaults range from the alarming to the catastrophic. Liquidity would freeze, British banks’ capital would be wiped out, Britain would go back into recession…and the deficit balloon beyond control…he must support a policy he has spent his career opposing.”

Osborne is therefore, for the moment, containing his Schadenfreude at seeing the euro-zone on the brink. And so perhaps, given the seriousness, we should contain ours at his own humbling.

Last week, Sarkozy and Merkel had another of their cosy meetings, as they had done back in July. As predicted, their agreed sticking-plaster to resolve the immediate problem of Greece and reassure the markets didn’t work. The European Central Bank had to intervene to buy up Spanish and Italian bonds, and a new meeting was arranged.

The good news is, at that meeting they quietly committed themselves to that bête noir of the Tory back benches, a political integration project which could yet save the euro-zone. The bad news is threefold: the plan has inherent flaws; it may simply be too little, too late, as this Reuters piece suggests; and the sticking-plaster still hasn’t stopped the underlying infection in Spanish and Italian debt which, if left untreated, may yet result in a terminal euro-gangrene.

Now, let’s not underestimate the magnitude of what, relative to the measured and Sir Humphrey-like world of Brussels-speak, has occurred. It’s a big deal, and to get there, one can’t entirely blame them for bypassing the formal protocols and openly thrashing out a bilateral proposal which others will now need to sign up to.

However, in doing so, they seem to have rather eschewed the input of everyone else, that is, the other twenty-five countries. And, furthermore, what is a big deal in traditionally consensual, incrementalist Euro-land is still not necessarily the kind of radical action plan the markets were looking for. In short, the plan, however cunning, may not work.

The flaws are significant: first, they need to take a lot of awkward countries with them who could well be further alienated by this lack of consultation. Second, if you wanted to embark on a long-term structural project like this, “you wouldn’t start from here”: that is, in the jittery aftermath of a banking crisis, infused with a near-universal fear of low growth.

Third, the plan is full of not necessarily workable ideas. Jointly-owned “Eurobonds”, to carry additional debt, are being suggested as a medium-term solution, but seem a political improbability (Merkel’s coalition partners are against, for a start). And then there is the “Tobin tax” to be paid on each transaction taking place on the financial markets: oft touted, never implemented. That is partly for the very good reason that London is by far the most important financial market in Europe, and might not want to risk its business disappearing off to New York or Tokyo. And it would be especially difficult to achieve in any case: the UK is not even in the euro, has a Tory government, has a big dependence on City income and a long history of being at least mildly sceptical of all things European.

And overall, it’s not so much that the plan itself might not work, although it might not; it’s rather the time you have available versus the hoops you have to jump through to get there. Negotiations, treaties and parliamentary votes would have to be managed in twenty-seven countries. Realistically, it ain’t going to happen soon.

It’s a plan that, arguably, should really have started with the birth of the euro twelve years ago, so it could come to fruition around now. But to try to implement such a grand scheme on the fly, in the kind of timeframe the markets will demand, seems a very tall order. Especially since, as Gavin Hewitt points out, they have even not addressed the immediate problems of the possibility of further problems with its weaker members: the failure to increase the bailout fund – still not large enough to save Spain or Italy – was the gaping hole in last week’s package.

At least now Europe’s leaders seem to be starting to see the acute danger of their situation. As they should: after all, metaphorical alarm bells and sirens are not merely sounding, but screaming. Europe, in contrast, is reacting in its customary, measured way.

As for solutions, they seem to be two-fold: embark on a huge – and perhaps insanely ambitious – project of integration: or kick out the troubled economies who are not pulling their weight. Nothing is sure, and I am not a betting man. But I’d have to say that the first of those two options is looking very tricky to pull off.

And the second, given the treaties which underpin the EU, might be very messy indeed for European relations, if some of these were to be reneged upon (a euro-zone expulsion was described by a top EU lawyer as “legally almost impossible”). Let alone the economic consequences.

So, if that happens, as it could, expect some fireworks. European summits have historically thrived on moving things forward slowly; as a relatively unwieldy mechanism for resolving fast-moving crises, they have a pretty mixed record. A fact to which the still-uncomfortable memory of a certain Munich conference, a mere seventy-three years ago next month, might attest.

Rob Marchant is an activist and former Labour party manager who blogs at The Centre Left.

Comments are closed

Latest

  • News A brief guide to David Cameron’s Christian “moral code”

    A brief guide to David Cameron’s Christian “moral code”

    As we approach Easter, David Cameron has talked about his “moral code”, called for a more strident Christianity that is “more evangelical about a faith that compels us to get out there and make a difference to people’s lives” and praised ”countless acts of kindness carried out by those who believe in and follow Christ”. Meanwhile, a “Whitehall Source” was today smearing the Christian charity The Trussell Trust, who yesterday revealed that in the past year food bank use has reached […]

    Read more →
  • News Labour’s PPC for Colne Valley stands down

    Labour’s PPC for Colne Valley stands down

    Binnie Joshi Barr, Labour’s candidate in Colne Valley, has decided to step down due to health reasons. Barr announced her decision in a letter to local party members. She said: “Colne Valley deserves and will have a Labour MP in 2015. Unfortunately due to ill health, it is not going to be me. “Since the birth of my daughter Aarya eight weeks ago, my rheumatoid arthritis has returned and worse than before. I have regrettably come to the conclusion that […]

    Read more →
  • Comment How Putin shows the same ‘maskirovka’ as his own soldiers

    How Putin shows the same ‘maskirovka’ as his own soldiers

    Yesterday in the European Parliament the EU Commissioner at the heart of the Ukraine crisis told MEPs that the rhetoric from Russia was “worse than at any time in the Cold War.” Today in Geneva four-way talks are taking place which are bringing Europe back to the forefront of the diplomacy seeking to de-escalate the crisis. But the stand-off in towns across Eastern Ukraine remains at least as likely to trigger the very opposite. On behalf of Labour in Europe, we have continued to maintain […]

    Read more →
  • News NHS waiting list reaches nearly 3 million

    NHS waiting list reaches nearly 3 million

    The amount of patients waiting for NHS treatment has risen to 2.9 million, according to new referral to treatment times (RTT) figures. Meanwhile, the Health Service Journal reports (£): “The NHS has breached the target for 90 per cent of admitted patients to start treatment within 18 weeks for the first time since 2011, the latest figures from NHS England reveal.” With 550 of those patients having waited over a year for treatment, two thirds of England’s major A&Es missing their […]

    Read more →
  • Video “So long, it’s been good to know you” – Austin Mitchell’s farewell video

    “So long, it’s been good to know you” – Austin Mitchell’s farewell video

    As LabourList reported earlier, Great Grimsby MP Austin Mitchell has announced his decision to stand down at the next election. He won the seat in a by-election in 1977 – back when Jim Callaghan was Prime Minister. To coincide with his announcement, Mitchell has made a farewell video to Parliament and the people of Grimsby. There’s a healthy dose of sentimentality, a couple of jokes, and even a montage. Before entering Parliament, Mitchell worked as a broadcast journalist, and it […]

    Read more →