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

  • Comment Polling Clacton polling: What does it say for Labour?

    Clacton polling: What does it say for Labour?

    The date for the by-election in Clacton was confirmed this morning as Thursday, October 9th – not only the day after the Lib Dem conference finishes but also David Cameron’s birthday. The two polls so far in the constituency do not point to many happy returns for the Prime Minister, as the result appears to be a foregone conclusion. At the weekend, a Survation poll in the Mail on Sunday gave UKIP a 44% lead over the second place Tories. […]

    Read more →
  • Comment Does Labour have a problem with black men?

    Does Labour have a problem with black men?

    Now that may seem a strange question for a Party that has both Chuka Umunna and Sadiq Khan in its Shadow Cabinet but something troubling is emerging from the current round of Parliamentary selections. Of the 100 constituencies where Labour hopes to make gains or when Labour MPs have announced their retirement/parliamentary by-elections since 2010 so far just three have selected a BME male candidate. And this is from a section of society which is immensely loyal to the Labour […]

    Read more →
  • Featured Why are you Labour?

    Why are you Labour?

    Why are you a member of the Labour Party? I’d been a member for years when someone first asked me that question. On some level I guess I knew the answer, but no-one at any Constituency Labour Party meeting, canvassing session, conference – or even in the pub  –  had ever outright asked me the question. It was Arnie Graf – an American, rather than someone steeped in the party their whole life – who asked me. It was an obvious […]

    Read more →
  • News Eddie Izzard commits to running for “Parliament or Mayor” by 2020

    Eddie Izzard commits to running for “Parliament or Mayor” by 2020

    Comic and actor Eddie Izzard has reaffirmed his longstanding commitment to entering electoral politics by 2020, by going for a Labour parliamentary selection or London Mayor. Izzard is a lifelong Labour supporter (and Londoner) and has spoken in the past of his desire to become London Mayor. However, the recent announcement that Boris Johnson does not intend to stand for a third term has raised the chances of Labour winning the mayoralty in 2016, and thus there being a Labour incumbent in […]

    Read more →
  • News Jowell takes on new London-based role before potential mayoral bid

    Jowell takes on new London-based role before potential mayoral bid

    Tessa Jowell has taken on a new role lecturing at the London School of Economics (LSE), which should give her the time to concentrate on a likely campaign to be Labour’s candidate for London Mayor. Jowell, who is standing down as an MP next year, has started her post as Professor of Practice with the LSE Cities and in the Department of Government part-time. Jowell is currently considered one of the front-runners in the race for Labour’s candidacy, but all […]

    Read more →