The Daily Telegraph, the broadsheet close to Cameron's Conservative party, said the prime minister "stands as lone man of Europe" -- and made clear that this was a good thing.
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"Cameron cuts UK adrift" headlined The Guardian, accusing the premier of acting not for the good of the country and its valuable financial services industry as he claimed, but to appease Conservative eurosceptics.
I don't want to rehash the minutiae of what is a complex issue - the extensive coverage in the Financial Times, for example, defies parsimonious summary.
I post this merely to point out a collision of political imperatives...
- I think I'm on safe ground suggesting that the banking industry has disproportionate influence in politics, and that this is a source of aggravation generally and among conservatives in particular, particularly the, ah, "newly infused" conservatives.
- I think it's also understood that said conservatives view the EU as an anti-democratic, transnational progressive bureaucracy, whose frustration by those traditional nationalists who would defy it is everywhere and always to be cheered.
The peculiar circumstance of David Cameron's defiance of the EU is that no decision available to him could satisfy both, even if he were positively disposed toward each.
I would submit that, pace The Guardian, Mr. Cameron absolutely obstructed the EU at this juncture at the behest of the City of London - the financial center.
This is understandable - what the EU was angling for was nothing less than the end of the dominance of the City as a financial hub. (Apparently the EU never lets a good crisis go to waste either.)
This is understandable - what the EU was angling for was nothing less than the end of the dominance of the City as a financial hub. (Apparently the EU never lets a good crisis go to waste either.)
But I would caution those nationalists who might cheer this event - "Conservative eurosceptics" had precious little to do with motivating David Cameron's decision. They may pat themselves on the back, and the Left may tilt at them as they tilt at various windmills, but it was the City that called this shot.
* Ireland being an honorary member of the Continent...
Eh... this is more entertaining than my post...
ReplyDeleteI quite agree with your analysis- Cameron is a snivelling, amoral, values-free toady (his c.v. is PR hack and he married into obscene landed wealth that sucks hundreds of thousands annually out of the British taxpayer through FIT industrial wind subsidies) and, fortunately for those Brits who cherish their country, the City's interests in this case lined up with those of "the man on the Clapham omnibus".
ReplyDeleteMake no mistake, though- absent the Tobin tax and Merkozy's arrogance, Cameron would have spun whichever way he thought would have advanced his interests furthest. He's a shmarmy little mediocrity, whose ascent to 10 Downing is a blight to the memories of Churchill (PBUH) and Thatcher (PBUH).
Now, whether UKIP/Farage and the 90 "Little England" Tory caucus members can force a referendum on UK membership in the EU...
Hmm, don't know enough about Cameron, outside of this decision, to agree or disagree with your assesment, Earl. So I will bow to your superior knowledge.
ReplyDeleteBut, that said, I think it is high time someone stood up for the sovereignty of at least some part of the UK, even if for less-than-stellar reasons.
Ambrose Evan's Pritchard: Europe's blithering idiots and their flim-flam treaty.
ReplyDeleteDid 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 €23 trillion banking bubble that German, French, Dutch, Belgian regulators allowed to happen… given that, yes, I suppose they have to find a scapegoat.
I'm extremely critical of the conduct of both Wall St and the City but Pritchard is right here - it wasn't the Anglo Saxon banksters that blew up the EMU. It was theirs.
That was one of AEP's better analyses. Germany shamelessly leveraged a cheap € (based, in part, on southern European weakness) into massive current account surpluses, which its (and other northern Yurpean) banks then lent to the south at irresistably low rates. And the inevitable train wreck ensued when Germany refused to permit the ECB to buy the low-value southern European sovereign debt.
ReplyDeleteIRL continues to puzzle me- why the bank guarantee, when it was in surplus and otherwise had/has a "real" underlying economy?
Earl, I understand the argument that Germany benefitted from a currency weaker than the DM would have been.
ReplyDeleteThere's another angle on that though - which is that the Euro was designed to be a world reserve currency - an alternative to the dollar.
China and other countries have taken the opportunity to diversify their dollar portfolio by buying Euro denominated assets. This lowered the long term interest rates in Europe (or it did, before spreads exploded).
If you think about it - why would the Chinese or exporters want to hold Euros? The EMU as a whole is in rough trade balance - or so I'm given to understand. This is in marked contrast to the US which runs a persistant trade deficit.
The attraction of the Euro is that it is not the Dollar. By design. The ECB has more inflation fighting cred than the Fed - also by design (one mandate - price stability - not two, as the Fed has). And it was Germany that was the architect of the ECB.
So - like I said - I understand the argument that Germany has benefitted from a "weak currency", I'm not so sure it's true. The Euro was (and is IIRC) overvalued with respect to fundamentals like PPP. The attributes which led to this over valuation are intentional, and they are traceable to Germany.
In any case now something close to half of German exports go to China - and growing. Germany no longer needs the periphery of the EMU as it once did - if the PIIGS endure a decade of grinding deflation, the Germans don't care - their exports are destined for the BRICs.
As it stands, The ECB can't buy the peripheral debt en mass. This is an invitation to the periphery to default. Recapitalizing a massively, massively insolvent ECB will amount to funding the PIIGS, and the German polity will not stand for this - this is all seen through very clearly. Draghi does not dare.
ReplyDeleteThe problem is not that this could not happen once - it probably could - but without some new policy mechanisms it would happen again and again as the south would have no incentive to actually re-balance their economies and budgets (or leave the Euro).
There are two crisis, a "flow" crisis and a "stock" crisis.
There is an imbalance between North and South - the "flow" crisis. This is in the hands of policy makers. Since the North is the creditor, it gets to make the policy, and its policy is deflation and austerity for the South. Not arguing that choice here, just stating reality. This choice is meant to ensure that direct transfers - or forbearance - doesn't occur (or is one off, as the Greek bond "haircut" has been declared to be). It is also meant to ensure the South moves toward a primary budget surplus (meaning - budget surplus before
Given the "flow" problem is cauterized by policy makers, then the "stock" problem can be addressed. This is the "stock" of unmarketable debt - the sovereign obligations of countries which the market no longer trusts. This debt can safely be dealt with: EFSF, ESM, ECB.SMP, all of the above, doesn't matter. It can be taken off the balance sheets of insurers, pension funds, banks - the "real money" - and stuffed in special vehicles or monetized by the ECB (not inflationary, as we're in a protracted credit destruction decade or more).
Because _every_ EMU country will be in (at least primary) budget surplus - by their own constitutional requirements (per the new fiscal compact pushed by the Germans), the indebted periphery cannot keep playing its "get out of jail free" card - it only gets one.
At this point the market doesn't "see" the huge stock of debt of the PIIGS, it only sees decent cash flow to service sovereign debt, and all countries can re-enter the bond market at modest spreads relative to Germany.
There is a "sequencing" (Draghi's phrase) to this - a repeated game between the policy makers and the ECB, designed to ensure a mutually beneficial Nash equilibrium where nobody "cheats".
If the ECB prints money unconditionally, the policy makers cheat by spending it all and more.
If the policy makers risk their careers or worse by implementing austerity to fix the "flow" problem and the ECB fails to print to reduce the "stock" problem, the resulting deflation will be so bad that the whole EMU economy will collapse (in fact, if the EMU imposes across the board fiscal austerity, the monetary response will require printing money - consistent with the ECB mandate for price stability - in this case to avoid _deflation_, not inflation).
Only when both pursue policies against immediate self interest is a global optimal result achieved.
So the policy makers move an inch, the ECB moves an inch... cooperation is rewarded. Recidivism is punished. Very simple. Expect a few more episodes of market pressure to keep the process moving along. (Could create some more buying opportunities in FTSE listed resource companies and German industrials. Just sayin'...)
That's the plan as best I understand it, from a variety of sources.
Again, not commenting on whether it will work, or why or why not any one party "deserves" any particular thing. Just, for those wondering, "what are they thinking?" This is what they are thinking.
Ooops. Last sentence, fourth paragraph - meant to say "(meaning - budget surplus before interest rate payments)."
ReplyDeletelewy 14 @ 6
ReplyDeleteMost of that trade strength is automobiles. Thetruthaboutcars.com has been monitoring this.
I agree re. the PIIGS- hence, Merkel's refusal to permit the (German-underwritten) ECB to become a "central bank" with power to buy PIIGS' sovereign debt. Just let the periphery sink/stagnate. IRL is the odd man- I will watch whether IRL simply repudiates the lunatic bank guarantee, and adopts sterling as its currency.
A neat summary by you- kudos.
Earl, thanks.
ReplyDeleteMy thought on Ireland is that perhaps (don't know this for sure) the bank liabilities would _always_ become the contingent liabilities of the sovereign, one way or another. Who owns Irish bank debt? I'm guessing pension funds, insurance companies, etc. If they go bust, the Irish government either bails _them_ out or deals with the consequences of a financially gutted populace. (Oh, that pension you thought you had? That life insurance? Sorry. Bad things happen. Free market and all.) And the bankers who ran the scam keep their bonuses.
I get peeved a bit when people talk about "bailing out rich bondholders"... the bulk of the senior unsecured bonds issued by the financial services industry are ultimately owned by regular folks.
Every debt is someone elses asset.
"Bank bailouts" are in fact bailing out these regular folks, to a large degree.
What's wrong with them is that they don't come with management restructuring - the bankers have an incentive to keep taking insane and even fraudulent risks - heads they win, tails, we pay.
Ireland probably could have simply bailed out the second and third order institutions (and depositors) cheaper. If you bail out depositors though, and not the senior bondholders... not 100% sure that's legal, they might have equal status.
Final thought on Ireland - their reward for opposing Britain and towing the Continental line on this is to be required by the EU++ to "harmonize tax and regulatory policy" - an end to the favorable corporate tax regime which was a large part of the boom - the "Celtic Tiger". Without low taxes, Eire is just another enclave of English speakers, arguably overpaid, with lousy weather. (Convenient time zone though). Conservatives are fond of citing low taxes and regulation as being favorable for fiscal solvency in the long run (I agree), and so we'll soon see a real time experiment.
I'm loving this- weak as Cameron's performance was and is, Milliband has self-immolated and Clegg has crawled into a corner to sulk (bet he now wishes he'd stayed on as one of Rompers' invisible tame seals in the EU "Parliament").
ReplyDeleteHeh.