France and Germany are lamenting Britain’s use of the veto. But should they blame Cameron? After all, its use was an inevitability brought about by Sarkozy’s showboating and inherent unfairness of Merkozy’s proposals.
Sovereign debt is a global issue, but in Britain our use of fiscal levers such as QE and interest rates is, at the moment, delivering low interest rates on that debt. The lack of levers available to countries in the Eurozone is wreaking havoc with the economies of all except Germany (and even that isn’t certain anymore) and so to get interest rates down to sustainable levels different methods need to be used to give markets confidence.
There is a debate about whether the European Central Bank should be the lender of last resort. That debate rages because Germany believes that allowing the ECB to print money is not the answer to fiscal irresponsibility. She’s probably right. She wants to see a reform-led recovery based on unified tax levels and regulation. Here, she’s wrong.
So why was the British veto inevitable? I think there are a few reasons. First, a financial transactions tax flowing from the City into Brussels to fund an endemic issue within the Eurozone is so contrary to British interests that Cameron would look like a poodle to have acquiesced. British PM’s are used to being poodles in Europe – just look at Blair’s surrender of the British rebate in return for reform of the CAP which never materialised – but unlike Tony, Cameron’s domestic political environment made it unthinkable to return home having agreed to another cash drain from the UK to Europe. Indeed, he couldn’t be sure of his ability to deliver upon such an agreement with an increasingly Eurosceptic Conservative Party; a situation which would only have compounded a perception of weakness.
Second, Merkozy’s demands were stretching far beyond the Eurozone crisis. I’m sure I’ll be howled done here, but many of the reforms, such as the unification of corporation tax levels and the introduction of a financial transactions tax, are merely more steps on the ever-closer-union path with little to do with addressing the issue of unsustainable debt and deficit on the continent. Cameron’s instinct is to simplify regulation and taxation and he wouldn’t have easily agreed to a package which saw Europe heading in the other direction at such cost to the most important sector of Britain’s economy.
Thirdly, and perhaps slightly less importantly, is Sarkozy. Cameron is not a Europhile; he’s being lambasted by the UK media for budget cuts; he’s managing a tense coalition; and he has the most rebellious in-take of new MP’s in a generation. And whilst he’s spent much of the early part of his premiership pandering to the public’s need to bash bankers, his instinct is to deregulate and to reduce and simplify taxation. Sarkozy faces elections soon and his country is on the brink of major economic catastrophe – and yet, his approach to this summit was to antagonise Cameron. He didn’t even attempt to recognise Cameron’s domestic difficulties. No one threw any Aunt Sally’s into the mix for Cameron to take home as victories. In the face of public antagonism from the diminutive French leader, as he and Merkel put their hands out asking for London’s banks to help prop up the continent, Cameron had no choice but to say ‘no’.
Yes, the failure of the Eurozone would be a hand grenade into the fragile global economy. The 17 Eurozone nations must realise the mistakes they made when coming together and to address them. If they need help, they must consider compromise. France’s intransigence on areas it deigns untouchable (the CAP) and Germany’s unwillingness to bankroll a flexible ECB suggest that they are not capable of doing that.