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Last
Friday, David Cameron came back from Brussels having rejected proposals to
draft a new European Union treaty, having failed to get promises of adequate
safeguards to protect Britain’s financial sector. But given that the UK
has no veto over Brussels’ power to regulate anyway, the prima facie
reasons presented to Parliament were therefore not crystal clear. However,
Cameron must have been aware that ratifying a new treaty without safeguards
was a non-starter, and the fact that the dominant mainland powers were not
even prepared to consider them is a reflection of their lack of rational
thinking rather than his. After all, they should have been briefed that any
treaty changes now require a referendum under UK law, and given the
EU’s self-aggrandising tendencies, any treaty
changes would be a tough sell to Parliament – let alone the electorate.
What was
proposed in Brussels was a typically dirigiste
response to unwelcome economic reality. Perhaps the script intended was as
follows: we go through the motions of imposing fiscal controls and
responsibility, and that should be enough to get the European Central Bank
– working with the International Monetary Fund if necessary – to release
the money to continue to finance our political ambitions. This is not the
direction of travel for the UK.
In
political terms we are probably witnessing the end of an empire, and when
such an event occurs it can be swift. Forward-thinkers need to look beyond
the EU as an institution, and in this respect an alternative and as yet unrecognised future for Germany is evolving. She faces
stagnant markets in Europe, declining markets in the US, but booming markets
for her products in China, South East Asia and other emerging economies. Even
if the eurozone does not break up, her economic
motivations will lie increasingly elsewhere and the weaker EU members will
remain an unwelcome burden.
Her biggest
problem is France, a point not yet recognised by
commentators and as yet untested in the markets. In the short-term, Sarkozy
faces an election next May, which explains why he must stick like glue to
Angela Merkel rather than cut government spending. But France also has to
refinance the same amount of debt as the Italians before May: about
€180bn, and half in the next two months. This is an impossible task
without external help, because the major French banks which have always been
coerced into buying French government bonds in the past are themselves in a
critical condition. A short-term fix is urgently needed of which there is no
sign as yet.
We have to
trust that there will be a solution, but talk of treaty-change does not
represent urgent action. Anyway, the French socialists, who look like winning
May’s election, have said they will not ratify any new treaty –
creating more doubt and uncertainty for markets. It does not take much
imagination to see French bond yields rising to over 7%.
This is the
mess that Cameron has disassociated himself from. It will not be long before
this becomes more widely appreciated.
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