Thursday, December 08, 2011

Mr. Cameron goes to Brussels

The weekly Parliamentary riot that is the British Prime Minister's Question time must have reminded Mr. Cameron how fractious his own party is, when it comes to the European Union. The problem is that the freedom of action that the government has on the issue is pretty limited. The Franco-German diktat, organised my "Merkozy" is pretty much the only game in town, since any proposal has to have the support of the German treasury. From the point of view of the UK, we have been outplayed and outgunned by the slippery French President. 

That is... for now.

Britain has been isolated for two reasons, one real, one a matter of perception. The first is that the UK did not an will join the Eurozone. The second is that British comments, however well intended usually sound like existential criticism of the Eurozone itself.

However ignoring and isolating Britain on such subjects as the financial transactions tax may let backfire on "Merkozy", because they are not just ignoring a British position, they are failing to understand the likely market reactions to their own policies. The Germans have made a critical mistake in trying to tackle the sovereign crisis in isolation. The near collapse of international funding for Eurozone banks has been the result. The crisis has two aspects: the risk of Sovereign default and the risk of banking collapse, and "Merkozy's" ideas were only looking at the problem of sovereign default. The transaction tax proposal is lunacy in the context of European banks that are on the brink of collapse because they can not access market funding- one can only think that it is being put forward simply to be a "concession to the UK", when it withdrawn.

In fact David Cameron, to the chagrin of his backbenchers, is going to Brussels in a fairly pragmatic and open minded mood. However, he should not underestimate the cards he has in his hand, even if he is greeted with a certain froideur or even contempt by "Merkozy". 

Firstly, the Nordic bloc of solvent states remain closer in thinking to London than to Berlin/Paris- and although Spain and Portugal are supplicants to "Merkozy", there is a certain resentment as to the way the Franco-German motor has become a Franco-German directory. The UK is not as isolated as Merkozy would like. This means that simply not imposing a transaction tax will not be sufficient bone to offer David Cameron.

It means that Mr. Cameron can impose conditions on a treaty of 17 as well as on a treaty of 27. The provisions of the single market must not be weakened, and if they are and what "Merkozy" means by a 2-speed Europe is an inclusive and exclusive market, then Cameron must veto.

In fact Mr. Cameron now has the opportunity to remind the other 26 states that the UK is not to be treated like Spain, Italy or Greece, the actions of the coalition government are bringing our financial house into order: it is not the British AAA that is under threat. The issue is how to present this declaration of British power. So far Britain has appeared arrogant and patronising. Now Mr. Cameron should put on a new attitude. 

Merkozy has been preceding on the basis of Caligula's motto: 

Oderint dum metuant: Let them hate me, as long as they fear me.

It is time to put Merkozy in their place: the undermining of democracy and the outrageous contempt displayed to the other sovereign states must stop. David Cameron has some sharp teeth: he should not be afraid to show them to the French and Germans who have brought the European financial system to the brink of collapse. By being determined and forceful, Mr. Cameron could return from Brussels not just with a few token concessions to sell to his backbenchers, but with a whole new working relationship.

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