Euro crisis: “None of Europe’s leaders are yet spelling out the cultural revolution that is to come.”

I missed this at the time, but the BBC’s Europe editor Gavin Hewitt’s thoughts on “one of the fundamental dilemmas in political leadership” being faced by eurozone politicians caught in a manifestation of  “the political trilemma of the world economy” are worth reading.

Within the EU there is tension, and at its heart is the role of Germany. The Germans never wanted to join the euro if it meant it would have to bankroll the weaker countries. That is what has happened. For Germany the single currency has become not so much a monetary union but a transfer union. It raises the unresolved question of the great divide in economic cultures between the North and southern Europe. In the long term that cannot be resolved by Germany bailing out the rest.

In the past the engine for decision-making was the Franco-German alliance. It drove the EU forwards. That can no longer be taken for granted. President Sarkozy and Chancellor Merkel have clashed too often. There is a report in the Spanish paper El Pais, sourced to the Spanish prime minister, that President Sarkozy threatened to pull France out of the euro if Germany wouldn’t help Greece.

So to the future. The push is on to co-ordinate tax regimes more closely. Some want to go further with economic integration or economic government. Tensions will resurface. If the changes are far-reaching Germany will want treaty changes. That will open up arguments that have scarcely subsided since the Lisbon Treaty was ratified.

Lying behind this is an old argument. When do Europe’s people get a voice as to whether they want their national budgets scrutinised by the EU before their national parliaments? Potentially there could be the most significant expansion in economic governance since 1999.

That was on Friday, when he noted that

For the moment the turbulence has subsided, but it is only a pause.

Since then the latest move by the Germans has caused the turbulence to return.

Still everyone’s hero, Robert Peston explains

Investors see it as a fairly desperate attempt to ease strains in eurozone markets and fear that it shows that eurozone governments are running out of policy options to hold the eurozone together – so they have sold the euro, which has fallen to its lowest level against the dollar for four years.

And from his update

So what’s motivating the Germans?

Well the view from the London markets is that it’s all about persuading German voters and politicians that supposedly horrid speculators are being knee-capped, to allay their concerns that German participation in the great trillion dollar bailout of the eurozone isn’t throwing good money after bad.

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  • Itwas SammyMcNally whatdoneit

    The tensions in Europe will take many different forms and patience with Britian who wish to enjoy the benefits of trade but are not prepared to join the Euro and play their full part may well surface with France and Germany wishing to take advantage of the ideological differences between the Tories and LibDems.

  • Pete Baker

    That’s nothing more than wishful thinking on your part, sammy mac.

  • Itwas SammyMcNally whatdoneit

    Pete,

    We shall see.

    But you cant have a member of a club spending most of their time dissing the club and the other members. It is not cricket, it is extremely bad manners, extemely undiplomatic and sooner or later will lead to a firm kick up the anti-European jacksie.

  • Pete Baker

    Feel free to set out your, or any, substantive argument to support your assertion.

    “you cant have a member of a club spending most of their time dissing the club and the other members.”

    You’re just not paying attention, sammy mac.

  • Alias

    The German Chancellor might not like agreeing to risk 150 billion of her taxpayers on cheap loans to bankrupt EU states any more than said taxpayers like it but the alternative is the collapse of the Euro and the collapse of all EU state’s economies (not just Eurozone members), plunging those states into a deep depression that it will take them decades to emerge from.

    The Europhiles may have gambled 10 years ago that the divergence between fiscal policy and macroeconomic and monetary policies would only bankrupt the minor EU states in the long-term thereby working to the EU federalist agenda by bringing these states under EU fiscal control but they didn’t reckon on how the markets would react. Still the federalists now see an opportunity to grab power from all EU states and are grasping it. But as Merkel herself pointed out, the circa one trillion bail-out fund only buys time but doesn’t address the underlying causes of the problem. And those causes are more real and enduring that it suits her agenda to acknowledge – as she may well find out when Germany’s Federal Constitutional Court knocks back the transfer of Germany’s fiscal sovereignty to the EU in support of that nation’s claim to be a sovereign nation-state.

    The EU will create a ‘moral hazard’ by bailing-out its minor member states (that its mismanagement of macroeconomic and monetary policies have bankrupted) and the EU will have to control that moral hazard by organising the fiscal policies of those states. That will indeed by time but it will also force those who voted for the Lisbon Treaty (just the Irish, actually) to realise that they voted to surrender their fiscal sovereignty to the EU; and as they already voted in a previous treaty to surrender their monetary sovereignty to the EU, they now have no economic sovereignty left at all and are now properly a non-sovereign region of another state. Other nations will end up in the same boat, and that political discontent is going to reinforce the instability that scares markets and undermines currency.

  • Alias

    Incidentally, you have to admire the genius of EU federalists. Their brilliant idea to assuage market fears about the escalating size of state debt in the EU member states was to add another one trillion euros to it. Still, at least things will calm down in the short-term now that short-term bondholders at least know that the risk of default is reduced for them. But why long-term bondholders are effectively giving their money to repay the short-term bondholders is a mystery – unless the long-term bondholders are also the short-term bondholders, and the managers of these funds are simply passing the problem on to whoever gets their jobs after they collect their annual bonus and, presumably, early retirement.

  • Greenflag

    A;ias ,

    ‘they now have no economic sovereignty left at all ‘

    So can you tell us which countries have economic sovereignty and how having economic sovereignty has enabled them to avoid this worldwide financial services and government policy failure inspired crisis in so called free market capitalism ?

    Can the USA raise it’s interest rates tomorrow without adding another 5 million to it’s almost 20 million unemployed ?

    Can the UK devalue it’s pound without increasing inflation ?

    The escalating size of state debt is just as much a concern if not more so for the USA and UK . The US Federalists and UK anti Euro phobes are not examples to follow nor have their politicians found the yellow brick road which will lead them to the Emerald city !

  • Greenflag

    Chancellor Angela Merkel told German lawmakers European Union leaders had to ensure markets could not ‘extort’ the state as she described steps to curb short selling of German bank shares and euro zone government bonds.

    The Germans have just done what the USA has already done i.e banned naked short selling . The markets are not always ‘rational’ as people may have noticed from the almost 1,000 point drop in the Dow about 10 days ago.

    The speculators are out in force . Beware the hype of the jingoistic anti EU press media particularly from the UK .

    The eurozone should benefit economically from closer parity with the dollar i.e ‘devaluation’ at least according to traditional UK economic policy practice of the past half century best expressed by Harold Wilson’s famous explanation of an earlier run on the pound

    ‘The pound in your pocket is still the pound ‘

    In terms of purchasing power then it was’nt . That’s why UK workers in 2010 earn on average about 30,000 pounds a year instead of the 1,000 pounds per year they made in the late 60’s early 70’s .

  • banning shorts has never created even a medium term effect. If there’s an economic reason it’s to stop an impending collapse in a market. Here though it seems completely political.

    Besides all this, the evidence that ‘speculators’ have an effect on the markets is highly debateable.

  • The one thing the UK and US have in all of this relative to the eurozone is time. Even then though it’s unlikely to extend beyond the medium term, so the liberal conservative coalition are right to begin tackling things straight away. Remains to be seen if they’ll do enough of course.

    Long term aging Western populations may well reduce the whole thing to mush anyway. Now where are all these failing bi-lingual schools – I feel a Mandarin re-alignment is in order…