The EU Summit was more farce than tragedy
We have now seen a series of French ministers and even the Governor of the Banque de France behaving like a footballer trying to bully the referee into booking his opposite number – impressive teamwork, but nul points for dignity.
Do they actually believe what they say? Surely at least the Governor knows that any comparison between the predicaments of Britain and France is crazy.
I am certainly not underestimating the gravity of the problems facing the UK economy. British productivity growth was never better than insipid, we run a near-permanent balance of payments deficit and Gordon Brown’s public sector binge would on its own have left us with a crippling debt burden, even before you add on the cost of continually bailing out our obscenely inflated banking sector. The bottom line is a debt-to-GDP ratio more or less the same as that of France, and an economy that is in at least as much of a mess.
Nonetheless, as far as our credit rating is concerned, all of the similarities are irrelevant beside two highly significant differences.
The first and most important difference between France and Britain is euro zone membership. After a decade of living in wonderland, the bond markets and most politicians outside France are finally focusing on the critical distinction between countries which have control of their own interest rates and exchange rates, and those inside the euro zone whose control is limited by their share of the votes in the ECB governing council. It is surely no coincidence that the UK, USA and Japan, three countries with little in common except their mountainous debts and their freedom to print their own money, are still able to borrow at rates below those of Germany.
Secondly, it is nearly a year since George Osborne mapped out the route back to a sustainable level of debt and, for the moment at least, the markets are convinced the UK Government will not waver, especially as it need not face the electorate again until 2015.
By contrast, Nicholas Sarkozy is starting out on a four month campaign for re-election from a position of unprecedented unpopularity, so even if the bond market trusted his deficit-cutting credentials, the most he could possibly offer the bond market in the way of reassurance is the promise to tackle the deficit if he returns to the Elysee Palace in April – and the markets will be well aware that the two alternatives to Sarko are an unreconstructed Socialist debt-denier and a semi-reconstructed neo-fascist with a visceral hatred of the EU and all its works.
French petulance follows in the wake of last week’s Brussels summit which, if you believe the British press, left us isolated in Europe, but which in reality was more of a staged non-event aimed at kickstarting the Sarkozy re-election campaign. Given that there was never any hope that Europe’s leaders would be able to agree on a remotely credible solution to the debt problem, a row with David Cameron had irresistible attractions, distracting attention from the failure of the Summit and from the fact that the French President is now very obviously playing Robin to Batwoman Merkel, while lining up Britain as the ideal scapegoat to take the blame when the markets realise how little real progress has been made towards a solution.
In the end, for all the flimflam about the need to save the EU, the outcome suited everyone else too, given that they all had their eyes on their own domestic political agenda.
While the French leadership was able to luxuriate in the pleasure of “humiliating” Britain, the PM took the opportunity to show his backbenchers and the Eurosceptic majority of the British electorate he had stood up for Britain, and the Liberal Democrats were allowed to fume with rage at their coalition partners, thereby concealing the fact that, with the EU in chaos, the central pillar of their political platform is crumbling under them. At the same time, some of the peripheral countries – the Nordics , Ireland, and two or three of the East Europeans – appear to have been quietly happy to allow the Brits to do the fighting, saving them from having to battle against unified corporate tax rates, the financial transaction tax, or tight limits on fiscal deficits. As far as Frau Merkel was concerned, this was an important step forward in the process of softening up her electorate for a “solution” involving budgetary constraints with draconian penalties which, she hopes, will lend credibility to the fiscal integration project – always assuming voters fail to spot that there is not the remotest chance of the fines ever being imposed on even the most profligate euro zone member.
All in all, the Summit was more farce than tragedy. In fact, the European leaders remind me of a bunch of Moliere’s doctors, arguing all night in their own impenetrable language about what treatment to apply, while the patient expires before they can make their minds up. Come to think about it, his doctors were inordinately keen on enemas… but with friends like these, who needs enemas?
Image — Demonstrators wear masks featuring France’s President Nicolas Sarkozy and German Chancellor Angela Merkel in Brussels, December 9, 2011. REUTERS/Ezequiel Scagnetti