It never rains…

May 22, 2013

The British government faces another potentially thorny day with the International Monetary Fund delivering its annual review of the UK economy. If David Cameron has a consistent policy, it’s that the only way to get Britain back on its feet is to cut spending and debt. Trouble is, we know the IMF doesn’t agree and advocates a more growth-fostering approach. Finance minister George Osborne has changed rhetorical tack in response but is walking a tightrope as a result.

This comes at a time when there are distinct signs that Cameron’s Conservative party is unraveling and not just over Europe. Unless he gets a grip soon, who knows what further concessions may be made on an EU referendum which could push Britain further towards the exit door. It remains unlikely that the coalition government will fall apart before 2015 elections, not least because the junior, pro-EU Liberal Democrat partners face electoral evisceration according to the polls. It’s even less likely that Cameron will be toppled by fractious members of his party. But it’s no longer impossible.

Britain’s LibDem deputy prime minister will take the unusual step of holding a news conference to say the coalition will hold together until 2015. Another big flashpoint looms this summer with the government’s spending review where hardline Conservatives will push for big welfare cuts and the LibDems will resist. Former foreign secretary Geoffrey Howe, the man who did more than anyone else to end Margaret Thatcher’s reign, says Cameron is losing control of his party. From the other side of the political divide, Peter Mandelson says he has to lead not follow. Hard to argue with either of them.

Monthly UK public sector debt and retail sales figures will give a snapshot of the state of the economy and minutes from the Bank of England’s last policy meeting will show if outgoing governor Mervyn King and a minority continued to press in vain for more money printing.

After a one-day EU summit in Brussels, Cameron will hold evening talks with France’s Francois Hollande. The latter has been calling for more euro zone leaders’ meeting to beef up a drive for united economic government. That would push Britain further to the margins of the EU. The pair have some hatchets to bury. France has sounded distinctly less conciliatory than Germany to Cameron’s stated intention of renegotiating Britain’s relationship with the EU, after which he is promising an in-out referendum.And Cameron’s offer to roll out the red carpet to French entrepreneurs who did not wish to pay Hollande’s 75 percent top tax rate still rankles in Paris.

The four-hour EU summit is focused on tax evasion. Recent headlines about the tax affairs of Apple, Google, Amazon and others could give this meeting of EU leaders some legs but it could well be rather dry with the focus more on sharing information across borders and focusing on the banking secrecy regimes of Austria and Luxembourg. A twin focus on energy policy and energy prices may be more interesting.

German officials have been getting active in recent weeks in some potentially interesting ways. Finance Minister Wolfgang Schaeuble and labour minister Ursula von der Leyen will talk up a “New Deal for Europe”, a Franco-German initiative to tackle youth unemployment which will be aired in full next week. On Thursday, the Bank of France is hosting a two-day conference with the Bundesbank. There could be more on this front with Schaeuble also meeting his Portuguese opposite number, Vitor Gaspar, today while French Finance Minister Pierre Moscovici is in Rome to meet Italian government leaders.

Together with recent German initiatives such as tentatively offering Spain money and help to get credit flowing to smaller companies, Berlin seems to be embarking on a number of bilateral initiatives which circumvent Brussels. Is something going on here? The working assumption has been that all bets are off until September elections were out of the way.

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