MacroScope

Britain’s David Cameron began the day on Monday gently slapping down two Cabinet colleagues who said if they had a vote today, they would opt to leave the EU. It was senseless, he said, to throw in the towel before he had had a chance to renegotiate Britain’s relationship with Europe. He ended it by caving into rebels in his Conservative party who are demanding legislation now to commit to an in/out referendum before the next election.

The 25 year history of the Conservatives and Europe – internecine warfare and successive election defeats as they obsessed about something which figures low on most Britons’ priority list – suggests no good can come of this and if Cameron wins the 2015 election it moves Britain incrementally closer to the EU exit door. The more immediate question is whether Cameron has lanced the boil. Again, history suggests that if you give ground to the eurosceptics they merely demand more. And what the PM’s pro-EU Liberal Democrat coalition partners make of this isn’t hard to imagine which means he might not even have the numbers to get the bill through parliament. One of the leading rebels seized on that point, saying the move could well fail.

The anti-EU fringe party UKIP, which could well not win a single seat at the next election but has seriously spooked the Conservatives with strong showings in recent local elections, must be laughing all the way to the bank. If it can remake the Conservative party in its own image, its job will be done. But just as likely is a split party. The irony of Cameron doing all this while in Washington to bang the drum for an EU/U.S. trade deal is hard to ignore. President Obama pointedly said the British premier should fix its relationship with the EU.  If Cameron believes Britain should remain part of its main trading bloc, as he says he does, he is going to have to start explaining why and that is difficult to imagine.

In the euro zone, all is not well of course. A poll of nearly 8,000 people in eight EU states by the Pew Research Center, released overnight, shows the debt crisis has wrecked faith in the EU although support for the euro is holding up. Interestingly, disillusionment seems to be growing fastest in France, hinting at a new schism with Germany.

There are differences over policy too. Spain and Portugal pushed yesterday for a full banking union while Germany continued to emphasise the legal hurdles and the head of the euro zone finance ministers said much of the work could be done now with issues surrounding treaty change dealt with later. Berlin wants a limited banking union based around cross-border supervision and only much later (never?) a bloc-wide system to deal with failing banks which it says will require treaty change. This has the fortunate effect of preventing Germany from taking on liability for others but it’s nothing like the structure that was proposed last year. The big imponderable is whether its stance softens after September elections or not.

Some interesting events to  ponder over the weekend, though not many of them came from the G8 summit which, as is customary, was strong on rhetoric but bare of any specific policy measures to tackle the euro zone crisis. However, markets seems to have tired of their panicky last few sessions. German Bund futures have opened lower as investors took profits rather than seizing on any positive news. European stocks have edged up.

It does appear that with the ascension of France’s Francois Hollande, the G8 firmament turned into G7 (or maybe 5 since we didn’t hear much from Japan and Russia) versus 1 (Germany) but as things stand we’re still heading for a fairly anaemic “growth strategy” unless euro zone leaders coalesce behind the notion of giving Spain and Greece longer to make the cuts demanded of them. Spain has moved the goalposts further in the wrong direction, revising its 2011 deficit up to 8.9 percent from 8.5 and blaming the overspending regions. That means its already loosened target of 5.3 percent for this year is now even harder to achieve.

Hollande is talking up the case for common euro zone bonds but that will not wash with Berlin for a long time yet. Sources said Monti used the G8 forum to promote a pan-European bank deposit guarantee fund. Good idea but that too will only be conceivable if the European financial sector is on the point of toppling. And who will underwrite it? There is talk too of allowing the EFSF to lend direct to banks to ease the Spanish government’s reluctance to ask for help. That may have a slightly better chance of success but Berlin doesn’t like this idea either.
Look no further than the German Chancellor’s take on the summit – it was all a great success, she said. Everyone agreed that we need both growth and fiscal consolidation.

This picture was making the rounds on Wall Street on Thursday, after President Obama proposed limiting big banks'  financial risk-taking.

Two days after arriving in Martha's Vineyard, President Barack Obama is taking a break from his vacation to make some news: he will announce that he is nominating Ben Bernanke to a second term as chairman of the Federal Reserve.

Investors have given Bernanke, whose current term expires on Jan. 31, 2010, high marks and had widely expected his reappointment.

But the announcement is being made earlier than expected and comes not just during Obama's family vacation but also on the day that the White House Office of Management and Budget and the non-partisan Congressional Budget Office both release their midyear budget updates.

If you thought the Obama administration's $787 billion economic stimulus program was meant to provide one big jolt to the economy, you've got it all wrong, Vice President Joe Biden says.

"The act was intended to provide steady support for our economy over an extended period -- not a jolt that would last only a few months," he wrote in an op-ed piece in Sunday's New York Times.

More than a third of it is tax cuts for 95 percent of working Americans, he says. Another chunk of it goes for extended unemployment insurance and healthcare for those hardest hit by the recession.

Despite their outward modernity, many people across the Nordics find their moral compass in Jante Law, an early 20th century concept which basically says: You are no better, no smarter and no more important than anyone else.

A touch of such humility, according to Finland’s central bank governor Erkki Liikanen, is being adopted by the most unlikely of audiences — European and American policymakers.

And it is already bringing benefits, Liikanen said. “Because it has hit us all and so much is new in the collapse of the international financial system — it has made people humble,” said Liikanen, who sits on the European Central Bank‘s rate-setting Governing Council.

When things are down and out people tend to go in search of higher powers.

And President Barack Obama is, after all, a person (and does not walk on water like some fans might believe).

His speech on the economy, given in a hall with painted religious figures at Georgetown University, a Jesuit school, was sprinkled with religious metaphors. Perhaps he's hoping for some divine intervention out of the country's financial mess.

(The religious metaphors come on the heels of Obama's first attendance at a Sunday church service since he became president. Coincidence?)

He loves the Queen and the British people. Truth be told, President Obama was always going to be a hit on his first overseas trip.

But Gordon Brown probably could not believe his luck. The prime minister just could not stop grinning as he stood next to the new president at a news conference in the Foreign Office ahead of the G20 summit.

He must have always been hoping for a bit of the Obama magic to rub off on him and revive his battered ratings but he can’t have expected the ringing endorsement he got.

On Monday, Nobel-laureate Paul Krugman wrote that Treasury Secretary Timothy Geithner’s plan was not only doomed to fail, it was, in fact, filling him with despair.

But life can’t be all despair for the Princeton prof. Earlier this month, an enterprising songwriter named Jonathan Mann wrote a catchy little diddy wondering why the New York Times columnist wasn’t in the corner office at 1500 Pennsylvania Avenue.

Tell us what you think. Should Obama dump Tim and put in Paul?

How do you buy $750 billion of toxic bank assets with only $250 billion of taxpayer money?

If you know to play U.S. budget rules like a violin.

President Barack Obama told Congress in passing this week he might need more money than lawmakers have already approved to stabilize banks and pull the economy out of the ditch. 

How much? His budget virtuoso Peter Orszag said on Thursday he could support buying up to $750 billion in bad assets but only needed to set aside $250 billion to do it.