The Economist magazine suggests that the Eurosceptic wing of the Conservative party is showing a certain lack of maturity in its article on the Tories in Europe under the heading Oh Grow up in the October 29th, 2011 edition.
In referring to the motion in the House of Commons on whether a referendum should be held asking if the country should remain in the European Union (EU), leave, or renegotiate the terms of its membership, the Economist finds this unreasonable. Even though the motion was defeated, almost 50% of Conservative backbenchers refused to toe the party line in voting for the motion.
The timing of the debate itself could also be viewed as damaging to the international reputation of the third largest member of the EU with its suggestion of opportunism, rather than demonstrating full support for its single largest trading partner the Eurozone during its current crisis. Instead of posturing in seeming isolation it should not be forgotten that it takes two sides to have a negotiation, if Conservative Eurosceptics really believe that they can win back concessions such as repatriating powers over e.g. social and employment rules, without a corresponding cost which would further weaken the influence of the UK over events within the EU.
Still, if this is all part of some grand scheme to return the EU to its original form as the largest and richest common market in the world and within which the UK would more freely and competitively trade its goods and services, these same Eurosceptics should not be diverted by other populist causes such as repatriation of the powers of the Human Rights Act!
Archive for the ‘Federal EU?’ Category
The Tories & Europe
mercredi, novembre 9th, 2011David Cameron & the Eurozone.
vendredi, octobre 28th, 2011With the UK not part of the Eurozone, it was not surprising that Prime Minister David Cameron raised the ire of President Sarkozy of France in pressing for inclusion in the talks leading up to the recent Eurozone debt rescue deal. Arriving earlier the Prime Minister said that he was glad to be at the talks, as many issues the leaders would discuss were directly relevant to Britain. Mr. Cameron then joined leaders of all 27 EU nations for the summit, which was followed by a working dinner attended only by heads of the 17 nations using the Euro.
UK Chancellor George Osborne commented afterwards that the debt deal agreed by the Eurozone leaders was much better than expected but additional bailout funds should not be expected from Britain. He also confirmed that no British banks would be required to hold additional capital following the meeting which, in addition, and to avoid a Greek default on its debt, essentially forced a 50% discount on Greek debt in those European banks involved.
The question is how should we view this performance by Mr. Cameron? Was he right to insist on the UK being involved in the Eurozone talks despite upsetting his French counterpart? We must consider that on balance he was right, faced with no choice but to get involved, based on past experience when France and Germany have got together to carve out a solution impacting the EU. The most recent and celebrated case is when they came up with the idea of a Tobin-type tax on financial transactions within the EU, 90% of the net burden of which would have been borne by the UK, given the dominant position of the City of London in European financial markets! This Tobin tax proposal is also a prime example of the EU not considering its overall competitivity as a trading bloc, with both George Osborne the Chancellor and his Labour opposition counterpart Ed. Balls in agreement that such a tax should only be applied on a global basis.
Eurozone Threat to Political Order
jeudi, juin 30th, 2011Further to our Euro Debate : That Britain should join the Eurozone (refer Categories/ Chairmans Blog/ Federal EU/ Euro Debate in the right-hand index column), Charles Moore writing in the Daily Telegraph Saturday 25 June, sees Britain as the political outsider, essentially proven right now that the dangers of the Euro as a one-size-fits-all currency have come to pass. He thinks this very outsider status also gives Britain little chance of influencing the current Eurozone crisis now threatening the political order in Europe. There will, therefore, be no new post-crisis agenda that Britain can change.
Since in theory existing treaties forbid bail-outs of Eurozone members, the very nature of the continuing Greek bailouts (currently the second one) is helping to bring about further European integration e.g. Euro-enthusiasts losing patience with the difficulties of extracting bail-out money from national governments, are proposing more pan-European taxes instead. The government debts of the weaker Eurozone members are being transferred from banks and other creditors to the European taxpayer. Dogmatic EU leaders are saying ? like the failed Communist ideology of the former Soviet Union ? if Europe is not working, it is because we do not have enough European integration.
However, fear and boredom are currently letting these European leaders get away with it. EU boredom works well in the UK for example with 400,000 people marching through London in protest at proposed government cuts of £6.2 billion, yet Britain has committed twice this amount to the Euro bail-outs with no one taking to the streets in protest. Fear similarly holds the angry populations of the Eurozone in check. The people of Greece do not like the austerity measures imposed on them (as they see it) by the European Central Bank (ECB), but they know that if they left the Eurozone the value of their savings would halve. Therefore, Greece will pretend to do what is demanded by the ECB, and Eurozone leaders will claim that everything is under control, until the next crisis.
The Germans are angry as well since they do not like subsidizing the profligacy of Greece, Ireland and Portugal etc. but they also do not want to lose the competitive exchange rate of the Euro, the respectability of being good Europeans or the problems of their own banks to be exposed. So Chancellor Merkel agrees to the bail-outs but only on terms so perversely punitive that they cannot work and, therefore, will guarantee e.g. a third Greek crisis.
The question is whether boredom or fear will continue to outweigh the anger of the European people. When influential people make other people poor while they remain rich, the political order can start to crumble. Charles Moore concludes that although the Euro was ill-conceived, we should not wish for its demise. There is some logic in a common currency for large parts of mostly northern Europe and only misery for many if the Eurozone falls apart. However, to be seemingly proven right as a Eurosceptic brings no power for Britain over how events in the Eurozone will evolve. Certainly, the endorsement of the Euro by the Chinese Prime Minister during his recent visit to the UK brings powerful support for the continuing viability of the Eurozone.
Euro Debate: That Britain should join the Eurozone
jeudi, juin 23rd, 2011As previously advised (refer to Categories/Chairmans Blog/ Federal EU/ EU & Euro Survey in the right-hand index column) on 20th June, the British Conservatives in Paris (BCiP) held a lively and stimulating debate chaired by Paul Thomson on the motion that Britain should join the Euro.
Given the current financial crisis facing the Eurozone, the dice seemed already loaded against the opening speaker Gregor Dallas who, however, proposed the motion in feisty style. He spoke of the Euro and the UK as being an enormously emotive issue steeped in politics that lots of people preferred to avoid talking about, including some members of the Conservative party. Yet some 60% of our exports go to the European Union of which two-thirds are to Eurozone countries. The political aspects can be traced back to the aftermath of the Second World War and the ambitious ideal to maintain the peace through the stabilizing influence of trading links developed within a single European market. Today this presents Britain with a market of around half a billion people, a major part using a single currency, and to compare this with the US our largest, single trading partner, the latter represents only 16% of our exports.
He elaborated that the single European market acts to stamp out the extremes of nationalism on the far right and socialism on the far left, with terms such as economic sovereignty or national sovereignty essentially blown out of the water by the collapse of the Bretton Woods system in 1971. Prior to that in November 1967 we had The Pound (£) in your pocket of PM Harold Wilson when the Pound was devalued by 14.3% and which seemed to change nothing for anybody living within Britain. However, Britain lost the trust of its important trading partners not only in 1967 but also in 1949 and after flotation in 1971. Now we have floating exchange rates and so-called hot money speculating on the highest return currencies and there is still no major improvement in exports for the UK.
Of course given the current financial crisis in the Eurozone, Germany is concerned about the so-called Club Med-countries but the Euro is a German invention and it tracks the former Deutschmark. It would be a disaster if Greece was forced to quit the Eurozone but in fact no such exit plan exists. There is no way back for national currencies, all members of the Eurozone want it to work and it is significant that China has already adopted it as a reserve currency. The UK must, therefore, join the Eurozone because it brings a strong, stable currency for a 21st century economy.
Michael Webster who opposed the motion saw the current economic situation as making it impossible for the UK to join the Eurozone. The Eurozone is also too dominated by Germany with e.g. the French economy suffering as a result. The market economy of the UK is completely the opposite of the dirigisme found on the Continent of Europe. In referring to the effect of interest rates and exchanges rates, he saw the need of the German economy for low interest rates as leading to cheap money and the resulting economic ruin of Eurozone countries such as Ireland, Portugal and Greece. At least the UK can only blame itself for the results of its own economic policies. Now Germany wants higher interest rates with its economy booming and this leads to the euro being overvalued in the money markets. As far as exchange rates are concerned, the UK has essentially devalued the Pound (£) in order to improve export trade, whereas its imports from Portugal have been reduced by some 50% due to the strength of the Euro.
A Swedish government minister has been quoted as saying that a reason for its successful economy is that it is not a member of the Eurozone. Indeed, the financial situation in the Eurozone is so bad that Greece will never be able to pay its debts, with e.g. ?45 billion owed to German banks and ?65 billion to French banks all under threat of default. Britain has already taken steps to withdraw some ?12 billion in bonds from the Eurozone as one step in trying to avoid the Greek debacle. Sterling is, therefore, still rated AAA in the financial markets by the rating agencies while the current credit rating of France is under threat, and French manufacturers are trying to relocate their production sites to lower cost countries. There is no possibility of the UK joining the Eurozone.
Seconding the proposer of the motion, Robin Baker quoted two traditional views of the Conservative party as 1) a belief in sound money and 2) a natural distrust of governments which manipulate the affairs of the country for their own, short-term electoral advantage. Sound money acts to counter the cancerous effects of inflation on the economy, with governments as major borrowers taking benefit from the effects of inflation, by being able to pay back their debts to lenders in devalued currency. The current UK inflation rate of 4.5 % would double prices in 16 years if left unchecked, whereas within the Eurozone France has inflation of only 2.0 %, Germany 2.3 % and even Italy only 2.6 %. The Eurozone, therefore, shows the benefit of taking the power to devalue away from national governments and also being able to dampen the effects of inflation through sound money.
Being able to devalue has also not helped the UK to grow relative to the 27 states in the European Union (EU). In 2002, the UK economy represented 17.2 % of the EU but by 2009 this had fallen to 13.3 %, while the share of the 16 Eurozone countries had increased by more than 2 %. During 2010, growth in Eurozone GDP was 30 % greater than that of the UK, and currently France is growing at twice our rate and Germany three times. Devaluation also does not seem to have helped our exports. In 2010, the Eurozone had a balance of payments deficit of ?30 billion but the deficit of the UK was 30 % worse for an economy only one sixth of the total Eurozone. From 2002 ? 2009 our share of total EU exports fell from 12.8 % to 10.4 % while total Eurozone world market share increased, our intra ? EU share also having fallen from 9.6 % to 6.4 %.
Our exporters suffer the commercial disadvantage of not sharing the same currency as 40 % of their customers and are forced to price higher to offset adverse currency movements or ask the customer to take the risk. In short, without the security of sound money and no benefits to growth in our economy or trade in being able to devalue compared with our European partners, Britain should join the Eurozone.
To close the formal part of the debate and confessing to being no economist, Evelyn Joslain the seconder of the opposition to the motion, chose to speak more passionately on behalf of the people of Europe in asking why the Brits would want to drop the Pound (£) for the Euro. The Euro is dying; you need to look more at defending what is left of your sovereignty and the problem of your soaring deficit is more pressing. She asked the audience to consider the success of countries outside the Eurozone such as Switzerland and Sweden which are doing much better. Germany is also very unhappy with what has become of its Deutschmark in the guise of the Euro and is faced instead with a Greek tragedy. Behind the Eurozone lies more European integration ? before it was to avoid war but now it has gone too far. We must avoid the excuses of the former Soviet Union that it only failed because the correct ideological measures were not sufficiently applied.
The Euro is a favourite of the currency speculators to short and coupled with excessive welfare payments and bail-outs is a recipe for disaster. It is easy to get into the Eurozone but hard to get out and there could also be a two-tier system between the north and the south. The Euro was forced on the population of Europe in an undemocratic way and the people are being ignored in a march towards a centralized super state. On the 100th anniversary of the Titanic, it is appropriate that the UK should reject the disaster of the euro.
The comments from the floor which followed the formal part of the debate touched on the emotional (all we have left is the Pound and our Royal family), lack of proper financial rigour (Germany & France were the first to press for relaxation of the 3 % limit on budget deficits), lack of transparency (surely they must have known what was happening in Greece?), a disaster for Europe if the Eurozone collapses, it is more a question of political will to hold Europe together than a financial problem, the euro is now one of the most important currencies but failure of the political cycle matched by failure of the financial cycle has changed the Euro, the Eurozone has steadily abdicated its responsibilities since its launch, as Conservatives we must balance ideology against pragmatism and now is not the right time to join and if the UK had been allowed into the EU earlier, it could have had more influence but it is too late now.
A vote was taken and the motion was defeated with 5 votes for but 15 votes against.
EU and Eurozone Membership Survey
vendredi, juin 10th, 2011On 20th June we are having an internal debate on whether the UK should join the eurozone.
We are, therefore, interested in the opinion of visitors to our website who are concerned by this issue and other such issues impacting the UK as a Member State of the European Union (EU).
Your participation would be much appreciated in our on-line survey.
Euro-Zone Tensions
jeudi, novembre 25th, 2010William Hague, the British foreign secretary and known as a Euro-sceptic, should still have been able to have shown more confidence on behalf of the UK in the future of the Euro-zone, when interviewed recently on the BBC Radio 4 Today programme. Speaking from Lisbon during a NATO summit, he saw it as very much in the British national interest for the Euro-zone to be stable (some 60% of British exports are towards Euro-zone markets). There was also a specific although separate (from the Euro-zone) case for assisting Ireland with its current financial problems (British and German banks are amongst its biggest creditors). However, he failed to reject the suggestion that the Euro-zone was in danger of imminent collapse, pointing out instead his own view over the years of the inherent tensions in having a Euro currency zone which essentially locks together the exchange rates and interest rates of countries with very differently functioning economies.
The problem for the UK is perhaps encapsulated in the opinion of Dominique Strauss-Kahn, at the head of the International Monetary Fund (IMF) and a potential challenger to Nicolas Sarkozy for the French presidency, who considers the only solution to the financial crises now facing Ireland and impacting Greece, Portugal and Spain, is for more centralisation within the European Union, especially in financial, economic and social policy.
However, the German chancellor Angela Merkel also did not build confidence in the financial markets when, in response to political pressure from voters opposed to bailing out weaker countries, she increased nervousness amongst lenders by suggesting that banks and investors should in future not just be bailed out by taxpayers but take some of the losses themselves. This drove lenders to charge more for their loans to reflect their perception of added risk and increased the pressure on Ireland, where a run on its crisis-hit banks was essentially already underway as companies quietly withdrew their deposits.
Being outside the Euro-zone has allowed the UK the same flexibility in monetary policy it has used in the past to allow the pound sterling to depreciate against the Euro and other trading currencies in an effort to stimulate growth in the economy particularly from exports. However, a break-up of the Euro-zone would hurt not only the UK but also seriously undermine the current global recovery, given the major trade imbalances and talk of currency wars between the major trading nations.
Within the Euro-zone, Germany has followed through with its normal, correct economic discipline and maintained its competitiveness by only allowing its unit labour costs and pay per employee to rise by 10% or less from 2000 to 2009. Today, therefore, it is showing a healthy trade surplus as customers have continued to buy the German-made quality goods they value, despite the appreciation of the Euro. Over the same period, however, most of the problem-hit economies such as Greece, Spain & Ireland have allowed labour costs to rise by 20- 30% compared with Germany and are now suffering the consequences. Other European countries such as Italy and France have also lost significant competitiveness compared with Germany over the 11 year existence of the Euro. There is a need, therefore, for greater economic discipline by the weaker members of the Euro-zone.
If we consider the options, one view is that Germany cannot expect these very different but weaker economies to be able to emulate its own very low inflation, weak domestic demand and export driven model for the Euro, based on the Deutschmark experience. Germany, therefore, has to find a more middle way with its Euro-zone partners by reducing its current account surplus and stimulating its own domestic demand for imports, in an effort to generate more stability in the Euro-zone. Otherwise the only other solution would appear to be that proposed by Dominique Strauss-Kahn for more centralisation and fiscal consolidation within a viable single currency union, backed by a European federal budget to enable e.g. the poorer, less competitive regions to be supported by the richer ones, an option not likely to be popular with German voters (see Categories/Chairman?s Blog/Federal EU? In the right hand index column) or indeed the UK.
In the meantime, a monthly Reuters poll has 34 out of 50 economists questioned, predicting that Portugal will likely follow Greece and Ireland in requiring bailout funds. Already 10-year bond yields in Portugal and Spain are increasing rapidly, with Spanish banks also major holders of Portuguese bonds. The tension between the Euro-zone periphery and the core is then demonstrably clear with the German and French economies having been performing well, now indicating the case eventually for higher interest rates.
Federal EU?
samedi, juillet 17th, 2010Further to the question raised in the previous article (Turkey-Realpolitik?) on the future evolution of the EU, the weekend of May 9-10 when the Greek, Portuguese and Spanish government bond markets and banking systems came to the brink of a Lehman-style meltdown, saw European politicians take a further step towards a full-scale fiscal and political union in defence of the Eurozone.
Ignoring the no-bailout clauses of the Maastricht and Lisbon treaties which specifically forbid EU governments from collaborating fiscally to guarantee each others? debts, they created what is essentially a large federal-type, borrowing programme backed by all the Eurozone governments. This has enabled channelling of the results of excess savings from Northern to Southern Europe which, to prove sustainable longer term, should evolve into a full-scale, federal European budget to enable the poorer, less competitive regions to be permanently supported by the richer ones. This would also require the ECB to act as the lender of last resort in the classic role of a central bank, to provide essentially unlimited back-up to any associated emergency lending programmes arranged by European governments. In the longer term, the public spending and tax policies of the weaker Eurozone economies will have to become more aligned with that of Germany to allow the political outfall of such a fiscal union to become more manageable.
Such a fiscal convergence programme as part of a viable single currency union, backed by a European federal budget, is not likely to be put to wide, popular vote particularly in Germany where taxpayers would presumably be unwilling to vote for their money to support other more profligate Eurozone members. Rather this could happen as a result of normal public apathy and acquiescence, managed through political stealth as part of an inexorable but non-democratic process towards the construction of a federal EU.