The Euro Turkey

The coming break-up of the single currency makes Britain’s veto seem a mere sideshow, writes Jeff Randall in the Daily Telegraph: 

As George Osborne prepares his response to the Vickers report on banking reform (the Chancellor is expected to make a Commons statement this afternoon), there’s a growing sense in the City that while Britain upgrades its sprinkler system, a fireball has already engulfed our neighbours.

Much-needed changes to UK financial legislation, recommended by Vickers, will be enacted by the end of the current parliament, with the overhaul completed by 2019. Nothing wrong with long-term planning, except that with the eurozone in disarray and sovereign defaults looking all but certain, even getting to next Christmas without a fresh banking crisis may prove a wish too far for Santa.

Those who had bet on a seasonal gift of salvation from this month’s Brussels summit have already lost their wager. With a gun to the head of monetary union, European ministers, in effect, invited bond markets to pull the trigger. Without a new mechanism for very large and permanent fiscal transfers – from the prudent to the profligate – the euro turkey is stuffed.

The sideshow of David Cameron’s veto will soon be upstaged by the single currency's combustion and the immolation of its weaker members’ economies.

Confounded by the triumph of remorseless debt over political will, EU leaders have succumbed to collective delirium, promising that future government budgets will be “balanced or in surplus” and that annual structural deficits will “not exceed 0.5 per cent of nominal gross domestic product”.

There is not one chance in a million that this can be achieved by more than a handful of EU states. When fantasy masquerades as action, the end is nigh.

One can only marvel at the Micawberism of some in the European press who continue to perform as cheerleaders for a dysfunctional and discredited system. Germany’s Der Spiegel concluded: “The result of [the summit] is a success. A success for the majority of Europeans and for efforts to find a solution to the euro crisis.” 

Keep taking the tablets, guys.

Nouriel Roubini, professor of economics at New York University, sees it differently: “Papering over solvency problems with financing and liquidity may eventually give way to painful and possibly disorderly restructurings; addressing weak competitiveness and current-account imbalances requires currency adjustments that may eventually lead some members to exit the eurozone.”

The French, in particular, are finding this hard to swallow. In a new book, The End of the Euro, Johan Van Overtveldt, editor-in chief of Trends, Belgium’s leading business weekly, delivers a harsh verdict:  

“France’s inability to accept gracefully its political and economic decline has produced additional tension. Le grandeur de la France, once an undeniable reality, is now a thing of the past.” 

Burdened by an inferiority complex over France’s subordinate relationship with Germany, frustrated by the markets’ sceptical view of the French state’s finances, the elite in Paris lashes out at an imaginary conspiracy among Anglo-Saxon bond investors and their perceived henchmen, the ratings agencies.

With Fitch, one of the big three, deciding that “a comprehensive solution to the eurozone crisis is technically and politically beyond reach” and Standard & Poor’s, a rival agency, reported to be preparing a downgrade of France’s triple-A status, a sense of persecution is building inside the Elysée Palace. Quel dommage!

In May 2010, when I wrote a column for this newspaper under the headline “Whatever Germany does, the euro as we know it is dead”, there was a predictable response from the usual suspects, accusing me of economic illiteracy and xenophobia.

Today, it seems, I’m in good company. The Economist, not known as a flag-waver for Little Englanders, opines: 

“As investors and voters lose faith, the task of saving the single currency grows harder. Sooner or later, the euro will be beyond saving.”

It’s a view shared by many whose livelihoods depend on forecasting global events and adjusting their finances accordingly. Few believe that the euro will disappear altogether, but a growing number expect it to be reconstructed, shorn of members who can neither accept the rules nor afford the fees.

Last week, I pre-recorded a Christmas special for Sky News at which Sir Philip Hampton, Royal Bank of Scotland’s chairman, was a guest. Asked if the euro would hold together in 2012, he said: 

“I think it’s likely that one country, a small country, will drop out. It could be any of them because these things will be driven by political events as much as by economic circumstances.”

Would such an outcome trigger a banking Armageddon? On this, Sir Philip was only slightly more guarded:

“Some banks will be under particular strain, but I don’t think the banking system as a whole. The banking system as a whole can deal with Greece.”

Social cohesion, however, is a different matter. As if to bat back France’s recent aspersions on Britain’s creditworthiness, Sir Philip predicted a wave of unrest across the Channel:

“France has got an unmatched history of getting on to the streets and making a big noise. I’m amazed the French have been so subdued. I don’t think it will continue: they will be on the streets in 2012.” 

Cher Sarko, you have been warned.
 
Jeff Randall’s 'Christmas Dinner’ with RBS’s chairman Sir Philip Hampton, Sainsbury’s chief executive Justin King and Imperial Tobacco’s chief executive Alison Cooper will be broadcast on Sky News at 7.30pm on December 22.

Cabinet Dissent

It is claimed that a few members of the Cabinet, including Nick Clegg MP (styled Deputy Prime Minister), is not in concordance over the Prime Minister's action at the Euro-Summit on Friday.

The Secretary of State for Business, Innovation and Skills, Vince Cable MP, a Liberal, has declared his dismay.

Timothy Belmont is unimpressed at the stance of the Lord Chancellor and Secretary of State for Justice, Ken Clarke MP, a senior Conservative. He should have known better and if he cannot accept the new Position on the EU, perhaps he ought to consider his own position.

I was always taught that a fundamental principle of the Cabinet is collective responsibility.

Implicit in that principle is the notion that any member who feels unable to agree with the Cabinet resigns.

In past times, it was utterly inconceivable that any Cabinet minister would have publicly expressed their disagreement, let alone criticism of their prime minister.

I can see why the Liberal members of the Cabinet are unhappy with the way matters have gone in the EU.

I find it harder to forgive Mr Clarke, a committed "Europhile", who ought to resign from his position. Or he must be dismissed.

Merkozy Fiasco

Timothy Belmont shall not say much about the European fiasco, except to state that I applaud the Prime Minister. I believe and trust that he has acted in, and protected, our best interests.

London is widely acknowledged as the financial capital of Europe. Merkozy cannot gainsay that fact.

I watched little Sarkozy churlishly ignoring our Prime Minister; while Mr Cameron was generous and magnamimous enough to acknowledge him.

Long live the United Kingdom. God save The Queen.

My estimation of David Cameron has grown.

The Costly Club

The Spectator has, yet again, published an excellent article on the disadvantages of EU membership. 

Forget the European Council for a moment. For it is worth highlighting the things that the British Government could do immediately and unilaterally, here at home, to challenge EU power — and without recourse to Brussels whatsoever. And Lee’s paper gives the following six examples:


1. Commissioning a measured, independent and trustworthy cost-benefit analysis of EU membership. Such an exercise ought to consider both the concrete and abstract costs and benefits of our membership of the EU, and would both set the terms of a mandate for renegotiation and strengthen the hand of the team sent to Brussels seeking it.

2. Demonstrating an intent and capability to act unilaterally if necessary to improve Britain’s position. The Government should be prepared to begin to pass laws at Westminster including the phrase ‘Notwithstanding the European Communities Act 1972’, which would signal a clear intent to unilaterally change the terms of the UK’s relationship with the EU if there is gridlock in Brussels.

3. A review of the acquis communautaire. A Cabinet Minister should be appointed to review all the treaties, regulations and directives passed by the European institutions and judgements laid down by the Court of Justice in the context of the change in treaty terms.

4. An end to ‘gold-plating’ of EU regulations. The Government should print EU-sourced legislation on differently coloured paper to focus minds on the areas where the EU is calling the shots and to assist in calculating what proportion of laws originate in Brussels. The regulations should each be subject to a cost-benefit summary and should go no further than the basic text itself in order to avoid ‘gold-plating’ (i.e. extra red tape created by British civil servants).

5. Increased transparency and scrutiny at Westminster over EU legislation. All meetings of the European Scrutiny Committee should henceforth be held in public session — with no returning to past moves to shut out the public — and there should be greater opportunity for it to refer EU-inspired secondary legislation to the whole House for further scrutiny either in Westminster Hall or on the floor of the Commons. At present, far too many of these laws go through on the nod and without any scrutiny by elected MPs.

6. Improved use of the national scrutiny reserve. Parliament would be brought closer to the law making process, and ministers made more cautious about agreements, if any such agreements were dependent upon domestic approval by MPs after the event.

These proposals could be implemented with immediate effect. To borrow a phrase from the author of The Spectator's Speech of the Year: if not now, when?

EU Referendum

The Secretary of State for Northern Ireland, the Rt Hon Owen Paterson MP, a senior Cabinet minister, has told the Spectator that a referendum on the United Kingdom's relationship with the European Union is inevitable.

My views on the EU are already well known, hence my wish to highlight the matter.

Mr Paterson's remarks are seen as the most serious Conservative challenge yet to David Cameron’s European policy:

‘There is no question, if they effectively create a new country, that is absolutely their right to do so. It does run counter, of course, to 300 years of British foreign policy in trying to avoid that happening. But if that is the way out of the conundrum on the euro, I think we have to respect that. But they have to respect the fact that it will create a brand-new relationship for us,’

He warns that the EU17 would become ‘a new and very powerful country which can dominate us’. His concern is that a fiscally united eurozone will spend as a bloc, tax as a bloc — and, when it comes to European summits, vote as a bloc.

‘It is wholly unacceptable to have a new bloc in which we would be permanently outvoted,’ Paterson says. Like Cameron, he is particularly concerned about what this might do to the City of London, a financial district without equal anywhere else in Europe. ‘Bluntly, they may well go ahead and in effect create a new country, with very central control of taxation and transfer of funds to weaker areas. But if they want to go ahead and form their new country, we want to get the power to run our country back.’

‘Hardly a Cabinet meeting goes past when an issue isn’t raised where we are being stopped by some form of European regulation,’  

‘If there was a major fundamental change in our relationship, emerging from the creation of a new bloc which would be effectively a new country from which we were excluded, then I think inevitably there would be huge pressure for a referendum.’

‘I think there will have to be one, yes, because I think the pressure would build up. This isn’t going to happen immediately because these negotiations are going to take some months. But I think down the road that is inevitable. ‘

Mr Cameron this week insisted that the proposed “fiscal union” among eurozone members does not involve a transfer of British power to Brussels, therefore there is no need for a referendum.

Mr Paterson said that the creation of a more integrated eurozone “will create a brand new relationship” between Britain and the EU.

That change, he suggested, must eventually trigger a referendum in Britain on the new arrangements to be discussed at a Brussels summit tomorrow. 

Paterson married the Hon Rose Ridley in 1980. She is the daughter of Matthew Ridley, 4th Viscount Ridley.

They have two sons and a daughter. Paterson speaks fluent French and German; and is a keen horse rider and racer.