Sarkozy’s comment reflects a mindset that pervades the EU as a whole, namely that the “Anglo-Saxon” economic model of free markets and capitalism is to blame for Europe’s problems, and not the “European Social Welfare” economic model of high taxes and heavy regulation. As a result, there are few things European elites would love as much as to see the destruction of the British economy.
In any case, the other 26 EU countries will now move ahead towards “fiscal union” without Britain, thus institutionalizing a “two-speed” Europe.
There is much debate over whether this would be good or bad for the United Kingdom.
On the one hand, there are those who argue that Britain — Europe’s third-largest economy after Germany and France — will be left on the periphery of Europe with little or no influence over how the continent evolves. The marginalization of Britain would be especially ironic considering the blood and treasure the United Kingdom invested in two world wars to keep Europe free, only to see the continent return to a more authoritarian political model.
From a geopolitical perspective, Britain historically has attempted to maintain a balance of power in continental Europe by forming shifting alliances with the main powers, usually France or Germany. Cameron now faces a Europe that is led by France and Germany and united against Britain.
On the other hand, other countries might follow Britain’s lead and begin to disengage from the EU. More immediately, a multi-speed Europe could potentially enable Britain to reclaim some of the powers that previous British governments ceded to the EU.
Although Cameron insists the United Kingdom will stay in the EU as long as “membership is in our interest,” some Europeans are already predicting a “great divorce.”
In the meantime, European leaders are likely to make Cameron (and Britain) the scapegoat for their own economic failings, especially if international investors begin to pull the rug out from under the EU’s shaky financial edifice.
Merkozy and friends hailed the summit in Brussels as a “breakthrough” that would restore confidence in the future of the euro. But financial markets are likely to take issue with that assessment, especially because the institutional changes discussed in Brussels are focused on preventing future crises rather than resolving the current one.
In fact, European politicians have done little to alleviate the underlying problems facing the eurozone in the near term. Chief among these is slow growth.
The Organization for Economic Co-operation and Development (OECD), for example, projects that the EU-27 will grow only 0.6 percent in 2012 and 1.7 percent in 2013. The forecast for the 17 eurozone economy is even worse; it is expected to slip into recession in early 2012.
The European Central Bank (ECB) said on December 8 that the economy of the 17 eurozone countries is almost stagnant, growing just 0.2 percent in the third quarter of 2011, with unemployment at 10.3 percent. It also lowered its growth projections, saying that EU-17 output could fall as much as 0.4 percent in 2012. Declining output makes the debt crisis worse by cutting tax receipts.
Nor will the Brussels summit make investors more willing to buy European government bonds, especially from countries on the southern periphery. In particular, Italy and Spain — the eurozone’s third and fourth biggest economies — are facing a huge refinancing crunch in the first part of 2012. Rome alone has a massive €150 billion ($200 billion) in debt falling due between February and April 2012. Not surprisingly, southern European bond yields are sky-high.
Some economists argue that ultimately the ECB will have to intervene more aggressively by buying large quantities of bonds of large troubled countries, in order to prevent borrowing costs for Italy, Spain, and other countries from becoming so high that they are unable to refinance their debt. But ECB President Mario Draghi says no such plan is in the works and that his only mandate is to prevent inflation.
In the final analysis, the deal announced in Brussels is unlikely to ease the financial pressures on the euro. The European debt crisis is far from over and the survival of the euro is far from certain.
But as long as the euro’s future hangs in the balance, expect European leaders to continue to exploit the crisis to consolidate more power in Brussels. They will argue: “There can be no currency union without fiscal union, and no fiscal union without political union.”