Belmont Club

"The political is personal"

Or was it the other way around? There are hard feelings in Europe over David Cameron’s failure to go along. Spiegel Online says some politicians are saying, ‘Cameron is a coward’. It adds, “prominent members of the European Parliament have strongly criticized the British prime minister and sent him a clear message: Europe doesn’t need you.” The Guardian blared, “Angela Merkel: ‘I don’t believe David Cameron was ever with us at the table'”.  Some Britons would agree. It was as if the ghost of some statesman past — but who exactly? — had taken over the corpus of Cameron, who was most assuredly at the physical table.

According to the Guardian the French had anticipated that Cameron wanted something — ‘isolated’, in the words of that newspaper — and were determined to tap into that British agenda to advance their own. The French wanted a two-speed Europe with a core of 17. The Germans wanted a single grouping of 27 “to revise the Lisbon treaty”. Unfortunately for the French, what Cameron wanted would fit into neither the Gallic nor Teutonic schemes. Cameron wanted special privileges for the City of London.

But it turned out that the French and German differences were outweighed by a bigger consideration: a determination that Britain should not use a treaty change to win special status for the City of London.

One EU source was scathing about the British tactics. “David Cameron completely misjudged these negotiations. He thought he could divide and rule Germany and France. You can sometimes do that in the EU. But you can never do that with the euro.”

Faced with this overriding threat, the French and Germans formed a united front against Britain and incidentally gave France what it most desired: a fallback to the group of 17 and and to any discussion of amending the Lisbon Treaty. “When it became clear that Britain was going to wield its veto to block a revision of the EU treaty, there was a break at 3am for coffee and fruit salad as the treaty negotiations moved into the second phase. This was a discussion on how a treaty would be agreed by the 17 eurozone members plus any other states that wanted to sign up.”

But if Sarkozy was secretly exultant, sources quoted by the Guardian suggest that his happiness will be short lived. Britain’s veto foreclosed a solution within the EU treaty but that cut both ways. It required the French and Germans to cobble together a new instrument, an intergovernmental treaty, to implement the new scheme. As Spiegel says:

The 17 euro-zone states, together with at least six and maybe as many as nine other EU countries, aim to conclude a separate stability treaty in order to defuse the debt crisis. It’s a risky step, because it is not yet clear whether the proposal can easily be implemented legally. But those member states are also sending a signal, namely that they can move forward without the British.

This has had been anticipated by the British, who appeared to calculate that a high stakes undertaken outside the current system would be reflected in market risk.

By the close of play, British officials were even more bullish. “Market carnage is possible on Monday when they realise how peripheral this treaty is outside the formal framework of the EU,” one senior figure said.

Is Cameron going to be right? Did the spirit which drove out David Cameron’s ordinary personality belong to one of his masterful predecessors at 10 Downing or one the bumblers? Time will tell. The Telegraph says “the Eurozone banking system is on the edge of collapse as major lenders begin to run out of the assets they need to keep vital funding lines open.”

“If anyone thinks things are getting better then they simply don’t understand how severe the problems are. I think a major bank could fail within weeks,” said one London-based executive at a major global bank.

Many banks, including some French, Italian and Spanish lenders, have already run out of many of the acceptable forms of collateral such as US Treasuries and other liquid securities used to finance short-term loans and have been forced to resort to lending out their gold reserves to maintain access to dollar funding.

But stocks, after closing lower in Asia, turned upward in US markets. The one, unmerciful factor against which the events of the last days will be measured is time. Will the solution embarked upon by Merkel and Sarkozy affect the markets in time to turn the tide?


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