Last Friday, David Cameron came back from Brussels having rejected proposals to draft a new European Union treaty, having failed to get promises of adequate safeguards to protect Britain’s financial sector. But given that the UK has no veto over Brussels’ power to regulate anyway, the prima facie reasons presented to Parliament were therefore not crystal clear. However, Cameron must have been aware that ratifying a new treaty without safeguards was a non-starter, and the fact that the dominant mainland powers were not even prepared to consider them is a reflection of their lack of rational thinking rather than his. After all, they should have been briefed that any treaty changes now require a referendum under UK law, and given the EU’s self-aggrandising tendencies, any treaty changes would be a tough sell to Parliament – let alone the electorate.
What was proposed in Brussels was a typically dirigiste response to unwelcome economic reality. Perhaps the script intended was as follows: we go through the motions of imposing fiscal controls and responsibility, and that should be enough to get the European Central Bank – working with the International Monetary Fund if necessary – to release the money to continue to finance our political ambitions. This is not the direction of travel for the UK.
In political terms we are probably witnessing the end of an empire, and when such an event occurs it can be swift. Forward-thinkers need to look beyond the EU as an institution, and in this respect an alternative and as yet unrecognised future for Germany is evolving. She faces stagnant markets in Europe, declining markets in the US, but booming markets for her products in China, South East Asia and other emerging economies. Even if the eurozone does not break up, her economic motivations will lie increasingly elsewhere and the weaker EU members will remain an unwelcome burden.
Her biggest problem is France, a point not yet recognised by commentators and as yet untested in the markets. In the short-term, Sarkozy faces an election next May, which explains why he must stick like glue to Angela Merkel rather than cut government spending. But France also has to refinance the same amount of debt as the Italians before May: about €180bn, and half in the next two months. This is an impossible task without external help, because the major French banks which have always been coerced into buying French government bonds in the past are themselves in a critical condition. A short-term fix is urgently needed of which there is no sign as yet.
We have to trust that there will be a solution, but talk of treaty-change does not represent urgent action. Anyway, the French socialists, who look like winning May’s election, have said they will not ratify any new treaty – creating more doubt and uncertainty for markets. It does not take much imagination to see French bond yields rising to over 7%.
This is the mess that Cameron has disassociated himself from. It will not be long before this becomes more widely appreciated.
This article was previously published at GoldMoney.com.