Fallout from EU Summit

Britain Seethes, Germany Sulks, France Gloats; UK "Big Loser" Falls into "French Trap"?; Who is the "Real Loser"? Bazooka Math

Mish’s Global Economic Analysis,

10 December, 2011

Yesterday, various news agencies reported that Hungary opted out of the treaty while Sweden and Czech Republic remained "undecided". However, the latest spin is that Hungary did not opt out yet and the gang of 26 will forge ahead without the UK.

UK the "Big Loser" Having Fallen into "French Trap"? 

Last evening in German Vision Prevails as Leaders Agree on Fiscal Pact the New York Times portrayed the UK as the "big loser", stating Cameron made a "poor gamble". On EU official said the UK fell into a "French Trap".

Exactly 20 years to the day after European leaders signed the treaty that led to the creation of the European Union and the euro currency, Chancellor Angela Merkel of Germany persuaded every current member of the union except Britain to endorse a new agreement calling for tighter regional oversight of government spending. The accord, approved at a summit meeting in Brussels early on Friday, would allow the European Court of Justice to strike down a member’s laws if they violate fiscal discipline. 

The big loser in Brussels was Britain, which had endorsed the 1991 Maastricht Treaty on European integration but opted out of the new euro common currency to preserve its economic and monetary independence.

Prime Minister David Cameron, a Conservative and self-acknowledged “euroskeptic,” was isolated in his refusal to allow the German prescription of “more Europe” — to give teeth to fiscal pledges underpinning the euro.

Mr. Cameron was perceived as having made a poor gamble in opposing the push by Mrs. Merkel and President Nicolas Sarkozy of France, embittering relations and possibly damaging his standing at home. Though some other countries, including Denmark and Hungary, initially shared Britain’s skepticism of the German-led agreement, only Britain ultimately rejected it. 

British hopes to lead an alliance of the 10 union members that do not use the euro were dashed. Mr. Cameron failed to bring along allies among the Nordic or ex-Communist nations whose membership in the bloc Britain had championed and who are usually regarded as more Atlanticist and favorable to free markets.

European officials argued that Mr. Cameron had in effect fallen into a French trap, making demands that most of his colleagues felt were unrelated to the euro zone crisis at issue. France has long desired an inner European core based on the countries that use the euro and excluding the free-market British. 

Mr. Sarkozy also said he was tired of British criticism of the handling of the crisis. “I am sick of hearing every day David criticizing us,” Mr. Sarkozy said, according to one official briefed on the discussions. On Friday, as the summit meeting was breaking up, Mr. Sarkozy snubbed Mr. Cameron, brushing past his outstretched hand.

Britain Seethes, Germany Sulks, France Gloats

Reuters reports Europe pushes ahead with fiscal union, with the UK isolated alone.

Europe secured an historic agreement to draft a new treaty for deeper economic integration in the euro zone on Friday, but Britain, the region's third largest economy, refused to join the other 26 countries in a fiscal union and was left isolated.

After 10 hours of talks that ran into the early hours of Friday, Britain found itself without any allies around the table, diplomats said. All the other nine non-euro states said they wanted to take part in the fiscal union process, subject to parliamentary approval.

"Once Cameron said for sure he wasn't in, it only took minutes for the other 26 to agree that they would push ahead with an intergovernmental treaty," one senior official involved in the discussions told reporters.

One senior EU diplomat called Cameron's negotiating tactics "clumsy." Among other things, he had sought a veto on a proposed financial transaction tax, which may now be voted through by a majority over the objections of London's financial centre.

One EU diplomat summed up the outcome as: "Britain seethes, Germany sulks, and France gloats."

Cameron hinted London may now try to prevent the others from using the executive European Commission and the European Court of Justice, saying: "Clearly the institutions of the European Union belong to the European Union, they belong to the 27."

But European Council President Herman Van Rompuy, who chaired the summit, said the EU institutions would be fully involved in the new treaty, which would be signed in early March at the latest. The euro zone plus nine may hold a summit without Britain as early as January, diplomats said.

The rift may increase pressure from Eurosceptics within Cameron's Conservative party and outside it for Britain to hold a referendum on leaving the EU, which it joined in 1973. The prime minister strongly opposes such a course, which he has said would be disastrous for British interests.

Spin City

Bear in mind that UK officials will go way out of their way to downplay any and every rift in the group of 26, while simultaneously portraying the UK as a "big loser" seething in the corner in isolation.

Cameron would have lost had he given into to EMU clowns. Giving up sovereignty to a group of unelected eurozone bureaucrats would have been exactly the wrong thing to do.

One does not "lose" by refusing to give into a group of fools and thugs. 

Who is the "Real Loser"? 

The losers are the citizens of every country that might be roped into piss poor deals down the line by an 85% majority of  Eurocrat thugs. The last thing Eurocrat thugs want is voter referendums so they seek to reduce the chances by getting every country to cede power to a super-majority.

Meanwhile, to keep the money flowing, governments in Greece, Portugal, Spain, and Italy seem willing to do or say anything to keep the money flowing and the bond purchases going.

Germany is on the hook for this in more ways than one. As the ECB keeps bloating its balance sheet with garbage, German taxpayers are at risk, thanks to Merkel foolishly giving in to Sarkozy's insistence of "no losses for bondholders".

There are going to be losses, that I assure you. The question is who pay them?

As it stands now, Merkel sold German citizens down the river by caving into Sarkozy's demand. 

It remains to be seen if Finland, the Netherlands, and other countries will go along with the 85% rule on treaty changes but they would be fools to do so.

It also remains to be seen if the German Supreme Court stands idly by an lets all of this happen as the Eurocrats have planned.

Cameron's Mistake

Cameron did not make a mistake in telling Eurocrat fools to shove it. However, he did make a huge mistake and he also painted himself into a corner by stating it would be "disastrous" for the UK to leave the EU.

Why? Disastrous for who?

The UK would get to shed arcane EU regulations on damn near everything, but especially agricultural tariffs that cost UK citizens plenty. The UK can stop sending money to the EU that goes into creating policies that further cost UK citizens money.

Whatever downside there is to leaving the EU, would be more than made up for by shedding EU bureaucracy and idiotic rules entirely. 

Bazooka Math

Reuters reported ...

Two ECB sources said the bank's governing council decided on Thursday to keep bond buying limited to around 20 billion euros a week and there was no need to review the decision in the light of the summit outcome.

"You will see some further purchases but not the huge bazooka that some people in the markets and the media are awaiting," one central banker said on condition of anonymity.

Quite frankly that is a pretty damn big bazooka. 

Here is the math. 20 billion * 52 = 1040 billion euros, or 1.394 trillion US dollars. 

20 billion does not sound like much until you do the math. The ECB has in its power ability to monetize about half of all maturing Eurozone government debt. That is not the unlimited bazooka that Sarkozy wants, but it is a lot of firepower and as I said, European taxpayers are at risk for the entire amount.

The German Supreme court needs to put a halt to that, right here, right 

Political fallout....

Nick Clegg turns fire on David Cameron over Europe veto

Liberal Democrat leader 'furious at prime minister's tactics' as Paddy Ashdown voices fears over isolation

the Guardian, 

10 December, 2011

Nick Clegg and senior Liberal Democrats have turned dramatically on David Cameron over Europe, accusing the prime minister of endangering the interests of the British economy.

Just 24 hours after appearing to back Cameron, sources close to Clegg made clear that the deputy prime minister believed the PM had been guilty of serious negotiating failures that risked damaging the national interest, British jobs and economic growth.

Clegg's fury puts the coalition under the most severe strain since its formation 19 months ago, with Europe now seen by some MPs as a potential "deal breaker".

One source said Clegg "couldn't believe it" when he was woken at 4am in his flat in Sheffield to be told that talks on how to save the euro at the Brussels summit had "spectacularly unravelled".

Accusing Cameron of failing to play the diplomatic game effectively, the source added: "He could not believe that Cameron hadn't tried to play for more time. A menu of choices wasn't deployed as a negotiating tool but instead was presented as a take it or leave it ultimatum. That is not how he [Clegg] would have played Britain's hand."

The source said Clegg feared Britain would now be the "lonely man of Europe", with less influence, not more, for the City of London, less influence with the US and less foreign investment. "It leaves us isolated in Europe and that is not in the national interest."

The stinging rebukes reflect Clegg's recognition that he can no longer take the hits for the coalition and defend policies with which he disagrees. Instead, he has criticised Cameron in a way that will raise questions about the government's ability to last its five-year term.

Cameron refused to sign up to a revision to the Lisbon Treaty in the early hours of Friday – during a summit to save the euro – because other EU leaders would not agree to safeguards he demanded for the City and the single market. A spokeswoman for Cameron, who will address MPs in the Commons on Monday, said the outcome, which left the UK as the only one of the 27 EU nations not signing the accord, was "not ideal, but the best we could get".

She added: "We are isolated on this but on this issue it is right to be isolated." A senior Lib Dem minister said he was very angry that Cameron had put "the interests of the City above manufacturing and real jobs".

On Friday Clegg had come under heavy criticism from fellow Liberal Democrats for appearing to back the prime minister. After the summit he said Cameron's demands had been "modest and reasonable". It is understood that he later concluded that, politically, he could not be seen backing a deal that Lib Dems regard as having been forced by a group of hardline Eurosceptics.

Other Lib Dems came out to condemn what had been agreed in Brussels in the name of the coalition. Former Liberal Democrat leader Paddy Ashdown, writing in the Observer, said the coalition "must" survive in the national interest. But he said the damage had been enormous. "At a time of economic crisis, it is now more attractive for investors to go to northern France than to isolated Britain. We have tipped 38 years of British foreign policy down the drain in a single night. We have handed the referendum agenda to the Eurosceptics. We have strengthened the arguments of those who would break the union. We have diminished ourselves in Washington."

The Lib Dem peer Shirley Williams was equally robust. "It will diminish our influence far beyond Europe, in Washington, Beijing and New Delhi, capitals that value the influence they believe we have in Brussels."

Another Lib Dem peer Lord Oakeshott said Lib Dems would try to force Cameron back to Brussels to mend the damage. "Many of us were shocked and stunned on Friday. But we are now finding our voice. Nick Clegg and our Liberal Democrat leaders must force Cameron back to the negotiating table to fight for our vital interests in Europe, not leave an empty chair and Britain isolated, impotent and ignored."

Labour claimed that the UK government had deliberately tried to wreck the summit by tabling a protocol the day before demanding that single market rules no longer be subject to majority voting but open to a national veto. Labour suggested Cameron had sought to torpedo the summit. Downing Street denied this.

Shadow foreign secretary Douglas Alexander said the root of the "fateful decision" lay in Cameron's concessions to Eurosceptics during his leadership campaign in 2005, when he promised to pull the Tories out of the centre-right grouping, the European People's Party. "Ever since, he has been following his party, not leading his party on Europe."

John Kerr, the former UK permanent representative to the EU, said that even under Margaret Thatcher the country had been at the heart of negotiations over Europe. He said: "I am very puzzled that we chose to pick up the ball and leave the pitch before the game started. I'm very uneasy because I'm very worried about the empty chair."