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Friday, 29 June 2012

29 June 2012


You probably haven't been counting -- but I'm told that this week's meeting of EU leaders in Brussels is the 19th they've had since the debt crisis exploded. And as you'll have noticed, they haven't come up with a solution just yet.

In fact, quite the opposite. The tensions are greater, the differences deeper, the fears more profound than at any time since this whole wretched business began. And some commentators are wondering if it's not merely the survival of the euro that's at stake, but the survival of the European Union itself.

The deal they announced late last night -- to allow eurozone rescue funds to be used to prop up banks in trouble, without adding to a government's debt burden -- is unlikely to do more than offer a few days' respite. All the evidence of the past couple of years is that these mini-deals tend to be forgotten almost as soon as they've been agreed.

I remember for much of the 1990s traipsing around from EU capital to EU capital, sitting in cavernous media centres at summit meeting after summit meeting, as presidents and prime ministers drew up their master plan for a single currency that would somehow work without either political or fiscal union.

They gave the impression that they were driven by a deep conviction that political will alone would see it through. And -- for a time -- it did. What they didn't predict was that unlimited cheap credit in countries with weak economies would lead to an epidemic of rash lending (remember all those admiring articles about Ireland, the "Celtic tiger"?), which in turn would lead to a spectacular bust.

So now we are where we are. And no one -- not political leaders, nor central bankers, nor economists -- can agree on where we should go from here.

Take the idea of a European banking union, designed to coordinate banking regulation and oversight. This is how an article in The Independent summed up the current state of play: "Britain and Romania are in favour of a banking union but will not join it. France, Austria, Belgium and Cyprus want two tiers – one for the eurozone and one for the 27 EU nations. Others, including Luxembourg, would only support the idea if all 27 join it, while the Czech Republic, Denmark, Finland, Hungary, Lithuania, Netherlands and Sweden are against the plan."

If you can find a way through that little lot, there are several well-paid officials in Brussels who would love to hear from you.

So what about eurobonds, which would in effect pool eurozone debts (ie make Germany pay them off)? In an uncharacteristically colourful phrase, the German chancellor Angela Merkel has dismissed the idea outright: "Not as long as I'm alive."

Here's what she suggests instead: "We need more Europe, we need not only a monetary union, but we also need a so-called fiscal union, in other words more joint budget policy … And we need most of all a political union, that means we need to gradually give competencies to Europe and give Europe control."

The German view can be summed up easily enough: "You don't get something for nothing." If countries in trouble want help from Berlin, they'll have to offer up a chunk of sovereignty. To put it crudely, if you can't run your affairs without our help, fine, we'll run them for you.

Oh, and just in case you were thinking "Thank God the UK never joined the euro", along comes the banks' lending rate rigging scandal, described yesterday in the London financial newspaper City AM as "a disastrous own goal" for the City of London.

In the words of the paper's editor, Allister Heath: "Barclays and the entire banking industry have been badly damaged by the Libor manipulation scandal – and this time it is entirely a crisis of their own making … The City’s reputation as a trustworthy marketplace will take years to recover."

So you have moves in the eurozone to devise a system of greater oversight for banks and other financial institutions. You have a London financial services industry that makes a substantial contribution to the nation's wealth, now embroiled in a series of scandals (you haven't forgotten the NatWest IT melt-down, have you?) -- and a British prime minister who, because the UK is outside the eurozone, may find it increasingly difficult to make his voice heard when these things are discussed in Brussels.

At one time, there was much talk of creating a "variable geometry" Europe, with different nations opting in to different bits of the Union. John Major and Douglas Hurd were great proponents of the idea -- and with the passage of time, it may well look as if they were considerably more perceptive than their more mainstream EU colleagues.

If you want me to predict how this is all going to end, well, sorry, I can't. But I'm in good company: the respected constitutional historian Vernon Bogdanor ended an article in The Guardian yesterday with these words: "No one can predict what convulsions the eurozone crisis will cause. But its political ramifications are likely to prove both massive and fundamental."

Couldn't have put it better myself.

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