The Right Opinion

David Cameron Rebuffs EU Deal

By Arnold Ahlert · Dec. 13, 2011

In the end, last week’s meeting of Eurozone leaders produced nothing more than an agreement to produce an agreement. Such sophistry, as has been the case several times before, was more than enough to send the stock market soaring. Yet amidst the general ineptitude, there was one defining moment: British Prime Minister David Cameron  rejected the deal. Apparently one leader in Europe still believes in the idea of national sovereignty.

Mr. Cameron was excoriated for taking such a stand. “This is going to cost the UK dearly. They have antagonized everyone,” said one unnamed senior EU official. That feeling was echoed by German Chancellor Angela Merkel . “I don’t believe David Cameron was ever with us at the table,” she complained. France’s Nicolas Sarkozy was apoplectic. It was reported that the French president had to be physically restrained during a contentious ten-hour meeting in which he angrily rejected Cameron’s demand that the City of London and its single market be exempted from EU directives. Cameron wanted veto power over a financial transaction tax that can currently be approved by the EU, even if London financial institutions object. After the meeting ended, a petulant Sarkozy made a point of avoiding Cameron’s attempt to shake hands.

What has Cameron rejected? A treaty that, according to Angela Merkel, is little more than an agreement to “work towards” a series of goals aimed at stabilizing the Euro, and ending forever the debt crisis that has engulfed the 27-member union. The major objectives include a rule instituting deficit limits for all member states, automatic penalties for countries that breach those limits, and last, but certainly not least, a requirement that member states submit their budgets to EU authorities in Brussels for approval before they can be debated by each nation’s parliament.

In order for this grand bargain to be realized, the remaining 26 nations must vote to approve it, a process that could take as long as three months. This seemingly undermines the original premise of the summit, billed as a necessity to quickly address the EU’s debt crisis. Furthermore, while most countries can likely steamroll approval through their legislatures, it remains to be seen if Ireland requires a public referendum to get on board.

Irish voters rejected two previous EU treaties in 2001 and 2008, delaying ratification of those treaties for years. Complicating the issue is a 1987 Irish Supreme Court ruling requiring direct ratification by the public for any treaty that would “alter the essential scope or objectives” of EU institutions. The inevitable legal hair-splitting, exacerbated by the fact that the latest agreement remains a work in progress, will do nothing to move the process along in a timely manner. Neither will the fact that two other non-Eurozone countries, the Czech Republic and Hungary, have expressed “caution” regarding the deal.

The other big decision emerging from the meeting was the replacement of the European Financial Stability Facility (EFSF) by the European Stability Mechanism (ESM). This newest permanent bailout fund was supposed to be activated in 2013, but the timetable has been moved up to July 2012. It will be capitalized with at a maximum level of $666 billion, but will not get a banking license due to German opposition.

And then there’s the International Monetary Fund (IMF). EU leaders agreed that $268 billion in bilateral loans should be provided to the IMF to address the crisis, with 75 percent of the money coming from the 17 countries that use the euro. Olivier Blanchard, the IMF’s chief economist, is pleased with the move. “The commitment to give us 200 billion euros makes a major difference in the sense that we can now go out and talk to other countries and say, ‘the Europeans have given us money, can you help?’” he contended.

What “other countries”? Not the United States, if one is to believe both the president and Senate Republicans. “Europe is wealthy enough that there’s no reason why they can’t solve this problem,” said Mr. Obama at a White House press conference last Thursday. “It’s not as if we’re talking about some impoverished country that doesn’t have any resources.”

Twenty-six Senate Republicans concur. On Friday, led by Jim DeMint (R-SC), they introduced the “No More IMF Bailouts Act." The bill has three objectives: rescinding a $108 billion line of credit to U.S. funds given to the IMF in 2009, forcing Treasury Secretary Tim Geithner to veto future IMF bailouts, and stopping a proposed doubling of U.S. dues to the IMF.

Sen. Tom Coburn (R-OK) cut right to the heart of the issue. "Forcing American taxpayers to bail out bloated welfare states in Europe is unconscionable and immoral. It is bad enough that Congress refuses to make hard choices within our budget,” he said. “We don’t need to enable European governments to do the same. A bailout will prolong, not ease, Europe’s burdens.”

Who else is remaining on the sidelines at the moment? The European Central Bank (ECB). Last Thursday, ECB President Mario Draghi expressed “surprise” that people assumed the ECB would make large purchases of EU debt. Diane Swonk, senior managing director and chief economist at Mesirow Financial, described the ECB’s non-committal position as “brinksmanship” designed to extract as many concessions from individual EU governments as possible before making any further large-scale bond purchases.

Yet who is kidding whom? Despite all the pie-in-the-sky pronouncements, coupled with threats of “isolation” aimed at Britain for daring to resist the “superior wisdom” of EU elitists, nothing has been done to address the immediate liquidity crisis affecting both European banks and governments. The ultimate arbiter of this latest agreement will be the worldwide markets, specifically the bond markets. They will ultimately reveal whether investors, as they were last Friday, can be sold yet another pig in a poke masquerading itself as yet another grand bargain.

As for Britain, what David Cameron did is best expressed by Telegraph columnist Janet Daley. “What just happened, after all?” she writes. “We jumped off a bus that was hurtling toward a brick wall….The crash, when it comes, will be truly dreadful, and all the more tragic because a delusional European elite refused to accept its inevitability.”

David Cameron has. And on a continent currently threatened by financial Armageddon much as it was threatened with military Armageddon during WWII, a British Prime Minister remains the last defender of democracy. Who says history doesn’t repeat itself?


cornell said:

Thank you for this brilliant essay and explication.

Tuesday, December 13, 2011 at 10:34 AM

Paul Pflimlin said:

When The Euro--peons began thinking about a curency that might compete with the dollar they could have saved them some grief if only the Germans and French had agreed on a common curency system from the Franc and Mark. They would have eventualy found out that it wouldn't work due to the different work ethics,life styles and political systems. The five PIIGS gave the EU. an early warning to asign one person to each country with the power to veto any expeditures that would increase their indebtedness but the EU. was not structured that way.

Tuesday, December 13, 2011 at 3:17 PM

RedBaker in Florida said:

Euro-peons - I love that, Paul!The 'Peon politicians are busy trying to save socialism while selling out the sovreignty of the own nations. I'm glad Cameron won't go along, but note that every other 'Peon politician does go along. They are shocked, shocked, that anyone would have the gall to resist the Collective. Euro-peon nations are deeply in debt on average, something over 400% of GDP debt in government, company, and personal debt. That debt cannot ever be repaid. There will be massive defaults, bankruptcy, economic collapse, and depression. When interest rates soar after money is printed, nations will collapse economically. The US is only slightly better at 300%.

Tuesday, December 13, 2011 at 4:57 PM

gerry sinclair said:

Cohen in the NYT times yesterday wrote an article on this which in my opinion was terrible journalism, so I commented which they published and so far my comments have attracted 10 hands up.I reproduce it below for interest.A comment not long after mine from J of London attrracted even more, 16 hand ups, and he basically said that every comment defending Cameron was rational & well thought through, whilst all those against were simply mouthing ideology - sort of an overview of the current state of USA politics too isnt it?"gerry sinclairgold coast, australia From Australia I dont think Cameron had any option and unlike the writer my disipline being economics, I think there is much more than a fifty/fifty chance will prove the decision will prove best for Britain, and maybe even Europe in the medium to long term.I think the alluding to the stereotype conservative Englishman as being a dinosaur of the past is insulting, inaccurate and shows up the writers own (not for the first time) dinosaur membership of the Kumbaya marxist/socialist/ideological nonsense club.The fact is as many have pointed out is that the 'City' is an incredibly important part of the UK economy, the "invisibles" in the British acccounts generated by City activity have long compensated and sometime more than compensated for Britain's negative trade balance.To suggest that hard headed thinking was not involved in this decision is just typical of left wingers not having the ability to face or process facts, and really highlights how many journalists and commenatators are economically illiterate at even the simplest of levels.Dec. 14, 2011 at 2:27 a.m.Recommend10Share this on FacebookShare this on Twitter

Tuesday, December 13, 2011 at 5:00 PM

pmb said:

It is interesting that the Mosaic law calls for a year of Jubillie (sp?) every fifty years, when ALL debt is forgiven. There does not seem to be any historical record of one actually taking place. This is in the same area of the law as the required husbanding of farm resources, such as every seven years leaving the fields fallow.An approaching year of debt forgiveness would lead to a more conservative approach to lending, when you consider that anything owed to you is gone on some known future date. If we knew that on some known future date all debt would be struck from the books, a universal default so to speak, we would be a lot more careful about loaning money over long and open ended terms.

Thursday, December 15, 2011 at 8:10 AM