This week we have seen another example of huge ineptitude by
Nicolas Sarkozy and Angela Merkel as yet another crisis meeting ends with political agreement but damn all
else.
The economic issues in Europe are complex and like no other in the world's markets. The complication
is the Euro and the overwhelming political desire to see the single currency through despite almost any cost. Readers will
know that I have been anti the euro from the very beginning. Once being called a little Englander by one market commentator
(Incidentally I am rather proud of being called an Englander small or otherwise) but I take no pleasure in seeing my predictions
coming true.
The UK needs a strong Europe and despite the total folly of the Euro I want to see all EU States
overcome the growing crisis. It is the power houses of the European market that have to lead the way. Germany has gained enormously
from the Euro, as has France but virtually all other States have found real problems that they are hamstrung in solving. Weak
economies loaded with sovereign debt, in the aftermath of global recession and in the midst of the banking crisis have extreme
limitations for European State Governments to take measures that in the past they would have.
Devaluation of the
currency and reducing interest rates would have been natural tools in a bygone age. These are not available today. Instead
we have Germany and France bailing out other EU states with an enormous fund that is simply not big enough. In fact no fund
would be big enough as the markets will see this as an open Casino, with the house covering every bet.
Italy as we know is the largest EU State to enter the sovereign debt club. Where smaller members of the club like
Greece and Ireland could get relieve through access to the bailout fund, the Italian membership just blows the fund apart.
If Italy goes, the sovereign debt crisis will reach a new and far more dangerous level.
What do Merkel and Sarkozy
do about this?
The market has been calling for a Euro Bond answer and this makes plenty of sense. By spreading
the load across all EU States the possibility will exist for each State to have a better chance of managing their own internal
affairs. The rating agencies would gain some satisfaction from a situation that fits their expectations and this should be
reflected in their ratings. Each EU State would have its own conditions based on its individual economic situation and performance.
So those States who put in place debt reducing measures will gain more than those still with their heads in the trough expecting
a hand-out.
A further alternative, but more drastic, would be for Germany and France to leave the EU. This at least
would put all the bad eggs in one basket and leave Germany and France to grow and perhaps create a new elite tier EU market
where the weak would be in a second tier. Not likely I know!
The way it looks now is (as many of us Euro sceptics
said over ten years ago) that a European Monetary Union with a common fiscal policy and a central government is not possible.
As giving up sovereignty was always going to be an issue. Now, with Germany and France pushing the political solution it looks
like the eventual control of Europe will be a Franco/German alliance controlling all the other states. What can stop this?
Well nothing bar a war, something else that we Euro sceptics feared in 1998/9.
So while Europe burns, a
new order might be being created and this might be what's behind the rather odd smiley faces of Merkel and Sarkozy.
By Gary Wright
