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Sunday, December 11, 2011

The Lib Dems and Europe - a crisis or a massive overreaction?

Having taken some time to reflect on David Cameron's European veto my instincts are that Nick Clegg's initial public reaction that the Prime Minister had no choice was the correct one, and that what we are being told now about the Deputy Prime Minister privately raging at the PM's 'spectacular failure' is a differentiation too far.

Cameron's problem of course, as Eurfyl ap Gwilym points out in the Western Mail, is that in the UK in 2010 bank assets as a percentage of GDP are 550%. This compares to the United States where the percentage is 100% of GDP: "Between 1999 and 2007, the year before the banking implosion, the proportion of wealth generated in London by financial services grew from 11% to 18%."

That needs to change and it is already the stated intention of the UK to grow the manufacturing and construction sectors. However, the veto exercised by Cameron was a recognition of the economic reality not a defence of the status quo.

Surely, even the most ardent Europhile must recognise that it is not in Britain's best interests to sign up to a treaty that would undermine local budgeting decisions and which would prevent us from taking our own decisions on the way we manage our economy. If we had wanted that we would have joined the Euro.

This was not about defending the banks and the financial sector, it was about leaving us the room for manoeuvre to manage the rebalancing of the British economy in our own way and in our own time.

I think those who are raging against this veto need to take a reality check. We may not be part of the new European fiscal club but we are still in Europe and part of the single market. We continue to enjoy all the benefits of that, including substantial funding for regeneration and access to markets for British goods.

The fact is that when we took the decision not to join the Euro, for better or worse, we signed up to a two speed Europe in which we formed part of a 10 member outer ring. That nine of those members have, for the time being, joined into this new treaty does not alter that reality either. I suspect in any case, that they will go so far with German and French plans and no further, and then start to drift back to somewhere near the British position.

Very few people in Britain are advocating that we now join the Euro, and indeed, most of us have watched with morbid fascination as the single currency unravels before our eyes, simply because key decisions on fiscal management were not taken or adhered to at the very beginning.

I suggest that despite my earlier position on the Euro, we are fortunate not to be part of this project and that we would need to think very carefully before signing up to it in the future.

I still think that we can benefit from a single currency, but Greece and Italy are salutary lessons about what happens if we get the terms of entry and the operational details wrong. The present state of the UK economy does not lend itself to membership. Until it has been rebalanced then the single currency has to be off the British agenda.

When Cameron exercised his veto he had to take all that into account and, despite all the criticism from Labour and many Liberal Democrats, I am still waiting for somebody to actually put forward an alternative way that he might have handled this situation.
Well said, Peter.
As far as I can see, Cameron wasn't being asked to sign up to fiscal union or a new stability pact. He was being asked to sign an agreement that would allow the Eurozone countries to do this. Sanctions would not have applied to the UK as the UK is not in the Eurozone.

All this talk of 'reasonable demands' and 'only looking for safeguards' ignores that Cameron was trying to reverse previously agreed integration, i.e. repatriate powers, on an issue that had little to do with the agreement being discussed.

It may be that the government had no choice on Friday, but why on Earth did we get into that position? This wasn't just a failure of one night's diplomacy, it has been playing out over months. Britain has failed to make its case and build the alliances required.

I'm pleased with the stories coming from the Lib Dem leadership this morning, because the party has to show that it would do things differently and it's not going to let Cameron destroy our influence in Europe for the sake of keeping his party together. In the next reshuffle perhaps one of the Lib Dem demands should be Nick Clegg for foreign secretary?
Cameron went into the summit with no intention of securing a deal. His strategy is to try and force a collapse of the coalition to allow him to go to the country and get returned with an absolute majority which will then allow him to hold a referendum on membership of the EU, and he will blame it all on the LibDems. This has been clear ever since he took his MEPs out of the EPP some years ago. Wake up, Peter!
The case of Greece is completely different from that of Italy, which has a primary surplus. I'm afraid you seemed to have missed the financial warfare waged by Chancellor Merkel.
(see post http://paswonky.blogspot.com/2011/12/eurocrisis.html)
Now that the world economy is so interconnected, not 'getting Europe', means not getting economics. Cameron was reckless in an attempt to appease his party which is stuck in 1648. Had he been a leader, he would have been there arguing for growth instead of austerity (shame he doesn't get Keynes), against the absurd fiscal probity being imposed by Germany, and he would have been a player in what is an international crisis. The euro is a strong currency which is not in crisis, states are. The economy is post-national, European states need to grow up and think big if they don't want to plunge all of us into a depression. Being in the euro or not is a mere formality. By being outside Britain has lost the opportunity to create a fairer Europe with more democratic institution and real fiscal union. Britain has also lost influence not only in Europe but in the whole world (see post http://paswonky.blogspot.com/2011/12/euro-sovereignty-and-capitalism.html).
Now what are you going to say after Clegg has changed his mind are you going to stick with Cameron......
Robert, I don't care what Cameron or Clegg think or say. My opinion is set out above as far as the current circumstances stand and I am sticking to it.

David, I see no evidence that Cameron has such a strategy. Remember he agreed his negotiating stance with Clegg. It is not in his interests to force an early General Election.

Francesca, I have not missed the warfare waged by Merkel, which is another reason Cameron was right to stand up to her. I understand that the World is interconnected but actually Britain's relationship to the European economy is little different today than it was last week.

The fact is that the decision to stay out of the Euro was the key point here and that, more than anything Cameron did last week, defines our economic and foreign policies. You can hardly blame the current government for us being outside the Eurozone.

As for Keynes, are you really arguing that we should be blindly following an economist who was writing when Britain was on the gold standard and subsequently when we were rebuilding after World War Two? If we had been so in hock to Keynes then we would have been building up a surplus in the good times to cover the recessionary periods. Instead Labour ran a public spending deficit every year from 2002 onwards.

As you say the World economy has moved on and is much more interconnected. I suspect that if Keynes had been writing today he would have taken a different approach.

The fact is that the British economy is growing, though not as fast as anybody would hope and the UK coalition has been borrowing more and spending more to facilitate that. Its problem is balancing that activity against the need for deficit reduction, an act made necessary by the inter-connectivity of the World economy, making Britain subject to the whims of the financial markets, a position worsened by its own imbalanced economy.

Martin, you may be pleased with the stories coming from the Lib Dem leadership, I am not. They make us look weak and indecisive. Clegg's mixed messages on this are losing us support on all sides of the European debate.
"Clegg's mixed messages on this are losing us support on all sides of the European debate."

You've been overtaken by UKIP, I gather - the ultimate humilation.

"the UK coalition has been borrowing more and spending more to facilitate that. Its problem is balancing that activity against the need for deficit reduction.."

It is having to borrow an extra £111bn over the next four years because of the failure to stimulate the economy and the growth in unemployment. The deficit is now increasing at a faster rate.

This is not to mention the creation of £275bn by the BoE to dig the government out of its dire predicament.

As far as I can see the LibDems are between a rock and a hard place - shackled to the Tories who are steering the UK towards the middle of the North Atlantic and a massive iceberg.

Unfortunately the SS UK is already shipping water - the Titanic would have a better chance of remaining afloat.
I think you find that even if you take opinion polls seriously, which I don't, UKIP are still behind the Lib Dems and the elections are in any case 3 and a half years away.

The problems of the UK economy are structural and will take time to turn around. The mess left behind by Labour was more deep-rooted than anticipated. Nevertheless, I disagree that we are sinking. Even the most pessimistic predictions show growth, albeit small.
I think the spin that was put on Cameron's performance was more damaging than the outcome of Brussels. In turn, that was probably pre-determined and there was little that Cameron could have done.

It does worry that some of our natural allies in the democratic north of the EU have sided with the majority. We are also in for a rough ride in both the Council and Parliament for a month or if Sharon Bowles and other MEPs' warnings about revenge attacks are to be believed.
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