The UK can now claim to be No.1 in Europe… for inflation. Further to Tuesday's figures, the EU has now updated its own spreadsheet. And this is what it shows: We've been hovering around the top for a year or so, but now we've finally touched the summit. Let's see if we start to plummet down again, as the Bank of England predicts.
Governing is about choices. That goes for Europe too. The government says it can get everything it wants – that's politics – but the reality is different. It actually faces a number of trade-offs, the biggest being a choice between staying in an EU that reforms but not as quickly or as dramatically as parts of the Tory party wants; or to pull out entirely from the EU. In his speech at the Lord Mayor's Banquet, the Prime Minister argued that he could both change Britain's relationship with the EU but remain inside the 27-member bloc. But I can find no serious EU expert or mandarin who believes this is actually possible. The most the PM can probably get is an opt-out from judicial cooperation.
David Cameron's speech at the Lord Mayor's Banquet last night was a significant moment — the clearest articulation yet of his European Policy. In the crucial paragraph, he declared: 'we sceptics have a vital point. We should look sceptically at grand plans and utopian visions. We’ve a right to ask what the European Union should and shouldn’t do and change it accordingly. As I said, change brings opportunities. An opportunity to begin to refashion the EU so it better serves this nation’s interests and the interests of its other 26 nations too. An opportunity, in Britain’s case, for powers to ebb back instead of flow away and for the European Union to focus on what really matters.
I'm in Italy watching the bonfire of Silvio Berlusconi's vanities first hand. From the ashes, most Italians hope a stronger nation will emerge. And for this reason, faith in former EU Commissioner Mario Monti, who gave his first statement to the nation last night, seems high. Italy is not a nation on its knees, and despite the travails and troubles of the last decade, there is a sense of hope here. People want Italy to succeed and seem willing, for now, to pull together. They also have a foundation upon which to build: brands, low private debt, and a solid banking system. Crucially, President Giorgo Napolitano has also indicated that a Monti administration will have at least until April 2012, and possibly longer, to introduce reforms.
You know, having read through Douglas Alexander's Guardian article a couple of times now, and listened to his appearance on the Today programme earlier, I'm still not sure how Labour's new stance towards Europe is particularly different from the official Tory one. The shadow foreign secretary tries to suggest that Dave and George's position is reckless — ‘they seem worryingly complacent about the prospect of a two-speed Europe’ — but he goes on to echo much of it himself. And so, he suggests, ‘We should engage now with the fact that Germany is seeking treaty change and seize this opportunity to safeguard the rights of non-euro members.
José Manuel Barroso’s article in The Observer today is a plea for relevance. When you cut through the usual EU jargon, what you find is the Commission President—predictably—declaring his opposition to German talk of an inter-governmental treaty among the 17 Eurozone members. He’s also warning the smaller Eurozone states that without the Commission’s protection their interests will be trampled on by the Germans and the French. This is what he means when he writes that “all member states need to support and trust the common supranational European institutions that were created after the second world war.
Across Europe, the bien pensant are worried. They fear that the Eurocrisis could lead to the rise of populism — whatever that means — and even extremism. The spectre of the 1930s stalks a lot of discussions, as the FT's Gideon Rachman found out at a lunch with a hedge fund manager who thought the break-up of the Euro would lead to “the next Great Depression and a resurgence of Nazism”. But is there real cause for fear or is this a matter of people projecting a particular history onto the future? Economic dislocation has in the past led to populism but not uniformly, or at least not in numbers that have made a historical difference. It was not the case in the United States in the 1930s or, more recently, during Japan's ‘Lost Decade’.
Berlusconi has finally resigned – and so continues what seems to be the Arab Spring in reverse (a Gnirps Bara). In the Arab world, people rose up against undemocratic juntas and democracy ruled. In Europe, undemocratic juntas are springing up in Frankfurt opera houses and toppling democracy. All Sarkozy had to do was help the rebels who wanted to remove the targeted leader. The cover story of this week’s magazine has a piece by yours truly about the Frankfurt Group of eight people who are calling the shots. Only two members are directly elected: Sarko and Merkel (well, three if you count the Prime Minister of Luxembourg, which we shouldn't as it a population smaller than Leeds). The rest are the heads of the ECB, IMF etc.
That's a more relevant question that you might think. Despite European leaders talking for ages about the nonsensical notion of the EU 'speaking with one voice' after the Lisbon Treaty, the situation is much more confused today ever. No fewer than six people purport to speak officially for the Euro, while people actually tend to listen to two different leaders altogether. There is ECB chief Mario Draghi, but also Jose Manuel Barrosso, the Commission President; his colleague Oli Rehn, the Commissioner for Monetary Affairs; Jean-Claude Juncker, the head of the Eurogroup; Klaus Regling, head of the EFSF; and finally Herman Van Rompuy.
The New York Times has a great piece today on how banks became so exposed to the sovereign debt of European countries with a history of defaulting. Here’s the nub of the argument: “How European sovereign debt became the new subprime is a story with many culprits, including governments that borrowed beyond their means, regulators who permitted banks to treat the bonds as risk-free and investors who for too long did not make much of a distinction between the bonds of troubled economies like Greece and Italy and those issued by the rock-solid Germany. Banks had further incentive to overlook the perils of individual euro zone countries because of the fees they earned for underwriting sovereign debt sold to other investors.
The Eurocrisis has put Germany in a twofold position that it abhors. First, it has forced Germany into a much closer relationship with France than is comfortable. For German policymakers, the great thing about the post-enlargement EU, of 27 countries, was that they and France could not rule supreme — they needed to bring other states on board. Germany prefers it this way, as it dilutes France's dirigiste instincts. But recent events have reshaped Europe's decision-making system, recreating the pre-1973 model in which Paris and Berlin reigned. The second thing Berlin abhors is to dictate things to others. The catastrophes of the 20th Century forced Germany to remake itself. It is a million miles away from the helmet-wearing caricature.
A few years ago, SNP strategists coined the slogan 'independence in Europe'. They don't champion it too much now, for obvious reasons. To put it bluntly: they are in a pickle over Europe. Scotland's progress towards independence, which had seemed to be serene and almost unstoppable just a few months ago, has hit so much euro-induced turbulence over the last few days that it could be knocked off course for good. The First Minister had to fend off question and after question at Holyrood this afternoon as opposition leaders – including a notable first performance by the Tories' new Scottish leader Ruth Davidson – tried to get Salmond to answer two very simple questions.
For all the debate about Theresa May and border security, the big news has not been at Westminster today. Instead, people have been watching what is happening in Italy. For it is far from certain that Europe, or the Western world for that matter, has a bucket bigger enough to bail out a country that owes more than Greece, Ireland, Portugal and Spain do combined. As the New York Times reports, the European Central Bank is reluctant to step in and start buying Italian bonds because it fears that its previous bond buying efforts have simply enabled the Italians to avoid necessary reforms. It feels that only market pressure will make the Italians actually act. But this is a dangerous game to play because if Italy falls, France will be left teetering on the brink. BNP Paribas has 12.
As Italy and Greece implode, and the pressure increases for Germany to do something, anything, Angela Merkel has made a call for 'structural changes' in the EU. In other words, in what's bound to get eurosceptics' hackles up, she's pressing for Treaty change and an even more tightly-knit union. At a conference known as Falling Walls, which commemorates the end of the Berlin Wall, she said: 'This is the time for a breakthrough to a new Europe. This is a time for a change toward more sustainability. That is the problem we have to contend with in Europe. And that means it is about more than declarations of intent but rather implementing structural changes.
George Osborne’s attack on the European Commission and his fellow finance ministers, for wasting time talking about a financial transactions tax when it is not going to happen, is quite a significant moment. It marks an attempt by Britain to knock this idea, which would hit this country far harder than anywhere else in Europe, off the agenda. The Treasury, the Foreign Office and Number 10 have become increasingly exasperated about how this issue keeps coming up again and again. This feeling has been intensified by the fact that this issue is being discussed even as the crisis in the Eurozone is worsening by the hour.
While all eyes are fixed on Italy's ever-increasing borrowing rates, a far larger problem may well be emerging. The EU bailout fund, set up to help countries who can't borrow, may itself have trouble borrowing very soon. A sale this morning of 10-year bonds by the European Financial Stability Facility (EFSF) had a very muted response, barely bringing in the €3 billion it was meant to. This despite the fact that the offer was priced at a much more enticing yield, some 90 basis points (or 0.9 percentage points in non-market lingo) above a previous sale. Mind you, that's better than last week's sale, which had to be postponed due to lack of interest. The EFSF was set up as a fund that lends to eurozone companies that are finding it hard to raise money.
If the EU comes crashing down as a result of the Euro crisis, one thing is certain: the UK will be at the forefront of re-creating the bloc. Not exactly the way it is now, but not a totally different entity either. The reasons for this are three-fold, simple and are about Britain's interests. First, Britain derives benefits from being part of, and determining the rules for, the world's largest market. When the world is entering a "no-Doha" future, where pressure for protectionism will rise, there is no substitute for access to a relatively open market of some 400 million people. Neither transatlantic trade, commerce with the Commonwealth or links with the BRICS can substitute for it. Check the figures.
The word sweeping across Italy is that the PM may be forced to step down in a matter of hours, even "minutes". Ex-minister Giuliano Ferrara says: "That Silvio Berlusconi is about to resign is clear. It is a question of hours, some say of minutes." And he couldn't leave too soon. The Italian bond yield busted the 6.5 per cent threshold to reach 6.58 per cent this morning. It's now close to what some traders call "bailout territory". News of Berlusconi's imminent resignation has sent Italian stocks soaring though – the FTSE MIB is up 2.4 per cent. Berlusconi's scandal-ridden premiership and bunga-bunga antics have caused political deadlock in Rome and stalled the path of much-needed economic reform. Still, with Papandreou's "will he? won't he?
The eyes of Europe, which have been focused on Greece all week, will see a slightly brighter picture today – albeit one still engulfed in heavy fog. The good news: a new coalition government will be formed – the government of "national unity" that EU leaders wanted – to approve the bailout package ahead of new elections. Prime Minister George Papandreou will step down, following his aborted call for a referendum on the bailout terms last week. His future had been a major part of the uncertainty surrounding Greece: reports of his resigntion on both Thursday and Friday turned out to be premature, if only by a matter of days.
While the Coalition is split over Europe, Labour does not look like they are in a much better position. Ed Miliband told the BBC that he was in favour of the Euro; Ed Balls would presumably tackle anyone to avoid that becoming the party's policy. Meanwhile Douglas Alexander, Labour's brainy Shadow Foreign Secretary, has yet to make a game-changing intervention. Their predicament is obvious. Should Labour accept the narrative of renegotiation but opt for different areas to opt out of than those favoured by the Tories? Or should they, like William Borroughs, stand astride history and scream "stop", arguing for a pro-European position? Seemingly caught between the two views, the party's criticism of the government is like those two old-age pensioners in Woody Allen's joke.
