Eu

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.

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.

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.

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.

David Rennie (aka The Economist's Bagehot) has an excellent column in this week's issue about the difficulties that Britain will face if she tries to repatriate powers from the EU. His main argument, having spoken to a number of senior German politicians and officials, is that if Britain holds up any treaty revisions in the hope of extracting concessions in return, then the other EU states will organise themselves without the UK. The Economist's former Brussels correspondent also makes the key point that the 10 countries that are outside of the euro are not natural allies for the UK – some, like Denmark, do not want to join the euro, but others such as Poland are keen.

Confusion has reigned today in Athens, clouding the first day of the G20 summit in Cannes. Reports at midday that the Greek Prime Minister was to resign turned out to be false. Papandreou's staying put, for now at least. Instead, it seems there will be no referendum on Greece's bailout package. In a sharp reversal, Papandreou reportedly told his Cabinet: "The referendum was never an end in itself. We had a dilemma – either true assent or a referendum. I said yesterday, if the assent were there, we would not need a referendum." It seems he may have gained that assent, in that the opposition New Democracy party will support the deal. But they are still calling for Papandreou's resignation and for elections to be held in six weeks' time.