Home > Analysis, Britain, Economy, Europe, International Relations > Europe, China and the odd one out

Europe, China and the odd one out

On Wednesday night the Eurozone summit convened and passed a motion agreeing to a €1 trillion European Financial Stability Facility (EFSF) top-up. It has already become obvious that this €1 trillion fund is not enough and negotiations will now start between the Eurozone, led by Nicolas Sarkozy, and China ahead of next weeks G20 meeting. It is expected that China will supply a further €1 trillion bringing the total fund to €2 trillion.

The summit also imposed certain conditions.  Banks will be limited in paying dividends and bonuses until they meet capital thresholds of 9%, or €106bn. This is the equivalent of another HSBC. No mean feat. Britain’s banks, having been forced by the Bank of England and the FSA to raise this amount will be spared the task.

Greece’s debt will be partially written off, reducing the debt burden from 180% GDP to 120% GDP. The next woe for the Eurozone is more than likely to come from Italy. Before the summit Berlusconi, the Italian Prime Minister, declared he would resign by the new year. A welcome announcement for pretty much everyone.  For months the Italian economy has been without leadership and this was openly declared by Steinmeier in the Bundestag on Wednesday.

The situation in the Eurozone, as is evident, is not contained to the Eurozone. Britain’s largest trading partner is the Eurozone. China holds €2.4 trillion in currency reserves. If the Euro collapsed China would be stuffed. As it is, China has had to resort to boosting domestic demand in anticipation that demand in EU27 will drop off, despite an increase of China to EU27 exports of 20% in 2010. China’s help, however, will not come from China’s desire not to lose any money. It is expected, and one would be surprised if they didn’t, that China will demand that Europe acknowledge China as a market economy and thus drop some of the trade barriers on Chinese products.

Britain, in the whole situation, is the odd one out. On Sunday, Sarkozy told Cameron “You are missing a good opportunity to shut up. If you wanted a say you should have joined the euro.” On Monday, Britain was the only Parliament to debate holding an in/out/renegotiate referendum on EU Membership. The Eurosceptics of Cameron’s Conservative Party threatened to tear his party apart. In the end, only 81 Conservative MPs (including the two tellers) rebelled against Cameron’s three line whip to vote in favour of the motion calling for the referendum.

Cameron has done well to isolate Britain from the European Community, and Germany in particular. The withdrawal of the Conservative Party from the European People’s Party in 2009 in favour of setting up a right-wing bloc in the European Parliament consisting of European fringe parties from the former Soviet bloc. Since becoming Prime Minister, Cameron has moved closer to France without German involvement. France and Germany are inseparable in Europe and to snub Dr. Merkel is an unwise decision.

In the Bundestag, on Wednesday, Kauder (CDU) said : we’re prepared to reach in our pockets, but expect solidarity from Britain & agreement on financial transaction tax. Was that solidarity given? No. Osborne stated that Britain would not give any money to the EFSF but did not rule out giving indirectly via the IMF. The same result will occur – Britain will give money to the Eurozone. The route that Britain has taken, however, will only serve to further isolate the island nation.

On Thursday morning, the Daily Express jumped on comments made by Merkel in the Bundestag on Wednesday:  “If the Euro falls, so does Europe.. No one should assume that another 50 years of peace in Europe are a given.” The Express took this for an implied declaration of war, thus cooling the frosty nature that Britain currently has with Germany. Britain is fast becoming the ‘odd ball’ of Europe.

Britain’s isolationism beside, will the current round of funding to the EFSF work? In the short-term it will. In the long-term it is unlikely. As a European Federalist, tinkering with the Euro will not save it. Fiscal and further political union will save it.

Advertisements
  1. No comments yet.
  1. No trackbacks yet.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: