In the end, last week’s meeting of Eurozone leaders produced nothing more than an agreement to produce an agreement. Such sophistry, as has been the case several times before, was more than enough to send the stock market soaring. Yet amidst the general ineptitude, there was one defining moment: British Prime Minister David Cameron rejected the deal. Apparently one leader in Europe still believes in the idea of national sovereignty.
Mr. Cameron was excoriated for taking such a stand. “This is going to cost the UK dearly. They have antagonized everyone,” said one unnamed senior EU official. That feeling was echoed by German Chancellor Angela Merkel. “I don’t believe David Cameron was ever with us at the table,” she complained. France’s Nicolas Sarkozy was apoplectic. It was reported that the French president had to be physically restrained during a contentious ten-hour meeting in which he angrily rejected Cameron’s demand that the City of London and its single market be exempted from EU directives. Cameron wanted veto power over a financial transaction tax that can currently be approved by the EU, even if London financial institutions object. After the meeting ended, a petulant Sarkozy made a point of avoiding Cameron’s attempt to shake hands.
What has Cameron rejected? A treaty that, according to Angela Merkel, is little more than an agreement to “work towards” a series of goals aimed at stabilizing the Euro, and ending forever the debt crisis that has engulfed the 27-member union. The major objectives include a rule instituting deficit limits for all member states, automatic penalties for countries that breach those limits, and last, but certainly not least, a requirement that member states submit their budgets to EU authorities in Brussels for approval _before_ they can be debated by each nation’s parliament.
In order for this grand bargain to be realized, the remaining 26 nations must vote to approve it, a process that could take as long as three months. This seemingly undermines the original premise of the summit, billed as a necessity to quickly address the EU’s debt crisis. Furthermore, while most countries can likely steamroll approval through their legislatures, it remains to be seen if Ireland requires a public referendum to get on board.
Irish voters rejected two previous EU treaties in 2001 and 2008, delaying ratification of those treaties for years. Complicating the issue is a 1987 Irish Supreme Court ruling requiring direct ratification by the public for any treaty that would “alter the essential scope or objectives” of EU institutions. The inevitable legal hair-splitting, exacerbated by the fact that the latest agreement remains a work in progress, will do nothing to move the process along in a timely manner. Neither will the fact that two other non-Eurozone countries, the Czech Republic and Hungary, have expressed “caution” regarding the deal.
The other big decision emerging from the meeting was the replacement of the European Financial Stability Facility (EFSF) by the European Stability Mechanism (ESM). This newest permanent bailout fund was supposed to be activated in 2013, but the timetable has been moved up to July 2012. It will be capitalized with at a maximum level of $666 billion, but will not get a banking license due to German opposition.
And then there’s the International Monetary Fund (IMF). EU leaders agreed that $268 billion in bilateral loans should be provided to the IMF to address the crisis, with 75 percent of the money coming from the 17 countries that use the euro. Olivier Blanchard, the IMF’s chief economist, is pleased with the move. “The commitment to give us 200 billion euros makes a major difference in the sense that we can now go out and talk to other countries and say, ‘the Europeans have given us money, can you help?’” he contended.
What “other countries”? Not the United States, if one is to believe both the president and Senate Republicans. “Europe is wealthy enough that there’s no reason why they can’t solve this problem,” said Mr. Obama at a White House press conference last Thursday. “It’s not as if we’re talking about some impoverished country that doesn’t have any resources.”
Twenty-six Senate Republicans concur. On Friday, led by Jim DeMint (R-SC), they introduced the “No More IMF Bailouts Act.” The bill has three objectives: rescinding a $108 billion line of credit to U.S. funds given to the IMF in 2009, forcing Treasury Secretary Tim Geithner to veto future IMF bailouts, and stopping a proposed doubling of U.S. dues to the IMF.
Sen. Tom Coburn (R-OK) cut right to the heart of the issue. “Forcing American taxpayers to bail out bloated welfare states in Europe is unconscionable and immoral. It is bad enough that Congress refuses to make hard choices within our budget,” he said. “We don’t need to enable European governments to do the same. A bailout will prolong, not ease, Europe’s burdens.”
Who else is remaining on the sidelines at the moment? The European Central Bank (ECB). Last Thursday, ECB President Mario Draghi expressed ”surprise” that people assumed the ECB would make large purchases of EU debt. Diane Swonk, senior managing director and chief economist at Mesirow Financial, described the ECB’s non-committal position as “brinksmanship” designed to extract as many concessions from individual EU governments as possible before making any further large-scale bond purchases.
Yet who is kidding whom? Despite all the pie-in-the-sky pronouncements, coupled with threats of “isolation” aimed at Britain for daring to resist the “superior wisdom” of EU elitists, nothing has been done to address the _immediate_ liquidity crisis affecting both European banks and governments. The ultimate arbiter of this latest agreement will be the worldwide markets, specifically the bond markets. They will ultimately reveal whether investors, as they were last Friday, can be sold yet another pig in a poke masquerading itself as yet another grand bargain.
As for Britain, what David Cameron did is best expressed by Telegraph columnist Janet Daley. “What just happened, after all?” she writes. “We jumped off a bus that was hurtling toward a brick wall….The crash, when it comes, will be truly dreadful, and all the more tragic because a delusional European elite refused to accept its inevitability.”
David Cameron has. And on a continent currently threatened by financial Armageddon much as it was threatened with military Armageddon during WWII, a British Prime Minister remains the last defender of democracy. Who says history doesn’t repeat itself?
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