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David Cameron Falls into Sarkozy's Trap, Germany Sulks as France Gloats

Politics / Euro-Zone Dec 11, 2011 - 03:28 AM GMT

By: Mike_Shedlock

Politics

Best Financial Markets Analysis ArticleYesterday, various news agencies reported that Hungary opted out of the treaty while Sweden and Czech Republic remained "undecided". However, the latest spin is that Hungary did not opt out yet and the gang of 26 will forge ahead without the UK.


UK the "Big Loser" Having Fallen into "French Trap"?

Last evening in German Vision Prevails as Leaders Agree on Fiscal Pact the New York Times portrayed the UK as the "big loser", stating Cameron made a "poor gamble". On EU official said the UK fell into a "French Trap".

Exactly 20 years to the day after European leaders signed the treaty that led to the creation of the European Union and the euro currency, Chancellor Angela Merkel of Germany persuaded every current member of the union except Britain to endorse a new agreement calling for tighter regional oversight of government spending. The accord, approved at a summit meeting in Brussels early on Friday, would allow the European Court of Justice to strike down a member’s laws if they violate fiscal discipline.

The big loser in Brussels was Britain, which had endorsed the 1991 Maastricht Treaty on European integration but opted out of the new euro common currency to preserve its economic and monetary independence.

Prime Minister David Cameron, a Conservative and self-acknowledged “euroskeptic,” was isolated in his refusal to allow the German prescription of “more Europe” — to give teeth to fiscal pledges underpinning the euro.

Mr. Cameron was perceived as having made a poor gamble in opposing the push by Mrs. Merkel and President Nicolas Sarkozy of France, embittering relations and possibly damaging his standing at home. Though some other countries, including Denmark and Hungary, initially shared Britain’s skepticism of the German-led agreement, only Britain ultimately rejected it.

British hopes to lead an alliance of the 10 union members that do not use the euro were dashed. Mr. Cameron failed to bring along allies among the Nordic or ex-Communist nations whose membership in the bloc Britain had championed and who are usually regarded as more Atlanticist and favorable to free markets.

European officials argued that Mr. Cameron had in effect fallen into a French trap, making demands that most of his colleagues felt were unrelated to the euro zone crisis at issue. France has long desired an inner European core based on the countries that use the euro and excluding the free-market British.

Mr. Sarkozy also said he was tired of British criticism of the handling of the crisis. “I am sick of hearing every day David criticizing us,” Mr. Sarkozy said, according to one official briefed on the discussions. On Friday, as the summit meeting was breaking up, Mr. Sarkozy snubbed Mr. Cameron, brushing past his outstretched hand.

Britain Seethes, Germany Sulks, France Gloats

Reuters reports Europe pushes ahead with fiscal union, with the UK isolated alone.

Europe secured an historic agreement to draft a new treaty for deeper economic integration in the euro zone on Friday, but Britain, the region's third largest economy, refused to join the other 26 countries in a fiscal union and was left isolated.

After 10 hours of talks that ran into the early hours of Friday, Britain found itself without any allies around the table, diplomats said. All the other nine non-euro states said they wanted to take part in the fiscal union process, subject to parliamentary approval.

"Once Cameron said for sure he wasn't in, it only took minutes for the other 26 to agree that they would push ahead with an intergovernmental treaty," one senior official involved in the discussions told reporters.

One senior EU diplomat called Cameron's negotiating tactics "clumsy." Among other things, he had sought a veto on a proposed financial transaction tax, which may now be voted through by a majority over the objections of London's financial centre.

One EU diplomat summed up the outcome as: "Britain seethes, Germany sulks, and France gloats."

Cameron hinted London may now try to prevent the others from using the executive European Commission and the European Court of Justice, saying: "Clearly the institutions of the European Union belong to the European Union, they belong to the 27."

But European Council President Herman Van Rompuy, who chaired the summit, said the EU institutions would be fully involved in the new treaty, which would be signed in early March at the latest. The euro zone plus nine may hold a summit without Britain as early as January, diplomats said.

The rift may increase pressure from Eurosceptics within Cameron's Conservative party and outside it for Britain to hold a referendum on leaving the EU, which it joined in 1973. The prime minister strongly opposes such a course, which he has said would be disastrous for British interests.

Spin City

Bear in mind that UK officials will go way out of their way to downplay any and every rift in the group of 26, while simultaneously portraying the UK as a "big loser" seething in the corner in isolation.

Cameron would have lost had he given into to EMU clowns. Giving up sovereignty to a group of unelected eurozone bureaucrats would have been exactly the wrong thing to do.

One does not "lose" by refusing to give into a group of fools and thugs.

Who is the "Real Loser"?

The losers are the citizens of every country that might be roped into piss poor deals down the line by an 85% majority of  Eurocrat thugs. The last thing Eurocrat thugs want is voter referendums so they seek to reduce the chances by getting every country to cede power to a super-majority.

Meanwhile, to keep the money flowing, governments in Greece, Portugal, Spain, and Italy seem willing to do or say anything to keep the money flowing and the bond purchases going.

Germany is on the hook for this in more ways than one. As the ECB keeps bloating its balance sheet with garbage, German taxpayers are at risk, thanks to Merkel foolishly giving in to Sarkozy's insistence of "no losses for bondholders".

There are going to be losses, that I assure you. The question is who pay them?

As it stands now, Merkel sold German citizens down the river by caving into Sarkozy's demand.

It remains to be seen if Finland, the Netherlands, and other countries will go along with the 85% rule on treaty changes but they would be fools to do so.

It also remains to be seen if the German Supreme Court stands idly by an lets all of this happen as the Eurocrats have planned.

Cameron's Mistake

Cameron did not make a mistake in telling Eurocrat fools to shove it. However, he did make a huge mistake and he also painted himself into a corner by stating it would be "disastrous" for the UK to leave the EU.

Why? Disastrous for who?

The UK would get to shed arcane EU regulations on damn near everything, but especially agricultural tariffs that cost UK citizens plenty. The UK can stop sending money to the EU that goes into creating policies that further cost UK citizens money.

Whatever downside there is to leaving the EU, would be more than made up for by shedding EU bureaucracy and idiotic rules entirely.

Bazooka Math

Reuters reported ...

Two ECB sources said the bank's governing council decided on Thursday to keep bond buying limited to around 20 billion euros a week and there was no need to review the decision in the light of the summit outcome.

"You will see some further purchases but not the huge bazooka that some people in the markets and the media are awaiting," one central banker said on condition of anonymity.
Quite frankly that is a pretty damn big bazooka.

Here is the math. 20 billion * 52 = 1040 billion euros, or 1.394 trillion US dollars.

20 billion does not sound like much until you do the math. The ECB has in its power ability to monetize about half of all maturing Eurozone government debt. That is not the unlimited bazooka that Sarkozy wants, but it is a lot of firepower and as I said, European taxpayers are at risk for the entire amount.

The German Supreme court needs to put a halt to that, right here, right now

By Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List

Mike Shedlock / Mish is a registered investment advisor representative for SitkaPacific Capital Management . Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.

Visit Sitka Pacific's Account Management Page to learn more about wealth management and capital preservation strategies of Sitka Pacific.

I do weekly podcasts every Thursday on HoweStreet and a brief 7 minute segment on Saturday on CKNW AM 980 in Vancouver.

When not writing about stocks or the economy I spends a great deal of time on photography and in the garden. I have over 80 magazine and book cover credits. Some of my Wisconsin and gardening images can be seen at MichaelShedlock.com .

© 2011 Mike Shedlock, All Rights Reserved.


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