Greek bailout sets Europe on collision course with Tories

There's an aspect of the eurozone crisis that has yet to register with the British public.

The leaders of eurozone member countries did a deal to bail out Greece for the simple and compelling reason that failure to do so would have indicated that the entire single currency project was unsustainable. It doesn't take much effort of imagination to picture how financial markets would have responded to that revelation. Few things concentrate the mind like the threat of total economic meltdown.

So, for their European leaders' ability to recognise imminent catastrophe and avoid it at the last minute two cheers at most. Greece will be allowed to default in a relatively orderly fashion; its creditors will be cajoled, bribed and strong-armed into sharing some of the pain. (A good summary, of the deal, not too laden with technical jargon, is here).

Bear in mind that a lot of Greek sovereign debt is held by European banks, so while everyone is calling this a bailout of Athens, really Germany and France are staving off a financial crisis in their domestic markets too -- indirectly they are bailing out themselves.

That fact underlies an aspect of the eurozone crisis that has yet to register with the British public. The essential flaw that has been revealed in the architecture of the single currency is the lack of institutional mechanisms to correct economic imbalances between member states. Or, in English, you can't have a currency union without much closer coordination of economic policy. In that respect, the eurosceptics were right about one big thing: this was a political project from the start, demanding something like a European federal system to work.

That is now surely what will start to emerge. The systems being put in place to bailout Greece are only meant for Greece - in theory. In reality they provide the basis for a longer term structure for transfers between euro members in difficulty. The question then becomes: what are the penalties for those members that end up needing bailing out? The answer, inevitably, is some surrender of control over economic policy. This has already happened in Greece. Athens is implementing a brutal austerity package designed according to the demands of financial markets and foreign creditors, not the will of Greek politicians or voters.

In other words, if euro members collectively want to retain some control of their economic affairs and not be constantly reacting in disorderly panic to the whim of global capital markets they need to pool more sovereignty. They need to form something like a euro finance ministry and you don't have to be a fanatical eurosceptic to see in that the birth of a euro state.

Where does that leave Britain? The EU now looks very likely to head towards the "two tier" model that some French and German politicians, endlessly frustrated by British ambivalence, have long advocated. We would have an inner core with a single currency and closer political integration and an outer layer with different money but still a single market. To many Conservatives that sounds like a dream come true -- the open trade part of the EU but without the constant nagging of Berlin and Paris to harmonise every law and policy in sight.

But the idea that Britain could customise a perfect semi-detached relationship with Europe is a bit of a fantasy. Most of out integration with Europe -- those legendary regulations that Ukip and the Tory right seem to think render us all in perpetual bondage to Brussels -- are driven by the demands to harmonise standards and thereby allow free movement of goods within the single market. In other words, forget the single currency. Even as an "outer tier" member we'd want to retain a seat at the top table in order to have a say in the drafting of regulation. Brussels as the political bogeyman wouldn't just go away -- and our relations there would be tougher because the eurozone "inner tier" countries would (quite reasonably) try to exclude Britain from all sorts of crucial decisions.

In particular, it is hard to imagine Berlin and Paris accepting the continued dominance of European finance by the City of London. There is already a lot of muttering in the City to the effect that France has tried to use the credit crunch and banking crisis as an excuse to pursue a longheld agenda of smothering Britain's competitive financial advantages in regulation. That is bound to become a fault line in the next few years as European leaders try to build new institutional remedies to the crisis out of the short-term fixes agreed in relation to Greece.

What this all means is that there is going to be (yet) another round of negotiations over political integration. Britain might want to look on from the sidelines, but it will have to get involved in some capacity. That in turn will give the Tory right ample opportunity to demand the referendum it has always wanted on the whole question of EU membership. Like it or not, this Greek bailout has started a chain of events that brings European politics to the door of 10 Downing Street, via backbench Conservative MPs in a frenzy of righteous indignation. When that happens, David Cameron will be nostalgic for the phone-hacking scandal.

Rafael Behr is political columnist at the Guardian and former political editor of the New Statesman

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Theresa May is paying the price for mismanaging Boris Johnson

The Foreign Secretary's bruised ego may end up destroying Theresa May. 

And to think that Theresa May scheduled her big speech for this Friday to make sure that Conservative party conference wouldn’t be dominated by the matter of Brexit. Now, thanks to Boris Johnson, it won’t just be her conference, but Labour’s, which is overshadowed by Brexit in general and Tory in-fighting in particular. (One imagines that the Labour leadership will find a way to cope somehow.)

May is paying the price for mismanaging Johnson during her period of political hegemony after she became leader. After he was betrayed by Michael Gove and lacking any particular faction in the parliamentary party, she brought him back from the brink of political death by making him Foreign Secretary, but also used her strength and his weakness to shrink his empire.

The Foreign Office had its responsibility for negotiating Brexit hived off to the newly-created Department for Exiting the European Union (Dexeu) and for navigating post-Brexit trade deals to the Department of International Trade. Johnson was given control of one of the great offices of state, but with no responsibility at all for the greatest foreign policy challenge since the Second World War.

Adding to his discomfort, the new Foreign Secretary was regularly the subject of jokes from the Prime Minister and cabinet colleagues. May likened him to a dog that had to be put down. Philip Hammond quipped about him during his joke-fuelled 2017 Budget. All of which gave Johnson’s allies the impression that Johnson-hunting was a licensed sport as far as Downing Street was concerned. He was then shut out of the election campaign and has continued to be a marginalised figure even as the disappointing election result forced May to involve the wider cabinet in policymaking.

His sense of exclusion from the discussions around May’s Florence speech only added to his sense of isolation. May forgot that if you aren’t going to kill, don’t wound: now, thanks to her lost majority, she can’t afford to put any of the Brexiteers out in the cold, and Johnson is once again where he wants to be: centre-stage. 

Stephen Bush is special correspondent at the New Statesman. His daily briefing, Morning Call, provides a quick and essential guide to domestic and global politics.