Cameron is a spectator at euro endgame

Any deal will have "Made in Germany" stamped all over it.

It appears that European leaders are finally mobilising the political will required to save the single currency from collapsing. German Chancellor Angela Merkel's speech to the Bundestag today signals clear recognition that institutional reform, binding euro member states into a very different model of fiscal integration, is the only outcome that will persuade markets that the whole project is sustainable.

Last night Nicolas Sarkozy also made a speech suggesting he was moving towards the Merkel position.

The French President said, in effect, that he will work with the German Chancellor to establish a more rigorous system of European governance. He rejected the idea that this meant a new "supranational" model, but he seems to have accepted the principle of automatic sanctions, imposed by a European institution, against single currency members that break the rules of budget discipline originally laid down in the founding Stability and Growth pact.

For months it has been clear that market turmoil would not subside until euro zone leaders agreed clear proposals to express economic solidarity on the level of institutional reform.

Crudely speaking, Germany would have to put its economy up as collateral for debt accrued by weaker member states. In exchange, the indebted countries would have to submit their budgets to scrutiny by European institutions - the European Central Bank (ECB) or some beefed up administrative cadre running the European Financial Stability Facility (EFSF). Ultimately that kind of arrangement leads towards the establishment of a prototype European Finance Ministry.

In any case, the choice is between a new pact that creates the basis for an integrated hardcore eurozone or the catastrophic collapse of the single currency.

Over recent weeks there has been a lot of speculation about Angela Merkel's behaviour through the crisis, and why she appears to have let things get to such an extreme point. Germany has come in for a lot of criticism for withholding permission for the ECB to take action to inject liquidity into the market and, if necessary, buy up debt that the market has rejected. She now seems to be relenting on that front, but her preferred sequence of events is still political agreement on reform preceding full-scale ECB intervention.

A popular interpretation is that she does not have enough domestic political support to encourage measures that look like an abandonment of Germany's cherished attachment to monetary discipline - the tradition of the mighty old Deutschmark. This in turn is said to stem from the deep scars left in the German psyche by the hyperinflation of the inter-War years and all the terrible things that followed from the collapse of the Weimar Republic.

But there is another interpretation, less commonly discussed but no less plausible. It is that Merkel has been withholding support for interim and ad hoc measures to increase the pressure on other European states to find a longer term political solution. In other words, she has waited for other European leaders to be so freaked out by the prospect of euro collapse that they will agree to reform the EU on German terms.

It seems to be working, but it is extraordinarily risky. If the whole thing falls apart, Merkel will get a large portion of the blame. If, however, a political deal is done at one minute to midnight and the result is a new stability pact with "Made in Germany" written all over it, Merkel just might have pulled off a most extraordinary act of diplomatic brinksmanship. It looks like a game of chicken between Germany and the rest of Europe where the penalty, if neither side budges in time, is financial apocalypse.

This is all quite bad news for David Cameron. He has accepted the logic of eurozone fiscal integration for the sensible and pragmatic reason that anything less would risk a systemic banking crisis across Europe. (An indication of the threat: a Treasury official told me earlier this week that contingency plans include anticipation of financial failure on a scale that would require nationalising UK banks.)

But given the extreme urgency of the situation, and the fact that Britain is not a euro member, Cameron's hopes of getting some quid pro quo for supporting a new treaty are receding from view. Changes are now very likely to be agreed among the 17 single currency members, which means the UK would not have a potential veto that might be used to extract concessions. In any case, under the circumstances it would be diplomatic lunacy to start impeding crisis resolution now with frankly irrelevant calls for "repatriation of powers" demanded by Tory backbenchers. Cameron is meeting Sarkozy today, but it is far from clear what he thinks he can get out of the talks.

The bottom line is that Cameron is a spectator. The most he can hope for is vague assurances that the single market will not be skewed or undermined by eurozone consolidation. That is no good to the Tory eurosceptics and they will be, I suspect, very unimpressed by their leader's inability to turn this crisis into an opportunity to redefine Britain's relationship with the EU. It will be redefined of course - just not on British terms.

 

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

Getty.
Show Hide image

Hannan Fodder: This week, Daniel Hannan gets his excuses in early

I didn't do it. 

Since Daniel Hannan, a formerly obscure MEP, has emerged as the anointed intellectual of the Brexit elite, The Staggers is charting his ascendancy...

When I started this column, there were some nay-sayers talking Britain down by doubting that I was seriously going to write about Daniel Hannan every week. Surely no one could be that obsessed with the activities of one obscure MEP? And surely no politician could say enough ludicrous things to be worthy of such an obsession?

They were wrong, on both counts. Daniel and I are as one on this: Leave and Remain, working hand in glove to deliver on our shared national mission. There’s a lesson there for my fellow Remoaners, I’m sure.

Anyway. It’s week three, and just as I was worrying what I might write this week, Dan has ridden to the rescue by writing not one but two columns making the same argument – using, indeed, many of the exact same phrases (“not a club, but a protection racket”). Like all the most effective political campaigns, Dan has a message of the week.

First up, on Monday, there was this headline, in the conservative American journal, the Washington Examiner:

“Why Brexit should work out for everyone”

And yesterday, there was his column on Conservative Home:

“We will get a good deal – because rational self-interest will overcome the Eurocrats’ fury”

The message of the two columns is straightforward: cooler heads will prevail. Britain wants an amicable separation. The EU needs Britain’s military strength and budget contributions, and both sides want to keep the single market intact.

The Con Home piece makes the further argument that it’s only the Eurocrats who want to be hardline about this. National governments – who have to answer to actual electorates – will be more willing to negotiate.

And so, for all the bluster now, Theresa May and Donald Tusk will be skipping through a meadow, arm in arm, before the year is out.

Before we go any further, I have a confession: I found myself nodding along with some of this. Yes, of course it’s in nobody’s interests to create unnecessary enmity between Britain and the continent. Of course no one will want to crash the economy. Of course.

I’ve been told by friends on the centre-right that Hannan has a compelling, faintly hypnotic quality when he speaks and, in retrospect, this brief moment of finding myself half-agreeing with him scares the living shit out of me. So from this point on, I’d like everyone to keep an eye on me in case I start going weird, and to give me a sharp whack round the back of the head if you ever catch me starting a tweet with the word, “Friends-”.

Anyway. Shortly after reading things, reality began to dawn for me in a way it apparently hasn’t for Daniel Hannan, and I began cataloguing the ways in which his argument is stupid.

Problem number one: Remarkably for a man who’s been in the European Parliament for nearly two decades, he’s misunderstood the EU. He notes that “deeper integration can be more like a religious dogma than a political creed”, but entirely misses the reason for this. For many Europeans, especially those from countries which didn’t have as much fun in the Second World War as Britain did, the EU, for all its myriad flaws, is something to which they feel an emotional attachment: not their country, but not something entirely separate from it either.

Consequently, it’s neither a club, nor a “protection racket”: it’s more akin to a family. A rational and sensible Brexit will be difficult for the exact same reasons that so few divorcing couples rationally agree not to bother wasting money on lawyers: because the very act of leaving feels like a betrayal.

Or, to put it more concisely, courtesy of Buzzfeed’s Marie Le Conte:

Problem number two: even if everyone was to negotiate purely in terms of rational interest, our interests are not the same. The over-riding goal of German policy for decades has been to hold the EU together, even if that creates other problems. (Exhibit A: Greece.) So there’s at least a chance that the German leadership will genuinely see deterring more departures as more important than mutual prosperity or a good relationship with Britain.

And France, whose presidential candidates are lining up to give Britain a kicking, is mysteriously not mentioned anywhere in either of Daniel’s columns, presumably because doing so would undermine his argument.

So – the list of priorities Hannan describes may look rational from a British perspective. Unfortunately, though, the people on the other side of the negotiating table won’t have a British perspective.

Problem number three is this line from the Con Home piece:

“Might it truly be more interested in deterring states from leaving than in promoting the welfare of its peoples? If so, there surely can be no further doubt that we were right to opt out.”

If there any rhetorical technique more skin-crawlingly horrible, than, “Your response to my behaviour justifies my behaviour”?

I could go on, about how there’s no reason to think that Daniel’s relatively gentle vision of Brexit is shared by Nigel Farage, UKIP, or a significant number of those who voted Leave. Or about the polls which show that, far from the EU’s response to the referendum pushing more European nations towards the door, support for the union has actually spiked since the referendum – that Britain has become not a beacon of hope but a cautionary tale.

But I’m running out of words, and there’ll be other chances to explore such things. So instead I’m going to end on this:

Hannan’s argument – that only an irrational Europe would not deliver a good Brexit – is remarkably, parodically self-serving. It allows him to believe that, if Brexit goes horribly wrong, well, it must all be the fault of those inflexible Eurocrats, mustn’t it? It can’t possibly be because Brexit was a bad idea in the first place, or because liberal Leavers used nasty, populist ones to achieve their goals.

Read today, there are elements of Hannan’s columns that are compelling, even persuasive. From the perspective of 2020, I fear, they might simply read like one long explanation of why nothing that has happened since will have been his fault.

Jonn Elledge is the editor of the New Statesman's sister site CityMetric. He is on Twitter, far too much, as @JonnElledge.