Posts tagged ‘Eurozone’

Low profile on Europe for UK coalition

Against the backdrop of a European economic crisis of monumental proportions, the creation of the UK’s coalition government must seem like “noises off” to other European theatre-goers. But at least the deal reached between Conservative leader David Cameron and Nick Clegg of the Liberal Democrats could provide political stability in Britain for several years and remove a potentially destabilising element in the councils of Europe.

Having said that, I don’t recall a time when Britain seemed so much apart from European affairs, so preoccupied with its own problems, terrified that the troubles of the eurozone will scupper recovery and growth in the British economy, yet unable to do anything much to help.

David Cameron’s decision to visit Paris and Berlin within ten days of becoming prime minister was a significant gesture. There are certainly bridges to build, especially following the break with the EPP in the European Parliament. Last week’s meeting between David Cameron and President Sarkozy was only the second time since June 2008 that the two had met, and any substantive discussion was put off until the French president’s state visit to London on June 18.

In Berlin Chancellor Angela Merkel provided a guard of honour and addressed her guest as Du rather than Sie. Cameron reminded her of British opposition to any new treaties, but avoided criticism of the German ban on naked short selling. It was a friendly meeting, but had none of the signs of the Anglo-German rapprochement which could be possible.

It does seem that Cameron is not yet at ease dealing with other European leaders. Indeed, reports that deputy prime minister (multi-lingual) Nick Clegg has been asked by the prime minister to strengthen the government’s personal relations with top EU politicians does make sense.

The inauguration of Britain’s Con-LibDem coalition will certainly have come as a matter of great relief to both Sarkozy and Merkel. The “programme for government” launched on May 20 confirms that any further “transfer of power” to the EU would be resisted and that a referendum would be held to ratify any new treaty, but stresses the government’s wish to be a “positive participant” in EU affairs “with the goal of ensuring that all the nations of Europe are equipped to face the challenges of the 21st century: global competitiveness, global warming and global poverty”.

Joining the euro in the life of the current parliament is, of course, specifically excluded.

The European Commission will find a definite ally on climate change, where the British coalition programme presses the EU to “demonstrate leadership” and supports a 30 per cent CO2 reduction target by 2020.

In some policy chapters the EU is notably absent.  No mention of trade, for instance, nothing on EU security and defence policy, and not a single mention of the EU under the foreign policy heading, despite unilateral commitments on the Balkans, Iran, India and China. The coalition has clearly decided to treat these issues as routine business and not to stress their EU context.

The coalition programme emphasises that cutting the budget deficit is the absolute priority of this government. Britain’s role in the world will be reassessed, which will in turn raise questions in relation to defence spending (closer co-operation with France, cancellation of orders like the A400M?), foreign policy (cut diplomatic spending and rely on a stronger EU overseas service?)  and the contribution to the EU budget, which will soon become a big political issue.

I do wonder how Baroness Ashdown feels about the whole thing as she wrestles with conflicting national demands in relation to the European External Action Service. After all, a slimmed down British diplomatic network might well demand an enhanced European capability.

Michael

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May 26, 2010 at 11:14 am 3 comments

Zero growth offers no relief in euro crisis

Zero GDP growth in the eurozone for the last quarter of 2009 and a feeble recovery in the first quarter of 2010 is not what Europe’s finance ministers might wish to hear, but that’s the latest message from the OECD.  It just shows what a challenge Europe faces in restoring the strength of public finances, most especially in Greece and other eurozone countries facing massive budget deficits.

There is certainly no sign of growth in the Greek economy. Yet without economic revival there is no way that Greece’s euro crisis can be settled.

It seems clear that the package of “support” announced by Europe’s leaders on March 25-26 will do little to resolve the crisis. The package was so hedged about with conditions that the markets have given it little credence. The spread between Greek and German interest rates on ten year bonds has continued to widen, from three to four percentage points since the summit – not a sign of market confidence.

The summit statement is more of a threat than a promise. Bringing in the IMF as the first potential source of funding echoes the family threat – “just you wait till your father comes home” – the disciplinarian who can put on the pressure which European institutions cannot. And if bilateral support is required from fellow members of the eurozone it will be offered at quite explicitly penal rates of interest, despite the fact that the high cost of borrowing is a significant element in the Greek crisis.

Many commentators have identified the summit as evidence that Germany has turned its back on European integration. Indeed, it was quite a shock to see that even Charles Grant of the Centre for European Reform, a staunch supporter of European integration, could say that “not until this year’s euro crisis did I think the EU could go backwards”. He saw the summit outcome as symptomatic of deep divisions between Germany and France, of the isolationism of Germany, and of Europe’s introspection.

The summit did confirm beyond a peradventure that there will be no economic government for Europe. Any ambitions France might have in that direction are clearly thwarted despite a commitment in the summit communiqué to strengthen economic governance. President Sarkozy presented the outcome as a triumph for Franco-German co-operation; in fact it was largely Chancellor Angela Merkel’s work.

Germany’s dominance in European affairs is evident. Berlin is now more important to Paris than Paris is to Berlin. The economic challenge of German reunification has been met and relations with Russia have become a new priority. The German constitutional court has put the brake on any federalist tendencies. People may criticise Germany for its failure to boost domestic spending, but there is little sign of any response in Berlin.

Today’s OECD report has made one politician very happy: UK prime minister Gordon Brown. He can rejoice at the news that the British economy is predicted to grow at an annual 2 per cent rate in the first quarter of 2010 and by 3.1 per cent between April and June. Not bad timing for him, just one day after calling a general election. He can also take comfort from the fact that at least Europe is not likely to pose any problems for him on May 6 election day. After all, it was he that resisted Tony Blair’s wish for the pound sterling to join the euro in 1997!

Michael

April 8, 2010 at 10:17 am Leave a comment

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