Le Monde: ‘UK more isolated than ever’


3:32 pm - December 9th 2011

by Newswire    


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The French newspaper Le Monde today published an editorial titled ‘Great Britain is more isolated than ever‘, in French, highlighting how the UK is seen across Europe.

Here is the article, translated from French (via @mattzarb)

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These columns like Great Britain. France does not forget it did during the war. One respects its history, one admires its culture. One knows that it is democratic. We should not dismiss all that we admire: the BBC, Elizabethan poetry, rock and roll in the sixties, London concerts, Wimbledon, playing against Liverpool FC – there is an infinite list of good things across the channel, not to mention fish and chips. But on the dawn of Friday December 9th Germany, France and most of the other members of the European Union had a reason to say not to London.

The matter was, once more, to save the Euro. The plan was to change the treaty governing the rules of the current 27 member states in Europe.

The project sought to ensure budget discipline was adhered to. London recoiled at the possibility that it would lead to stricter regulation in the financial sector. The British Prime Minister, David Cameron, threatened to veto alterations to the treaty if it did not include a clause of exemption for his country.

Most of the Europeans at the meeting in Brussels refused to accept the request of London. There will not be any change to the treaty and – without the United Kingdom – a “treaty of 17” will be established with half a dozen of the other States among the ten non-members of the Eurozone.

Let’s be fair. The British are not in favour of a crisis in the Euro. They do not carry any responsibility for the impotence of the leaders of the zone to resolve their problems of sovereign debt.

But there is a reason why the British distanced themselves from a movement towards more economic integration. They do not believe in it. They do not believe in the European idea. Today, they are isolated from this project, but it appears to be more essential than ever to forge a unique entity that can compete with other centres of power in the 21st century.

There can be no regrets over what happened in Brussels. There was ambiguity at the start. At the end, the British – who entered in 1973 in what was the then European Economic Community – are no longer interested in a unique market. The remainder of the European project is of no concern to them.

The summit of Brussels traced the big lines of a better budget governance of the Eurozone. This is good, but it is not sufficient. There must compensation: directly or indirectly, and the European Central Bank must be more active in solving the crisis.

The agreement has to be finalised on Friday. Let’s wait before we judge. For, as we learned from Britain, the devil is in the detail.

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1. Leon Wolfson

He also recoiled because he realises that he couldn’t keep his pork-barrel spending either, he’d have to drop his vote-buying projects.

“The British are not in favour of a crisis in the Euro. ”

The British government is.

“But there is a reason why the British distanced themselves from a movement towards more economic integration. They do not believe in it. ”

The British right, who you are identifying with, do not. You’re speaking with 27% of the people’s voice as a majority. As usual. Moreover, the EFTA/EEA have economic convergence built in, so you’re arguing for TRUE isolation.

“it appears to be more essential than ever to forge a unique entity that can compete with other centres of power in the 21st century”

For the UK to be in complete thrall to the City, and it to drive us in bubbles where the rich benefit, while the poor starve and freeze. Moreover, it won’t work, we’re too small an economy to go it entirely alone, with trade barriers used against us.

This article was apparently posted by mistake on a left-wing site. Go figure..

It’s a pretty perceptive article on the whole, but your translation needs some work.

Au fond, les Britanniques, entrés en 1973 dans ce qui était alors la Communauté économique européenne, ne sont, dans cette affaire, intéressés que par une chose : le marché unique. Le reste du projet européen les indiffère, quand ils ne lui sont pas hostiles.

Should really be:

“Basically, the British, who in 1973 joined what was then the European Economic Community are, in this business, only interested in one thing: the single market. To the rest of the European project they are indifferent, when they aren’t actually hostile”

Which is a pretty fair summary, all things considered.

Eurozone economic policy has been almost consistently behind the curve – which is one reason why British sentiments are very cautious about letting the EU set financial regulations for the London financial markets. There is a deeply embedded belief in Britain that they don’t realy know what they are doing because of deeply embedded economic illiteracy – which is the reason that Eurozone economics are in the mess that they manifestly are.

There was and is an extensive academic literature on the economic conditions necessary for a stable and sustainable currency union which was ignored or went unread because it was regarded as heretical. One EU Commssion official – Bernard Connolly – was sacked in 1995, effectively for raising difficult questions about monetary union. It wasn’t possible to have informed constructive debate so we are where we are now.

Delors has recently complained that the best laid plans for the launch of the Euro, from the time when he was President of the EU Commission, were ignored. By the Maastricht Treaty convergence criteria, only Luxembourg was eligible to join. All that was “overlooked” because of intoxicating euphoria about European integration.

4. Leon Wolfson

@3 – Oh yes, so wonderful that we have a City which crashed, and which you and your Tories are determined to allow to crash again, taking even more of the poor with it. None of the 1% will really be hurt, after all.

Probably be deleted anyway given Sunny’s policy against dissent, of course.

@4: “Oh yes, so wonderful that we have a City which crashed, and which you and your Tories are determined to allow to crash again, taking even more of the poor with it. None of the 1% will really be hurt, after all.”

That is incoherent nonsense.

Given the policy mess in the Eurozone, there is no logical reason to suppose that its regulation of financial services will be any better than in Britain or – importantly – that the regulation will be in British interests and not to promote the development of rival financial centres elsewhere in Europe.

The New Labour governments fostered Britain’s dependence on financial services to fund its public expenditure programme. Many have since expressed pious aspirations about reducing that dependence but, so far, no one has come up with any credible set of policy proposals as to how that is to be achieved. I’m not holding my breath.

6. Leon Wolfson

Of course not, that would require you recognise policy in the first place if it bit you.

It’s quite clear you’re happy for financial services bubbles to grow unhindered.

Leon: “It’s quite clear you’re happy for financial services bubbles to grow unhindered.”

That’s more mendacious nonsense.

In previous threads, I’ve been highly critical of banks and bankers’ bonuses which stoked the appetite of banks for investing in high risk assets – but we can blame that on the New Labour government which did nothing to rein in the house-price bubble despite expert warnings going back to 2002. In fact, GB encouraged the bubble by switching the Bank of England’s inflation target in February 2004 from RPI – which included an element for housing costs – to the CPI index which didn’t.

New Labour was delighted to have those buoyant tax revenues generated by financial services to fund the government’s ambitious spending programmes for healthcare and education.

If ever you analyse it, you’ll find the Thatcher governments of the 1980s were much bigger and wetter spenders on supporting industry than ever New Labour was. We are reaping the consequences of that. NL now expresses pious aspirations about rebalancing Britain’s economy but without producing any credible policy proposals on how to achieve that.

But none of that provides any rationale as to why we should repose any faith in the competence of the EU to regulate financial markets. What has happened in the Eurozone todate gives us persuasive reasons as to why we should have no faith at all.

8. So Much For Subtlety

Let’s be fair. The British are not in favour of a crisis in the Euro. They do not carry any responsibility for the impotence of the leaders of the zone to resolve their problems of sovereign debt.

Indeed. But what they should also recognise is not only would the Financial Trades Tax be a disaster for the British economy, it will also be a disaster for the European economies. As it will reduce economic activity and revenue.

Britain is right to stay out of it.

If they wanted Britain to be involved, they should have granted British an opt-out. That is where the real political incompetence lies. They will cripple their own economies and enrich Britain’s either way. So why pick the fight?

@8 – No, they will ensure the UK doesn’t benefit. Our spitting in their faces has ensured that. Among other things, will stand us with in QMV on the elements of it covered under that?

You are, as usual, running round in circles yelling “I love bubbles”, while hugging traders. After all, only the 99% get seriously hurt by the crashes, the 1% have diversified portfolios.

@9: “You are, as usual, running round in circles yelling “I love bubbles”, while hugging traders. After all, only the 99% get seriously hurt by the crashes, the 1% have diversified portfolios.”

That’s more rubbish – yet another dumb contribution on a subject you patently know little about. I’ve been concerned about Britain’s inflating house-price bubble ever since reading the warnings of Charles Goodhart and Roger Bootle back in 2002/03 – I’ve often posted links.

It was mooted as to whether tighter financial regulations in Britain on mortgage loans and personal credit could have prevented the house-price bubble as well as household debts from rising to 160 pc of household incomes – from 102 pc at the start of the New Labour government in 1997 according to ONS figures.

The inhibiting factor was and is that financial markets are now so flexible and porous that some intended borrowers would have been easily able to raise loans abroad if denied access to loan facilities in Britain – unless, that is, the controls on personal borrowing were made horrendously pervasive and intrusive. Arguably, it would have been possible to agree and apply minimum deposit requirements to block those 100 pc and better loan-to-value mortgages. Another mooted possibility is to include an element for housing costs in the Bank of England’s inflation target – as was the case until Gordon Brown switched the target in February 2004 from the RPI index to the CPI index.

But those same considerations apply to the prospect of tougher financial regulations in the Eurozone to regulate personal borrowing there. Of course, it will be far easier for the EU Commission to control Eurozone governments via a fiscal union focused on imposing fiscal discipline on governments enforced with sanctions.

The trouble is that EU governments minus Britain have jumped to the solution before reaching an agreed diagnosis of the causes of the Eurozone crisis or crises, which is not the most logical or effective way of proceeding to achieve intended aims and objectives. But they don’t seem to have noticed that – yet.

Earth to Le Monde: the plan will not save the eurozone in any case. The problem is not profligate spending, so the solution cannot be German fiscal policy. (And BTW, Germany doesn’t even have a particularly German fiscal policy). The problem is the peripheral Euro states run current account deficits that require funding. Membership of the euro means that they are vulnerable to balance of payment crises. Which is what we have here. And that’s the problem that any plan needs to address.

@11: “The problem is the peripheral Euro states run current account deficits that require funding. Membership of the euro means that they are vulnerable to balance of payment crises. Which is what we have here. And that’s the problem that any plan needs to address.”

Exactly – although that diagnosis doesn’t fit Ireland, which has a very healthy trade surplus and where the problem was a crisis born out of insolvent banks, a recession and falling tax revenues.

As far as I can tell, 2000 to 2010 Ireland ran a current account deficit.

vimothy: “As far as I can tell, 2000 to 2010 Ireland ran a current account deficit.”

Historically, that’s true but try this (illuminating) letter to the FT dated 12 May 2011:

“Ireland is now running a current account surplus – so the foreign balance is not a drag on its economy and the government is able to finance its budget deficit domestically.”
http://www.ft.com/cms/s/0/55780412-7a60-11e0-af64-00144feabdc0.html#axzz1g9h1raZC

By recent news broadcasts, Ireland’s government is saying that current rates of public expenditure exceed tax revenues by €16 billion a year – hence recent additional austerity measures, including a hike in VAT to 23 pc.

Shame about some of the translation. “These columns like Great Britain”. Hardly readily understandable English. Should have stuck closer to the French: “Great Britain is much liked in these columns”.

How on earth does “On sait ce que la démocratie lui doit” (We know how much democracy owes to it) become “One knows that it is democratic”?

It’s a perceptive and nuanced article. It just shows how journalism can be, in case we’ve forgotten over here.

Or this “Et on n’arrivera pas à décliner ici tout ce qui nous tient à coeur”

become

“We should not dismiss all that we admire”

Décliner does not mean decline/dismiss, it means to list.

A more accurate translation would be “It is impossible for us to list here all that we admire”.

Le Monde: “Great Britain is much liked in these columns”.

Salutations to Le Monde but it would be a mistake to assume that is a widely distributed sentiment among what is called the centre-right in France. De Gaulle twice vetoed British applications to join the European Common Market. Besides that, there are more subtle, recent signs.

Sarkozy is currently president by virtue of winning a bitterly contested primary in his party (UMP) against Dominique De Villepin before going on to win the presidential election against the Socialist candidate, Sego Royale. Presidential elections coming up again next near and Sarkozy ranks low in the polls. His Socialist opponent will be Francois Hollande, who was partner to Sego Royale.

De Villepin, like most political leaders in France, is a graduate of the notorious L’École Nationale d’Administration, as are Sego Royale and Francois Hollande, while Sarkozy isn’t.

French friends say that Sarkozy isn’t even a graduate of one of the other Grande Ecoles and that counts in certain circles in France – Sarkozy is said to be sensitive about this gap in his education. As for De Villepin, he produced a rather nostalgic best-selling study of Napoleon: Les Cent Jours, when few French politicians admit to admiring him and his legacy:
http://news.bbc.co.uk/1/hi/world/europe/4875200.stm

Many decades ago, I once asked a very charming French assistante at the university where I then worked about the causes of perceived tensions between France and Britain. It’s because of Jeanne d’Arc, she cryptically replied. But Jeanne d’Arc was burned at the stake by the French church, I said – and that ended that conversation.

20. Leon Wolfson

@10 – Bubble, bubble, bubble, bubble!

Keep yelling it. You love em. Reality can’t touch you. Your 1%ers city must rise, and the 99% must fall. You’ve decided that, and are defending it with all your might.

It won’t work, of course, you’re just ensuring the UK falls.

There’s a credible political explanation as to why those who effectively run the EZ are maintaining the pretence that the basic problems of the Eurozone are due to lack of fiscal discipline and empathically not due to diverging competitiveness issues between EZ member economies leading to some having chronic balance of payments deficits.

Once chronic balance of payments deficits are admitted to be the root cause of EZ problems, that would amount to admitting that EZ economies hadn’t “converged” sufficiently, a key requirement for maintaining a stable monetary union. Lack of convergence also requires that an EZ fiscal union should take on the function of of transferring funds from chronic surplus countries (or regions) to chronic deficit countries (or regions) to alleviate the recessionary pressures in the latter. Germany, with its big economy in chronic surplus, certainly doesn’t want to take on that liability – so it cannot be admitted that balance of payments deficits are the root cause of EZ problems.

The net effect of imposing fiscal discipline without a transfer of funds from chronic surplus to chronic deficit countries will be to exert recessionary pressures in chronic deficit countries of the EZ.

The austerity measures required by fiscal discipline make it difficult to enhance competitiveness of national economies with chronic trade deficits because austerity is not an encouraging environment for new investment and because the young and skilled are likely to emigrate to work abroad in economies where unemployment rates are less daunting. A youthful brain drain from countries with chronic trade deficits is not conducive to improving their competitiveness in trade relations.

22. So Much For Subtlety

21. Bob B

Once chronic balance of payments deficits are admitted to be the root cause of EZ problems, that would amount to admitting that EZ economies hadn’t “converged” sufficiently, a key requirement for maintaining a stable monetary union.

But a chronic balance of payments deficit is not the root cause. It is a symptom. The problem is, as you say, a lack of convergence. In particular, the lack of growth in both the economy and in the productivity of the south. As well as their fiscal incontinence.

Lack of convergence also requires that an EZ fiscal union should take on the function of of transferring funds from chronic surplus countries (or regions) to chronic deficit countries (or regions) to alleviate the recessionary pressures in the latter.

As a solution to this short term problem, that is one possibility, but in the long run, it is not only no solution, it will only perpetuate the problem. The basic problems remains that the European South has not reformed their economies. They have not made the tough choices and introduced the changes needed for their economies to grow. Paying them to sit on their arses all day won’t make them change either.

The net effect of imposing fiscal discipline without a transfer of funds from chronic surplus to chronic deficit countries will be to exert recessionary pressures in chronic deficit countries of the EZ.

That is true. Reality will win in the end. If Greece is not much more productive than Bulgaria, the Greeks will have to live a similar life style. They cannot try to pretend they are as rich as the Swiss. That will be done by either a currency devaluation or through recession. But it needs to be done. Reality is not optional

The austerity measures required by fiscal discipline make it difficult to enhance competitiveness of national economies with chronic trade deficits because austerity is not an encouraging environment for new investment and because the young and skilled are likely to emigrate to work abroad in economies where unemployment rates are less daunting. A youthful brain drain from countries with chronic trade deficits is not conducive to improving their competitiveness in trade relations.

I agree about the problem with immigration. Young Greeks will leave. But austerity does help with competitiveness. The weak go to the wall. The strong, the innovative, the able, survive. They can hire with ease. If taxes are lowered and regulations lightened, they can grow.

These are reforms the southern Europeans need to do. They need to break their Marxist Unions. They need to fight corruption and indolence in the public sector. They need to reduce regulations. They should have done it in the past, but they need to do it now. It may be too late and the pain they are about to receive may be too great. They should have done it earlier and more slowly. But they cannot fight reality for long.

The Germans really do have a point here.

23. Leon Wolfson

What rot.

The most successful EU counties are those with strong unions.
With strong social safety nets.
With extensive safety regulation.

The Nordic countries.

Your “reality” is a race to the bottom, for the peons you deride.

@22: SMFS: “The problem is, as you say, a lack of convergence. In particular, the lack of growth in both the economy and in the productivity of the south. As well as their fiscal incontinence.”

The fiscal incontinence is motivated by the intention to compensate for the depressing effects of mounting trade deficits – when national central banks have lost the autonomy to set interest rates to suit national conditions and there is no opportunity to restore price competitiveness in traded good and services by a currency depreciation.

Civil reactions to mounting unemployment apart, unrelenting austerity – which is evidently Merkel’s idea of what a fiscal union means – will make it harder to restore competitiveness in trade goods and services because austerity discourages new investment and it promotes the emigration of the youthful unemployed and the educated and skilled.

There’s lots of political froth in the public debate in Britain but little beyond the FT on the causes of the Eurozone crisis.

I’d be the more impressed if those who went on about Cameron focused instead on what would have followed if he had signed up to the deal on offer without any safeguards for Britain’s financial services industry – which amounts to about 10 pc of the British economy, a legacy from Blair’s New Labour government which ran a much drier industrial policy than ever Mrs T’s governments did. Labour welcomed a flourishing financial services industry because it generated the tax revenues which the government could splash on healthcare and education. We are where we are because of that that political strategy – and because of the gross mismanagement of the Scottish banks, RBS and HBOS.

By FT reports, among the safeguards Cameron sought at the EU summit was that of the option to set higher capital requirements for banks than than permitted by EU regulations – which would allow for contra-cyclical variations in the capital requirements for banks so as to rein in bank lending fuelling asset-price bubbles. That seemed reasonable to me but the Eurozone folk are worried about the prospect of too many Eurozone banks failing stress tests and that inhibits a willingness to raise the capital requirement for banks.

Nitty-gritty detais such as that are crucial for assessing the implications of the EU summit but all we get is more and more political froth.

There’s no point in going on and on – as Sarkozy does – about the need to better regulate financial services markets without discussing the all-important detail of new regulations. I fully understand Cameron’s unwillingness to sign blank cheques – not least because one of the main causes of the Eurozone crisis was the continuing breaching of the requirements for fiscal discipline set out in the Growth and Stability Pact of 1995. The fact is that Eurozone governments can’t be trusted to adhere to mutual agreements.

I am happy to have left the UK just in time before the UK leaves the EU.

By Ken Clarke’s account, there was no actual discussion last Friday at the EU summit of the safeguards for Britain’s financial services industry that Cameron was seeking, some quite technical. The safeguards were simply dismissed by Sarkozy as ‘unacceptable’:
http://www.bbc.co.uk/news/uk-politics-16150764

This rather confirms my intuition that Cameron was stiched up. Given that context, Cameron had no option but to refuse to sign up to the proposed new EU treaty. The reasonal supposition is that was the conclusion Sarkozy wanted all along.

By preserving Britain’s autonomy in financial and monetary policy, the government will have greater scope to set regulations for financial services markets more suited to prevailing conditions here and – importantly – to implement recommendations flowing from the Vickers’ commission on banking when consultations are completed.

Those now wringing their hands over Britain’s supposed isolation in the EU are really obliged to defend their implied claim that the safeguards sought are of no significance. I’m waiting to hear why the sought safeguards are of no importance – but not holding my breath.

The rules for fiscal discipline in the Eurozone are already set out in the Growth and Stability Pact of 1995 but those rules were widely breached, including by France and Germany. The fact is that the governments of Eurozone countries can’t be relied on to stick to mutual agreements – that is why Germany wants a new EU treaty so rule breakers can be punished by fines. So much for the EU.

27. Leon Wolfson

@26 – And of course you take his word as gospel.

Cameron argued in bad faith, just as you do, and he was never going to get his ability to attack the EU even further. And out absolute isolation is going to cost us far, far more…potentially more than the City brings in!

Bob B, this analysis is absolutely spot on:

Once chronic balance of payments deficits are admitted to be the root cause of EZ problems, that would amount to admitting that EZ economies hadn’t “converged” sufficiently, a key requirement for maintaining a stable monetary union. Lack of convergence also requires that an EZ fiscal union should take on the function of of transferring funds from chronic surplus countries (or regions) to chronic deficit countries (or regions) to alleviate the recessionary pressures in the latter. Germany, with its big economy in chronic surplus, certainly doesn’t want to take on that liability – so it cannot be admitted that balance of payments deficits are the root cause of EZ problems.

The net effect of imposing fiscal discipline without a transfer of funds from chronic surplus to chronic deficit countries will be to exert recessionary pressures in chronic deficit countries of the EZ.

The problem with the balance of payments view that everyone who has eyes can see is none of the elite European policymakers accept that is the problem. Germany does not accept that the EZ crisis is a BOP crisis and they are the biggest cause of the BOP. They say intra-euro trade should no more be counted as BOP than intra-sterling trade in the UK, or intra-dollar trade in the US. According to them, the roughly balanced consolidated current account for the whole euro-area is what one should look at. Germany will be acquiring financial assets as long as they run a current account surplus, so to then complain about the indebtedness of those with whom they are running a trade surplus is bizarre. There will be no resolution of the EZ crisis until they accept what the problem is.

30. So Much For Subtlety

24. Bob B

The fiscal incontinence is motivated by the intention to compensate for the depressing effects of mounting trade deficits – when national central banks have lost the autonomy to set interest rates to suit national conditions and there is no opportunity to restore price competitiveness in traded good and services by a currency depreciation.

On the contrary. Fiscal incontinence is a long standing feature of southern European life. The Greeks have been in default for half their post-Ottoman history after all. Although what is interesting is that France from the Revolution down to the 1920s was actually fairly good, but have become incontinent since. There was no German trade surplus in 1900. They chose to borrow because the idiots in the ECB gave them the keys to the Treasury. They could borrow and spend and borrow some more on the assumption the Germans would pick up the bill. So they did. They could have restored price competitiveness by structural reform but they chose not to do that either. No one forced them to do anything. There is nothing about German competitiveness that requires someone else to splurge. They could have worked harder too.

Civil reactions to mounting unemployment apart, unrelenting austerity – which is evidently Merkel’s idea of what a fiscal union means – will make it harder to restore competitiveness in trade goods and services because austerity discourages new investment and it promotes the emigration of the youthful unemployed and the educated and skilled.

In the short term perhaps. But in the long term, devaluation is no solution to anything. Only economic reforms and restoring real competitiveness by building things people actually want is going to work. And the Germans did just that. They held down wages and restructured their economy. The Italians did not.

We are where we are because of that that political strategy – and because of the gross mismanagement of the Scottish banks, RBS and HBOS.

It is not fair to blame the Scots. I like it but it is not true. Northern Rock was not Scottish. What happened was that the new banks, the former Building Societies, went bust. They took some old banks down with them – Halifax (not Scottish) destroyed BOS. But the rule here is that the Old School survived.

There’s no point in going on and on – as Sarkozy does – about the need to better regulate financial services markets without discussing the all-important detail of new regulations.

Europe has always been about an act of will to create new facts – ignoring the past and basic economics as well as reality. Sarkozy does not need to spell out what regulations they will impose. That would not be European. He can just assert that everyone else needs to bend to the willpower of the ruling classes and everything will be fine.

The fact is that Eurozone governments can’t be trusted to adhere to mutual agreements.

Indeed. And it looks as if this deal between Germany and France is not even legal. Again we see where the European project is taking us – away from the rule of law. We are better off out.

vimothy

Thanks for that – but as mentioned before, I was awakened to the potential hazards to the stability of monetary unions from the depressing effects of trade deficits on reading a paper: Euro fantasies, in the September 1996 issue of Foreign Affairs by the late Rudi Dornbusch, prof of international economics at the MIT, who was born a German national. He was Paul Krugman’s professorial supervisor for the latter’s PhD thesis.

The Dornbusch paper is available online but it’s expensive and later editions of Dornbusch’s popular student text on Macroeconomics (McGraw-Hill) conveys the essentials.

This is not mere passing gossip on my part because it means that EU Commission economists can hardly deny acquaintance with the analysis – about a decade ago, I got involved in an (acrimonious) online debate about the Euro in a Compuserve forum with someone presenting himself as an EU Commission economist and I brought Dornbusch to his attention.

At the time, any criticism of the EMU project was regarded as literally heretical – Bernard Connolly, a Brit on the Commission staff was sacked in 1995, effectively for raising difficult technical questions about EMU following, on his own account, briefing by Dornbusch and Olivier Blanchard – the latter is now chief economist at the IMF. See Connolly: The Rotten Heart of Europe (Faber), especially the forward to updated editions.

After that sacking, I suspect that Commission economists became cautious – in the same way that civil service economists became cautious in British ministries, such as the DTI, when their ministers were over-the-top enthusiasts for joining the Euro, like Patricia Hewitt. I really can’t imagine what she and her advisers felt after Gordon Brown’s announcement in Parliament in June 2003 that joining the Eurozone was not in Britain’s interest.

It was only by chance that I had come upon that issue of Foreign Affairs in WH Smith’s in Victoria station as it was not on my regular reading list. The following year, the same periodical had a paper by Martin Feldstein – who had been the first chair of President Reagan’s council of economic advisers – with Larry Summers and Paul Krugman as supporting staffers for the council. This is the link to Feldstein’s paper: http://www.nber.org/feldstein/fa1197.html

That paper includes this prescient passage:

“For many Europeans, reaching back to Jean Monnet and his contemporaries immediately after World War II, a political union of European nations is conceived of as a way of reducing the risk of another intra-European war among the individual nation-states. But the attempt to manage a monetary union and the subsequent development of a political union are more likely to have the opposite effect. Instead of increasing intra-European harmony and global peace, the shift to EMU and the political integration that would follow it would be more likely to lead to increased conflicts within Europe and between Europe and the United States.”

Cameron is in a dilemma, or rather Several dilemmas.
The statistics tell the naked truth.The EU is by far the largest trading partner of the British. Almost half of UK exports go to Europe.The budget deficit is almost equals Greece (11%), public debt 90 percent, unemployment (8.3%) and Will continue to rise …Euro migraines for Cameron Because Of The close economic assets with the euro area.

@ SMFS

“In the short term perhaps. But in the long term, devaluation is no solution to anything. ”

For countries with tendencies to chronic trade deficits, devaluation to restore competitiveness of traded products inflicts much less social pain – and loss of GDP – than austerity measures. Besides, austerity measures discourage new investment and promote the emigration of the young, educated and skilled which render it harder to improve competitiveness in trading industries.

Germany is a large and diverse economy amounting to about a third of the Eurozone. With a well-developed infrastructure in training for industrial skills – plus the benefit from the inward migration of about 4 skilled workers from eastern Europe until the Berlin wall was built in 1961 – the German economy can adapt more readily to changing markets for its engineering exports (such as cars and printing machines) and to producing import substitutes. Until the break-up of the Bretton Woods systems of pegged but adjustable exchange rates in the early 1970s, the German economy had been boosted by a sequence of under-valuations of the DMark through tardy revaluations and those through concerted international pressures.

The Greek economy is dependent on agricultural produce and tourism where there is increasing competition from new industries in developing countries. Greece should never have been permitted to join the Eurozone but, on John Major’s account in the FT, the French said: You can’t say No to the country of Plato.

Italy’s indebtedness was aleady known at the launch of the Euro in January 2000 but only Luxembourg was strictly eligible to join according to the Maastricht convergence criteria. The original six signatories of the Rome Treaty of 1957 just “had” to be allowed to join and then , by precedent, a whole lot more were admitted.

The 25 pc depreciation of the Pound after Britain was forced out of the ERM in September 1992 worked wonders for Britain’s economy. By 1995Q4, Britain’s standardised ILO unemployment rate was lower than that of France, Germany or Italy and the employment rate of working-age people higher. Britain’s terms of trade (export prices / import prices) were fairly stable through the 1990s despite the depreciation of the Pound.

“It is not fair to blame the Scots. I like it but it is not true. Northern Rock was not Scottish.”

NR was a relatively small regional bank compared with the RBS and HBOS, which had their head offices in Scotland but branches throughout Britain. Britain’s banking crisis of 2008 was mostly due to the big, failing Scottish banks. RBS had to be bailed out to the tune of £45bn and its problems were largely due to the disastrous decision of the bank’s management to make a hostile bid for ABN Amro where the purchased assets turned out to be verging on worthless. Hardly smart stuff.

34. So Much For Subtlety

33. Bob B

For countries with tendencies to chronic trade deficits, devaluation to restore competitiveness of traded products inflicts much less social pain – and loss of GDP – than austerity measures. Besides, austerity measures discourage new investment and promote the emigration of the young, educated and skilled which render it harder to improve competitiveness in trading industries.

Sorry but it is the same loss of GDP either way. With the added bonus of more inflation. Devaluation is, as I said, no solution in the long run. The problem is that chronic trade deficit. There is no alternative to ending it which means working longer and harder while producing more. What is needed is Unions which are not stupid, regulations that do not kill enterprise, bureaucrats that do the job they are paid for without bribes and light taxes.

Austerity kills investment in the short term. In the long run, knowing that taxes are low, that people want them to be low, that they will suffer to keep them low, is a boost to investment. There is no alternative to low taxes if you want growth.

Germany is a large and diverse economy amounting to about a third of the Eurozone. With a well-developed infrastructure in training for industrial skills – plus the benefit from the inward migration of about 4 skilled workers from eastern Europe until the Berlin wall was built in 1961 – the German economy can adapt more readily to changing markets for its engineering exports (such as cars and printing machines) and to producing import substitutes.

Import substitution is not what Germany does and it is not what anyone should do. It is stupid. You could be describing Italy. Traditionally their small family owned businesses were much better placed to do this. German’s larger and hence more staid companies struggled. Something is holding the Italians back.

Until the break-up of the Bretton Woods systems of pegged but adjustable exchange rates in the early 1970s, the German economy had been boosted by a sequence of under-valuations of the DMark through tardy revaluations and those through concerted international pressures.

And yet under the Bretton Woods system, no one could devalue just like that. A golden age for growing trade and wealth.

The Greek economy is dependent on agricultural produce and tourism where there is increasing competition from new industries in developing countries.

So basically they are not in the same business as the Chinese? They should be fine then. It is Germany that should be worried.

Greece should never have been permitted to join the Eurozone but, on John Major’s account in the FT, the French said: You can’t say No to the country of Plato.

Because of their fiscal incontinence, no other reason. The Colonels left Greece is a strong position with a positive trade balance, a relatively strong currency and a growing economy. The Greeks have driven that work into the ground.

NR was a relatively small regional bank compared with the RBS and HBOS, which had their head offices in Scotland but branches throughout Britain.

They had a nice office in Edinburgh but their operational headquarters remained in Halifax. It wasn’t a Scottish bank. Yes, NR was much smaller. But it started all this mess. And it was not a Scottish bank.

@34 SMFS: “Sorry but it is the same loss of GDP either way. With the added bonus of more inflation. Devaluation is, as I said, no solution in the long run.”

As Keynes aptly put it: In the long run we are all dead.

Being forced out of the European Exchange Rate Mechanism (ERM) in September 1992 turned out to be a blessing in disguise despite (or because of) a 25 pc depreciation of the Pound in consequence – on the evidence of the events that followed.

The implication of what you are saying is that we should have stayed in the ERM regardless of how high interest rates would have had to be hiked, how much fiscal austerity, how much unemployment or how much negative housing equity.

All I can say to that is: Nuts.

It also made good sense for Britain to abandon the Gold Standard in September 1931 – the Pound depreciated as a result by c. 25 pc. As a consequence, Britain’s economy in the 1930s performed relatively well compared with the economies of other industrialised countries – see the assessment in: CH Feinstein et al: The European Economy Between The Wars (OUP 1997).

I’ll go by the evidence.


Reactions: Twitter, blogs
  1. Delroy Booth

    Le Monde: 'UK more isolated than ever' http://t.co/fS5iYZ1h

  2. DougScott

    Britain Stands Alone – wrong again. RT @libcon: Le Monde: 'UK more isolated than ever' http://t.co/QBQ7nC53

  3. Nicola Chan

    Le Monde: 'UK more isolated than ever' http://t.co/fS5iYZ1h

  4. CAROLE JONES

    @alphabetofbeing Read this. Le Monde: ‘UK more isolated than ever’ http://t.co/jij28WIW via @addthis

  5. Matt Zarb-Cousin

    Apologies for the shit translation but this is the Le Monde article "Britain is now more isolated than ever" in English http://t.co/RNb9Jcgo

  6. Matt Zarb-Cousin

    @jonwalker121 I've done a (slightly) better job of it here. http://t.co/RNb9Jcgo

  7. Jonathan Walker

    That LeMonde editorial in full RT @mattzarb: @jonwalker121 I've done a (slightly) better job of it here. http://t.co/keyuD1ih

  8. The view from abroad: The day Britain locked itself out | Left Foot Forward

    […] Conspiracy has a translation of Le Monde’s leader: Let’s be fair. The British are not in favour of a crisis in the Euro. They do not carry any […]

  9. Charlie Waters

    Le Monde: 'UK more isolated than ever' http://t.co/fS5iYZ1h

  10. Janet Graham

    Le Monde: 'UK more isolated than ever' http://t.co/fS5iYZ1h

  11. Annette Carter

    Le Monde: 'UK more isolated than ever' | Liberal Conspiracy: He also recoiled because he realises that he couldn… http://t.co/AQtjbSRM

  12. Jeni Parsons

    http://t.co/oNym6VhA via @libcon #otmp #occupylondon #samburumike Le Monde editorial in full translation

  13. Steve Hynd

    Le Monde: ‘UK more isolated than ever’ | Liberal Conspiracy http://t.co/w72TVB2D via @libcon





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