Saturday, 3 December 2011

Eurozone: Cameron can watch and hope

UK prime minister David Cameron is not in an enviable position. If the euro crashes, the troubled British economy would take a severe turn for the worse. The United Kingdom has to hope that the leaders of the eurozone finally get their act together next week.

This means deeper integration among the 17 euro area countries, or at least a core within the core, since the UK itself is among the reasons why significant progress among 27 EU member states is a utopian vision.

The kind of protectionist eurozone the French president Nicolas Sarkozy has in mind would undermine European economic integration based on open external and internal markets, common competition rules, free movement and Schengen, but Britain has placed itself off-side.

Caught by UK opt-outs and constant obstructionism, the new-fangled referendum lock, secessionists in his own party, campaigning anti-EU media and hostile public sentiment, Cameron is in a position of weakness. He can only offer the well-meaning advice of a bystander, after lunch at the Elysee Palace in Paris (BBC News):

"In the end, what that is about is convincing the markets that the institutions of the eurozone will defend and promote and protect the currency with everything they've got," he said.


Eurozone institutions?

What are these eurozone institutions (within and alongside the institutions of the European Union)?

With regard to economic policy we have the informal Euro Group enshrined at treaty level, i.e. president Jean-Claude Juncker and the finance ministers of the 17 eurozone members. Formal decisions have to be taken by the EU institutions (Council) or intergovernmentally.

The eurozone war chest, struggling to find sponsors to provide leverage, is the European Financial Stability Facility (EFSF), a company registered in Luxembourg. The temporary EFSF should be supplanted by the permanent European Stability Mechanism (ESM).

The European Council 23 October 2011 and the Euro summit 26 (27) October 2011 have now instituted the Euro Summits as a regular feature, with Herman Van Rompuy as the first president. This is the cabal the French president wants to turn into the ”government” in his own image for eurozone convergence, including tighter rules on work and tax.

According to the EU Treaties, monetary policy is conducted by the European Central Bank (ECB), restricted by its inflation-fighting mandate and limited scope of action compared to lenders of last resort.

The eurozone needs deeper integration and ground-breaking action, but David Cameron can mostly watch and hope.



Ralf Grahn