Eurozone back in the eye of the storm

Allister Heath
YOU can’t fool all the people all of the time. Unfortunately, you can generally con quite a few of them temporarily, but it doesn’t usually last very long. The most recent EU summit was a case in point. With all such meetings, investors temporarily accept politicians’ claims to have triumphed at face value, as long as some sort of deal is reached. This time was no different. Within a day or two, however, once the fine print has been read and digested, and the recriminations inevitably begin, investors see sense and start to sell once again.

We are now at that stage. Commodity prices collapsed yesterday, including gold, caught up in the cross-fires of mass selling; continental banks faced huge pressure; stocks slid; Italy sold five-year bonds for 6.47 per cent, the highest rate since the euro was launched; Germany borrowed for two years at 0.29 per cent; the cost of UK government borrowing also fell. It is almost as if last week’s deal had never happened, and for good reason: even if it is implemented, which is far from certain, it won’t work even on its own terms and certainly won’t solve the Eurozone’s real issues.

Several of the non-Eurozone countries that put their names to the treaty are having second thoughts (as sceptics predicted they would). It also looks certain that Ireland will have to hold a referendum on the treaty, as it would substantially change its constitution – budgets would be monitored in advance by Brussels, there would be new constitutional deficit rules and so on -- which could give the Irish the opportunity to vote against the EU and the European establishment. A no vote could kill the euro and set off an unpredictable chain of events.

The French presidential elections in April and May are another looming time bomb – even though his jingoistic behaviour and attacks on the UK (he claimed yesterday that “ Cameron behaved like an obstinate kid, with a single obsession”) has given him a boost, Nicolas Sarkozy is still likely to be defeated. Francois Hollande, the socialist candidate, who is even more anti-capitalist than Sarkozy, wants to renegotiate the treaty. Even if he is bluffing, his election would drastically change the EU and make it much more likely to target the City, prompting another bust-up.

The UK, meanwhile, continues to stand firm on its own decision not to sign up to the treaty, a move which has done wonders for David Cameron’s standing among the public as a whole and his party. Last night’s YouGov/Sun poll has the Tories on 40 per cent despite all the economic woes (a massive jump since last week), Labour relegated to second place at 38 per cent and the Lib Dems on 10 per cent. Most ordinary business executives also agree with Cameron’s decision. A ComRes survey for Open Europe found that 69 per cent of financial services professionals would support the UK having a veto on future EU financial regulation and other financial measures, even if it reduces their access to the single market, a position that refutes the scare stories put forward by obsessively pro-EU industry lobbyists; 56 per cent think that the costs of EU financial regulation outweigh the benefits of the single market to the City. It is now vital that Cameron stick to his guns and doesn’t surrender to Franco-German pressure. The Eurozone is in a deep, existential and possibly fatal crisis. The UK needs to look beyond Europe for its future prosperity.

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