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Tuesday, May 01, 2012

Sneaking in on the Franco-German axis (without lecturing)

La Repubblica yesterday claimed that Italian PM Mario Monti sees opportunity in a Francois Hollande victory in the French Presidential elections. The opportunity lies not so much in Paris as in Berlin.

Monti reportedly thinks a Hollande victory would weaken French ties with Germany, over issues such as the role of ECB, the fiscal treaty and government spending. Berlin will look for allies, so the logic goes, which presents a chance for Rome to "sneak in". La Repubblica's interpretation is that Monti wants to "replace" Sarkozy - or at least the role Sarkozy currently plays in the Franco-German axis. 

All highly speculative of course, but an interesting prospect, which should serve to stimulate thought in London as well, i.e. could an Hollande victory help strengthen the London-Berlin link? Possibly. But, as we argue over on the Telegraph blogs, for this to happen, London needs to sharpen its diplomatic tone and posture - which includes avoiding lecturing the Germans on what needs to happen with the euro. Though we share his frustration with the euro crisis, David Cameron again came close to doing this on the BBC's Andrew Marr show on Sunday.

We argue "the reality is also that the UK has very limited influence over events and decisions in the Eurozone. This is why lecturing eurozone leaders is at best pointless, and at worst outright counterproductive."

We go on,
"Given its limited clout in euro politics, what the UK says is unlikely to sway German Chancellor Angela Merkel in one direction or the other. In other words, it creates frustration in Berlin in return for no clear diplomatic benefit. Talk of large-scale ECB intervention or debt pooling goes against not only promises that were made to the German electorate when the single currency was forged, but also against the very corner-stone of the German economic model: sound money. With such lecturing, can the UK then complain when the Germans show limited willingness to understand the need for a vibrant financial services industry, an integral part of the UK’s modern commercial identity?

It’s particularly bad politics as the UK now has an opportunity to strengthen ties with Germany. Francois Hollande – a Keynesian who wants to spend his way out of the crisis (which may be more talk than action) – looks set to win the French presidential election. Cameron won’t break the Franco-German axis – nor should he try to. But he could create a lot of good will in Berlin by throwing his weight behind a Europe based on sound money and living within one’s means, not least by taking strong action at home, while making the case for supply-side reforms where appropriate. Whether you like it or not, German buy-in is essential if Britain wants to achieve a new and sustainable relationship with the rest of Europe. It would be silly to let loose talk undermine a new Anglo-German deal.  Leave the Keynesian lecturing to Ed Balls."


Rollo said...

interesting thought, the new German Italian Axis, with an unelected Italian government. But pointless. Sarkosy vaunts himself as a partner of Germany, whereas France is part of the problem, not the solution. The only thing going for France is that they were, at least in their opinion, on the right side in 1939-45. Monti cannot claim that, and Italy is even more part of the problem than France. So: pointless.

Rik said...

Great post.

Cameron seems to have no strategy at all in this regard.
With EU issues it trying to keep some sort of balance between a majority anti-EU electorate and the relations with their closest neighbours. And fully on the automatic pilot.
In this issue it simply looks as a cheap excuse for the bad UK economy, which he knows many will blaim him for (probably the rest is considerably worse, but that is another issue). But with an excuse like this that will happen anyway.

This was an issue with nothing to gain at the voter side and possibly spoiling things at the Europe side. So in another way: 'better keep your mouth shut'. As you mentioned.

It also gives imho an indication that he has no strategy towards the EU. I even doubt if he has some clear goals/targets he want to achieve. It simply doesnot look that way.

The UK wanting its rights back means that you get into complicated legal and international political stuff. You need to have an idea what you want, how to achieve that, and if the solution is really working.
You have to do your homework on that.
If an opportunity arises it is likely sudden and and under a lot of timepressure. If you donot do your homework you are more likely to miss the opportunity as well as ending up with some ad hoc solution without any structure in it (and likely being worse than the problem it was supposed to solve).

christina Speight said...

I totally disagree here. Britain has been quiescent for too long because we felt the euro was THEIR business not ours! Meanwhile regulations pile in on us thick and fast and NOBODY anywhere in the eurozone is facing the fact that the euro cannot work unless it is restructured from the bottom up, with some leaving and perhaps two currencies from the rest. THEN debt must be centralised (2 centres?) and we want no part of any of it. What we want is a prosperous Europe to trade with not a perpetual crisis dragging the world economy down including ours.
Somebody here SHOULD deliver a strong lecture pointing out that "The Euro Emperor is stark naked" and will it please get some clothes on - sharpish. Of course it won't be well received at first - the truth often hurts but is appreciated eventually.

Rik said...

The question is: why should Cameron be the one to deliver the message and even if so, what is the use for the UK (eg will they take notice of it) delivering it?

Ray said...

I have just changed my line for this post, I was going to point out whether Germany will want pro Euro support from the Quisling in Rome, or less than enthusiastic rhetoric from the UK.
Then it occured to me that this would entail Cameron being non supportive of the Euro, which we are still not really sure of. So it may be an interesting to see what form Camerons "help" to the Germans will take. It may enlighten us as well

christina Speight said...

Somebody has to tell European leaders - especially Merkel - the plain truth. They are all encased in a cocoon of denial at present. Why us? Precisely because we are semi-detached and our economic judgment (with the rating agencies for a start) is still listened to. There are regional elections in Germany, national ones in Greece (France is almost over), later ones in The Netherlands and the opposition might start asking "is the euro worth all this suffering?". Merely sowing the seed that an orderly end to the euro is a solution would be a worthwhile start. It might not be popular with those whom Cameron has to face but he owes us a bit of self-sacrifice after all the other messes he's landed us with,

christina Speight said...

Further to mine at 2.20 I have just read on tday's O:E: press summary "Open Europe’s Raoul Ruparel argues that, “austerity has become a dirty word, but this masks the wider failings of individual government policies and is a diversion from the collective challenge of keeping the Eurozone intact.”"

This comprehensively muddies the waters! Keeping the eurozone intact" is precisely the problem. As long as it remains intact Europe will slip slowly but irreparably down the drain. What on earth is Mr Ruparel doing, contributing to very cause of the troubles?

Rik said...

1. We fully agree that the EZ is a bad construct and needs either massive adjustments in its set up or be broken up.
However it is the issue if it is any use for the UK to bring it up this way.
2. Politicians are clearly in a safety first mode. Falling apart cannot be overseen so should be avoided combined with the Merkel quote: if the Euro fails Europe fails. A lot of crap of course, but never the less decisions at this moment are taken from that view. Combined that the voters in the paying nation are very negative and somewhere there will be elections.
3. Decisions will be taken on basis of this and it is hardly relevant what the UK says.
4. Starting from there people under stress like Merkel and Sarkozy will likely react to actions like that (as we have seen earlier)with irritation and that is it.
5. The Eurobond option as proposes by some is another example. It basically means a referendum in Germany (aka around 0% change of being accepted and only wasting more time). So again totally useless and only creating more confusion and irritation with Merkozy and Co.
6. So like before it would only be for the UK homeaudience. Where it will be hardly useful, it would be more efficient to keep out of scandals at least for a week or 2
7. The moment might be near that the EU/EZ gets the shock that makes it possible to reneg its conditions (not only for the UK). Either because the thing falls apart or because the UK is needed for a solution.
8. The UK needs support there the logical 'partners' are eg Germany and Holland and further North and East. No use to irritate the big one with points that most likely won't make any difference anyway. Better prepare for when the chance comes up.
At least if you want results. If you want to show your principles or play a further act for the homecrowd it is different.
9. The UK is not the City/Financial markets or the ratingagencies. Cameron can only speak for the UK as a country (and as said is hardly relevant in the discussion). In this respect the 10 Bn or so to the IMF have been given away as it seems much too easily. Let Merkel convince him to do it.

Rik said...

Austerity might have become a dirty word but it doesnot change it importance.
In no way the South PIIGS can get finance (certainly not from private investors and the Germans are also not very positive) of a magnitude that their economies can move from negative growth to positive one.
2. Which simply means it still will have to happen. One way or another. A 3,4,5 % declining economy is not acceptable for investors but a 1% with a 10-20% of GDP higher debt isnot either.
3. Anyway where I come from spending 5 to 10% more than you earn is not covered by the term austerity. We describe that with words like overspending, irresponsible.