This posting is all about Britain and the euro.
I start with comment
on Barroso’s offensive remark [see “Federalists fishing in troubled
waters” 1/12/08] which has given wings to a debate previously
conducted behind closed doors!
I also give a report via EU Observer of a general discord amongst
eurozone members about what to do over the ecnomic crisis. Their
discord is hardly a good reason to join up with them and adds force
to Ambrose Evans-Pritchard, first below.
Then finally the Mail returns to the subject today and adds a straw
poll for general amusement!
Christina
========================
TELEGRAPH 2.12.08
1. Best to leave the euro to its own (de)vices
Joining the single currency would make our situation worse, says
Ambrose Evans-Pritchard.
The euro is on a roll. Icelanders are clamouring to join, as soon as
they can get into the EU. The Danes seem ready to abandon their long
rebellion and sign meekly on the line. A Danish referendum is
pencilled in for March.
Eastern Europe's states are trying to engineer entry as fast they can
to escape the hell of semi-fixed currencies. It was not such a good
idea after all to take out euro mortgages in Budapest, Warsaw and
Sofia – or Swiss franc mortgages, heaven forbid.
Everybody wants a safe port in this Force 10 storm. No matter if it
is full of undetonated mines. No matter, too, that Denmark's travails
stem from membership of the ERM, a half-way house that has forced
them to raise rates twice – into the Copenhagen property crash.
José Manuel Barroso, the Commission's chief, was a little too honest
telling French TV that the people who count in Britain hanker for
monetary union. What a slip of language. Is this a reversion to his
Maoist youth in Portugal, or has he been drinking the EU waters for
too long?
The people who count in British democracy are the voters. But let us
not quibble. Mr Barroso is right to sense a shift in the
undercurrents of British politics. This is a tricky moment for those
who fear that total loss of control over our monetary policy would
lead to even more destructive cycles of booms and busts than those we
have already.
"I don't want to break the confidentiality of certain conversations,"
said Mr Barroso. "But British political leaders have told me that: if
we'd had the euro, we'd be better off."
How, exactly, would we have been better off? Our current mess is
caused by over-reliance on bankers (7·8 per cent of GDP), six years
of incontinent spending by Gordon Brown and a housing/credit bubble
that has pushed personal debt to 103 per cent of GDP.
Joining the euro would not have prevented any of this. It would have
made matters worse. The European Central Bank held rates at 2 per
cent for part of this decade to help Germany out of the doldrums.
Imagine what such rates – or anything near – would have done to
Britain's property boom. You might as well have poured petrol on the
fire, as Ireland and Spain can attest.
Events since the crunch began last year – and reached volcanic fury
in September – entirely vindicate our refusal to give up control over
our economy. Sterling has come down from silly levels, falling 30 per
cent against the dollar and 21 per cent against the euro. Perfect.
The economy has suffered an asymmetric shock: the currency has acted
as the shock absorber. Our sympathies to well-heeled Britons in
Aquitaine or Umbria living off sterling rents, but policy is not set
for their needs.
The Bank of England botched the crisis at first, but it is now
responding to emergency with stunning boldness. The 1·5 point cut in
November – and what follows this week and beyond as rates fall to the
lowest level since the Bank's creation in 1694 – may make the
difference between recession and depression. Others that gave up
their currency may not be so lucky.
Would you really want Frankfurt to decide your fate? The "people who
count" in global finance – investors, economists and hedge funds –
are increasingly in despair about the conduct of the ECB. It has
misread events at every turn over the past year. It panicked in July
when it raised rates to offset an oil and food price spike. By then,
Germany and Italy were already in deep recession, and Spain faced a
housing crash.
The "Shadow ECB", a panel of private economists from across Europe,
last week called for immediate and drastic rate cuts, demanding to
know what the ECB's strategy now is – if it has any at all. It would
be going too far to describe the ECB's policy utterings as primitive
gibberish – as two Nobel Laureates put it – but the bank is bent on a
course of action that is at best very different from the reflation
strategies of the Anglo-sphere, China and Switzerland, and risks
repeating the errors of 1931 to 1933.
These are early days in this long, winding crisis. We cannot yet
judge whether the euro is a force for stability, or whether it is
workable at all – given the lack of an EU treasury and debt union to
back it up. Monetary unions can create an illusion of calm for a
while. They shield sinners from market discipline, but in doing so
they let problems fester.
Locking the currencies together was the easy part of EMU. Once the
euro was off the ground, it was unlikely to face an existential test
for at least a full credit cycle. But then it gets harder. The Latin
bloc has allowed costs to creep up, while Germany has squeezed wages
with relentless discipline. The gap has grown wider every year.
This is starting to matter. Investors are no longer willing to treat
Greek, Italian, Irish or Spanish debt as interchangeable with German
debt.
Nothing is pre-ordained in the euro drama. The chief reason for
launching the single currency – before economies had properly
converged – was to force the pace of political union. It may have to
deliver on this agenda.
Either the EU creates the machinery to needed cushion the bust on
Europe's fringes, or EMU will drift into crisis. The ball is in the
court of very reluctant paymasters in Germany.
Whichever of these two paths its chooses, there is no earthly reason
for us to follow.
=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-
on Barroso’s offensive remark [see “Federalists fishing in troubled
waters” 1/12/08] which has given wings to a debate previously
conducted behind closed doors!
I also give a report via EU Observer of a general discord amongst
eurozone members about what to do over the ecnomic crisis. Their
discord is hardly a good reason to join up with them and adds force
to Ambrose Evans-Pritchard, first below.
Then finally the Mail returns to the subject today and adds a straw
poll for general amusement!
Christina
========================
TELEGRAPH 2.12.08
1. Best to leave the euro to its own (de)vices
Joining the single currency would make our situation worse, says
Ambrose Evans-Pritchard.
The euro is on a roll. Icelanders are clamouring to join, as soon as
they can get into the EU. The Danes seem ready to abandon their long
rebellion and sign meekly on the line. A Danish referendum is
pencilled in for March.
Eastern Europe's states are trying to engineer entry as fast they can
to escape the hell of semi-fixed currencies. It was not such a good
idea after all to take out euro mortgages in Budapest, Warsaw and
Sofia – or Swiss franc mortgages, heaven forbid.
Everybody wants a safe port in this Force 10 storm. No matter if it
is full of undetonated mines. No matter, too, that Denmark's travails
stem from membership of the ERM, a half-way house that has forced
them to raise rates twice – into the Copenhagen property crash.
José Manuel Barroso, the Commission's chief, was a little too honest
telling French TV that the people who count in Britain hanker for
monetary union. What a slip of language. Is this a reversion to his
Maoist youth in Portugal, or has he been drinking the EU waters for
too long?
The people who count in British democracy are the voters. But let us
not quibble. Mr Barroso is right to sense a shift in the
undercurrents of British politics. This is a tricky moment for those
who fear that total loss of control over our monetary policy would
lead to even more destructive cycles of booms and busts than those we
have already.
"I don't want to break the confidentiality of certain conversations,"
said Mr Barroso. "But British political leaders have told me that: if
we'd had the euro, we'd be better off."
How, exactly, would we have been better off? Our current mess is
caused by over-reliance on bankers (7·8 per cent of GDP), six years
of incontinent spending by Gordon Brown and a housing/credit bubble
that has pushed personal debt to 103 per cent of GDP.
Joining the euro would not have prevented any of this. It would have
made matters worse. The European Central Bank held rates at 2 per
cent for part of this decade to help Germany out of the doldrums.
Imagine what such rates – or anything near – would have done to
Britain's property boom. You might as well have poured petrol on the
fire, as Ireland and Spain can attest.
Events since the crunch began last year – and reached volcanic fury
in September – entirely vindicate our refusal to give up control over
our economy. Sterling has come down from silly levels, falling 30 per
cent against the dollar and 21 per cent against the euro. Perfect.
The economy has suffered an asymmetric shock: the currency has acted
as the shock absorber. Our sympathies to well-heeled Britons in
Aquitaine or Umbria living off sterling rents, but policy is not set
for their needs.
The Bank of England botched the crisis at first, but it is now
responding to emergency with stunning boldness. The 1·5 point cut in
November – and what follows this week and beyond as rates fall to the
lowest level since the Bank's creation in 1694 – may make the
difference between recession and depression. Others that gave up
their currency may not be so lucky.
Would you really want Frankfurt to decide your fate? The "people who
count" in global finance – investors, economists and hedge funds –
are increasingly in despair about the conduct of the ECB. It has
misread events at every turn over the past year. It panicked in July
when it raised rates to offset an oil and food price spike. By then,
Germany and Italy were already in deep recession, and Spain faced a
housing crash.
The "Shadow ECB", a panel of private economists from across Europe,
last week called for immediate and drastic rate cuts, demanding to
know what the ECB's strategy now is – if it has any at all. It would
be going too far to describe the ECB's policy utterings as primitive
gibberish – as two Nobel Laureates put it – but the bank is bent on a
course of action that is at best very different from the reflation
strategies of the Anglo-sphere, China and Switzerland, and risks
repeating the errors of 1931 to 1933.
These are early days in this long, winding crisis. We cannot yet
judge whether the euro is a force for stability, or whether it is
workable at all – given the lack of an EU treasury and debt union to
back it up. Monetary unions can create an illusion of calm for a
while. They shield sinners from market discipline, but in doing so
they let problems fester.
Locking the currencies together was the easy part of EMU. Once the
euro was off the ground, it was unlikely to face an existential test
for at least a full credit cycle. But then it gets harder. The Latin
bloc has allowed costs to creep up, while Germany has squeezed wages
with relentless discipline. The gap has grown wider every year.
This is starting to matter. Investors are no longer willing to treat
Greek, Italian, Irish or Spanish debt as interchangeable with German
debt.
Nothing is pre-ordained in the euro drama. The chief reason for
launching the single currency – before economies had properly
converged – was to force the pace of political union. It may have to
deliver on this agenda.
Either the EU creates the machinery to needed cushion the bust on
Europe's fringes, or EMU will drift into crisis. The ball is in the
court of very reluctant paymasters in Germany.
Whichever of these two paths its chooses, there is no earthly reason
for us to follow.
=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-
AND
2. (Leader) KEEPING EUROPE AT BAY [paper]
Could José Manuel Barroso's euro statement refer to Peter Mandelson?
[web]
For José Manuel Barroso, the president of the European Commission,
"the people who matter in Britain" think we should join the euro.
There speaks the authentic voice of the Euro elite for whom common-or-
garden voters are an irritating irrelevance.
To whom could Mr Barroso possibly be referring? Could one of them be
his former colleague in the Brussels Commission, Lord Mandelson, now
returned, for the third time, to high office in the Labour Government?
There is a clue. The Business Secretary said at the weekend that he
believed "that our aim, our goal, should be to enter the single
currency".
It was the first time the euro has been mentioned by a Cabinet
minister in years. Make of that what you will.
If the commission president does indeed regard the pro-euro Lord
Mandelson as the arbiter of British policy, he is making an astute
judgment.
For his lordship has been given exceptional latitude by Gordon Brown
to let his writ run far beyond his own Whitehall department: his
fingerprints seem to be on a great deal of what the Government is up
to these days.
The Barroso theory is also supported by the tumbling value of
sterling against the euro - down by close to 15 per cent since the
start of the year. [84.9p today -cs] At this rate of descent, the
two currencies will align around March 2010, the eve of the general
election.
Could this prompt a fresh attempt to join the eurozone?
Unfortunately for single currency supporters, there is a fly in the
ointment. Under the Maastricht convergence criteria, successful
applicants should have a debt/GDP ratio not exceeding 60 per cent.
The Treasury admits the ratio is heading towards 57 per cent, but
that excludes PFI projects, pension liabilities and the bail-out of
the banks. Add in those and our debt ratio is already double the
limit. Even Lord Mandelson will struggle to finesse that away.
===========================
EU OBSERVER 2.12.08
Eurozone ministers slap down Brussels recovery plan
LUCIA KUBOSOVA
BRUSSELS - Finance ministers from the euro area have agreed it's
too early to say how much public money EU member states should pump
into the economy to fight recession, with Germany voicing the
fiercest criticism of the European Commission's €200 billion recovery
plan.
Less than two weeks before all the European leaders gather in
Brussels to pronounce on the financial stimulus package, ministers
from 15 countries sharing the euro failed to give the plan their
blessing on Monday (1 December).
The commission suggested last week that the EU should invest €200
billion in various sectors via a range of measures, from VAT cuts and
cheap loans for businesses to social policy measures to help the most
vulnerable citizens.
While some €30 billion is to be drawn from the common EU budget and
the European Investment Bank, national governments are called on to
pony up the remaining €170 billion - depending on their economic
situation and resources.
But while the eurozone ministers - meeting on the eve of a gathering
of all the EU's finance chiefs - agreed on the general philosophy of
the package, they did not back the suggested figures.
"Everyone agrees that we need a strong fiscal response," Eurogoup
chief Jean-Claude Juncker, Luxembourg's premier and finance minister,
told journalists after the evening debate.
"We have the assurance that all national plans that will be presented
would comply with the qualitative indications mentioned by the
commission," he added, while admitting: "We have got to wait until
all the national plans come in before we can get a figure."
Critics in Berlin
German finance minister Peer Steinbruck was particularly sceptical of
the commission's proposal, echoing previous remarks by government
ministers in Berlin, including Chancellor Angela Merkel, who had said
that too much cheap money in the economy could spark a new crisis in
less than a decade.
"We must not copy one another. We have to co-ordinate. The modus
operandi can vary. European co-ordination is a way to do it, but a
variation is possible," Mr Steinbruck said when he arrived at the
meeting on Monday.
His Dutch colleague, finance minister Wouter Bos, stressed the need
for the eurozone to return to budgetary discipline as soon as the
conditions allow - otherwise the common currency could suffer more
due to looming public deficits and debts.
"We need to do something and that needs to be substantive, and I do
not mind it being substantive as long as it is temporary, as long as
all countries after having taken these measures return to their path
of reaching objectives."
Several EU countries, including the biggest European economy,
Germany, have announced that they will not be able to reach their
previous goal of getting rid of budgetary deficits by the end of this
decade.
Ireland is expected to see its public deficit jump to 6.5 percent
next year, with the commission preparing disciplinary procedures
against Dublin to force the four-million-strong country to balance
its public finances.
Although some member states - such as France, currently at the helm
of the 27-strong bloc - pointed out the agreement among EU leaders to
relax budgetary rules during the current financial crisis, Brussels
maintains it should be only under the rubric of flexibility
manoeuvres allowed by the 2003 reform of the EU's pact for stability
and growth.
Under the rules which underpin the euro, member states can maintain a
deficit over three percent of GDP for up to a year in the case of
extraordinary circumstances, but they must still hew as close to the
target as possible even as they exceed it.
The European Commission on Monday asked the eurozone finance
ministers to present their budgetary plans for the next year by then
end of December. The commission will repeat the call on Tuesday when
facing all finance ministers from across the EU.
On 19 January, the commission will publish an updated economic
forecast and analysis of national programmes. After which point,
Brussels intends to proceed with all necessary disciplinary measures
against member states breaking the rules on sound finances.
========================
DAILY MAIL 2.12.08
Mandelson at centre of 'ditch the pound' row as European Commission
president claims Britain is ready for the euro
By JAMES CHAPMAN
Lord Mandelson was at the centre of a row last night over 'secret'
plans to ditch the pound after an explosive claim that Britain is
ready to join the euro.
The European Commission president said the UK was 'closer than ever
before' to signing up to the single currency.
Jose Manuel Barroso said he had held private conversations with 'the
people who count in Britain' and knew that they were ready to move
into the euro-zone.
That was widely seen as a reference to Lord Mandelson, who said at
the weekend that 'our aim' should be to join the euro.
Lord Mandelson was the loudest cheerleader for the single currency
during his stints in Tony Blair's Cabinet and has just been recalled
from Brussels, where he was Britain's EU Commissioner.
But now he appears at odds with his new boss Gordon Brown.
Downing Street denied there had been any policy shift and said it had
'no plans' to ditch the pound. Sources said the suggestion that
Britain was ready to enter was 'wishful thinking'.
Mr Barroso's remarks led to a backlash in Westminster. Shadow foreign
secretary William Hague pledged that there were 'no circumstances' in
which a Conservative government would propose joining the euro.
All polls
The Tories were understood to be preparing Parliamentary questions to
Mr Brown, Lord Mandelson and other ministers to establish what
discussions had been held with EU chiefs over euro entry.
Mr Barroso said senior British politicians believed the recent
economic turmoil made membership of the single currency a far more
attractive option. He boasted that the recession had weakened faith
in the pound.
Speaking to French radio, the former prime minister of Portugal said:
'We are closer than ever before. I'm not going to break the
confidentiality of certain conversations, but some British
politicians have already told me "If we had the euro, we would have
been better off".
'I know the majority in Britain are still opposed but there is a
period of consideration under way and the people who matter in
Britain are thinking about it.'
Mr Hague said: 'Keeping the pound is vital for Britain's economic
future. We need interest rates that are right for Britain, not the
rest of Europe.
'If Labour Ministers still want to get Britain into the euro, they
should come out and say so.'
Nigel Farage, leader of the UK Independence Party, said: 'If Barroso
would like to consult the "people who matter in Britain" then he can
call for a referendum on the euro so the people of Britain can tell
him where to go.'
Lord Mandelson had told a political conference on Saturday: 'Our aim,
our goal, should be to enter the single currency.'
But he conceded that the Government was 'obviously not going to take
on that challenge' in the current economic climate.
Sources close to Lord Mandelson insisted last night that he had had
no private discussions on euro entry with Mr Barroso.
He also accepted that Mr Brown's five economic tests set in 1997 must
be met before Ministers would hold a referendum.
A European Commission spokesman said Mr Barroso's comments were
'reflections'.
He added: 'The British are very pragmatic. When they feel it is right
to join the euro, they will.'
[NB the Mail is holding a straw poll in conjunction with this
article. The readers voting so far [ 11.30am] are 82% against
joining the euro!
Article on:
http://www.dailymail.co.uk/news/worldnews/article-1090768/Mandelson-
centre-ditch-pound-row-European-Commission-president-claims-Britain-
ready-euro.html
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