Friday, 21 October 2011

Ambrose Evans-Pritchard

Ambrose Evans-Pritchard has covered world politics and economics for 30 years, based in Europe, the US, and Latin America. He joined the Telegraph in 1991, serving as Washington correspondent and later Europe correspondent in Brussels. He is now International Business Editor in London. Subscribe to the City Briefing e-mail.

Sedan again as Germany imposes terms

By Economics Last updated: October 20th, 2011

270 Comments Comment on this article

Bismarck conversing with Napoleon III after the Battle of Sedan, 1870

Bismarck conversing with Napoleon III after the Battle of Sedan, 1870

German victory. Defeat for France, Spain, Italy, and the Greco-Latin sphere.

My instant impression from the leaked EU summit draft is that the accord is minimalist, and largely a German Diktat. It has the makings of a diplomatic Sedan 1870.

If this is what landed on Nicolas Sarkozy’s desk at the Elysee yesterday, one starts to grasp, sort of, why he left Carla Bruni to labour alone as he dashed to Frankfurt to meet the two other women in his life, Chancellor Angela Merkel and IMF chief Christine Lagarde, as well as the European Central Bank’s old and new chiefs.

This document is not final, of course. Mr Sarkozy knows how go full-throttle histrionic, throw a fit, play the war guilt card, scream, shout, and even threaten to walk out of Emu (as he did in the May 2010 summit). He is so mercurial and impetuous that he might actually do something shocking if Germany refuses to meet him half way.

The text may well be very different by Sunday. It had better be.

1) There will be no change to the mandate or role of the ECB. The doctrine of "Price Stability" is upheld. (That is not the historic role of central banks, by the way. They were created in the 17th century to be lenders of last resort, as was the Fed before World War One. The idea that their chief task is to manipulate a single variable – the price level – is both new and misguided.)

There is no hint that the full firepower of the ECB will be harnessed to solve this crisis, as demanded by France, the US Treasury, the IMF, and much of the City. In my view this refusal to deploy the ECB is a colossal error, and will doom the summit outcome to failure.

2) There will be no move to fiscal union in the way we all understand it: no eurobonds, fiscal pooling, no big transfers. Zilch, as expected.

The so-called "Six Pack" of proposals for closer EU economic government relate to the policing of budgets, and such like. They are a means of imposing austerity, not sharing debts. This is what Germany means by "Fiskalunion". It is a loss of sovereignty for one purpose only.

The deflationary bias of the EMU system remains in place.

3) The permanent bail-out fund (ESM) will be brought forward from June 2013, but there is no date. The purpose of this trick is to allow the existing €440bn EFSF and ESM to operate at the same time, giving the rescue machinery greater fire power. OK, but rating agencies might notice. So will investors. Surely double-edged?

4) 5) 6) are kicked into touch until finance ministers gather on Friday. These cover the leverage of the EFSF, the scale of haircut for Greek bondholders, and the scale of bank recapitalization ( apparently now just €80bn, which is not going to do the trick).

There is an "unequivocal commitment" that haircuts will be confined to Greece alone. If you believe that, I have some ocean-front property to sell you in Alsace.

Fresh details soon.

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Showing 1-25 of 270 comments

Commenter's avatar

  • jonlivesey

    40 minutes ago

    A very nice summary, and I think we are seeing a historical pattern emerging of Germany reaching for a near-term victory in a pretty brutal way, while not noticing that they are undermining their own strategic position in the long-term.

    Germans took pride in their demolition of Belgium in 1914 and Poland in 1939, but in each case what they really did was unite World opinion against themselves, while the UK was able to make good use of their lack of scruple to assemble coalitions against them.

    This time they will be celebrating a "victory" over France and Sarkozy, and not noticing that in the long run a financially weakened France risks becoming to target of new contagion spreading through the Euro area.

    Yes, the Germans have saved themselves some money, but it's never smart to inflict wounds on your closest ally. Even if it doesn't cause resentment, it reduces their effectiveness as allies, and makes them determined to look after their own interests in future, and not those of the alliance.

    Much of today's attitude towards the Germans dates to their refusal to assist the UK at the time of the ERM. Now they are teaching France the same lesson. The lesson from Germanny is simple: solidarity until it costs us something.
  • Commenter's avatar

    viridiana

    Today 01:08 AM

    All true Europeans will fight to preserve their economic freedom against foreign powers (China, USA, India, etc) .... That is the meaning of the Euro .... and we do not give up easily.... so forget about the Euro collapse.... We will fight for freedom.

    Greetings from Spain.
  • Commenter's avatar

    kom

    Today 12:21 AM

    News from my favourite PIG: they will explore energy resources!

    "Government confirms oil and gas in the Algarve"



    Well, if Portugal will reduce their energy dependence from ouside, I dont mind having a house in Algarve. XDDD
  • Commenter's avatar

    kom

    Today 12:56 AM

    Portuguese companies are cheap? So begins the takeovers.

    "U.S. banks JP Morgan and Bank of America will be willing to finance the supply of Brazilian Votorantim to acquire Cimpor."



    Well, this is a good news. I betted in these company shares and they will rise and I am happy in believing in this country. Portugal. Not bad, not bad. I need a good price to sell those shares.

    More acquisitions in Portugal? I am waiting for then. 2011 will be another good year after investing against the crowd! XDDD
  • Commenter's avatar

    kom

    Today 12:36 AM

    Iron from Portugal? Those guys are deeply searching for revenues:

    "Lisbon, 20 out (AP) - The Australian Rio Tinto, the largest mines in the world, want to invest around one billion euros in the exploitation of iron in Portugal, said a source close to the negotiations to the agency Lusa."



    They are open theirs eyes. They will search for iron, gold, oil and gas, copper, lithiun, etc. to leverage their economy. Well done!
  • Commenter's avatar

    kom

    Today 12:14 AM

    "1) There will be no change to the mandate or role of the ECB. The doctrine of "Price Stability" is upheld. (That is not the historic role of central banks, by the way. They were created in the 17th century to be lenders of last resort, as was the Fed before World War One. The idea that their chief task is to manipulate a single variable – the price level – is both new and misguided.)"

    Dont cry, mr. Ambrose. BoE will save your government. Better BoE than ECB. But the blackmail will not save UK and USA banks.

    Dont worry, after the battle some will be alive to tell you the story.
  • Commenter's avatar

    Colchique

    Today 12:00 AM

    "This document is not final, of course. Mr Sarkozy knows how go full-throttle histrionic, throw a fit, play the war guilt card, scream, shout, and even threaten to walk out of Emu (as he did in the May 2010 summit). He is so mercurial and impetuous that he might actually do something shocking if Germany refuses to meet him half way."

    Sarko doesn't scream like a Brit, he goes to the battlefield, and as a lawer he pushes his argument ahead, he will not be a Chamberlain, if it's needed , he'll do what he says, walking out the EMU, and bonjour la merdia in la Germania
  • Commenter's avatar

    Colchique

    Yesterday 11:56 PM

    "If this is what landed on Nicolas Sarkozy’s desk at the Elysee yesterday, one starts to grasp, sort of, why he left Carla Bruni to labour alone as he dashed to Frankfurt to meet the two other women in his life, Chancellor Angela Merkel and IMF chief Christine Lagarde, as well as the European Central Bank’s old and new chiefs."

    that's silly from a intelligent person !

    like if all the men would stand by their wife in labour, and as if Merkel and Lagarde were his other fancy !

    you don't seem to know that he is still in charge of our country !
  • Commenter's avatar

    escapedroger

    Yesterday 11:06 PM

    Wednesday is the new Sunday! Perhaps the Orient Express can lend the Germans a Pullman car ( mixed historical reference).
  • Commenter's avatar

    hospitaller

    Yesterday 11:05 PM

    If the Germans force Sarkozy to quit then they will do everybody a favour- the euro and the EU will be kaput. Danke schon, Frau Merkel!
  • Commenter's avatar

    Colchique

    Today 12:05 AM

    but you're a Brit for rejoicing of such a happening, hmm then your country will be f*cked too, cuz on which currency the City is going to play casino? hmm prepare to go to Hong Kong, singapore or Shanghai !
  • Commenter's avatar

    chelyabinsk

    Yesterday 10:26 PM

    .

    EUROSCEPTICISM IS DEAD !

    "The three big parties at Westminster have told their MP's to vote against a motion calling for a referendum to be held on UK membership of the EU."


    The Eurosceptic movement is dead in a ditch.

    Chelyabinsk

    .

  • Commenter's avatar

    Rifleman1853

    Today 01:49 AM

    "The Eurosceptic movement is dead in a ditch." (Chelyabinsk)

    Now, Chel - this is no time for wishful thinking. And get your facts right.

    The three party leaders have told their MPs to vote against the clearly expressed opinion of the British public. As Hospitaller has already said, there's no guarantee the MPs will do as they are told. many of them are already becoming concerned about the outcome of the next election, and may give more weight to party members and to voters' opinions than they do to party leaders. They are well aware (and so are you, despite your denials) that a large and steadily growing proportion of the electorate want Britain to leave the EU. Why else do you think the party leaders have given orders for a three line whip?

    Because they fear that, without that level of coercion, they will lose the vote.
  • Commenter's avatar

    Iain_Rogers_Hong_Kong

    Today 01:01 AM

    chely, with all the excitement that's going on right now [Gaddaffi, euro crisis] I've completely forgotten how many days there are left to save the dollar. Could you please jog my memory. Thanks. Posted 21Oct@ 07:59HKT.
    p.s. Happy Trafalgar Day to all you frogs out there.
  • Commenter's avatar

    donal

    Today 02:06 AM

    Im sure Silly Chily will be able to battle for himself but the the US Dollar was saved by taking on more debt, oddly enough just the type of saving possibly least needed by the Euro
  • Commenter's avatar

    hospitaller

    Yesterday 11:07 PM

    Chely, old son, telling MPs how to vote is one thing, getting them to vote that way is another matter entirely. You should be old enough to understand this simple truth about the functioning of parliamentary democracy
  • Commenter's avatar

    bruinbirdman

    Yesterday 10:00 PM

    Looks like Germany has told France/eurozone, "If your banks have problems, you take care of them like you took care of Dexia (nationalization)."

    yitbos
  • Commenter's avatar

    Colchique

    Today 12:08 AM

    Belgium nationalised it

    France dismentled its services for tying only those that concerned France localities to Post bank
  • Commenter's avatar

    hospitaller

    Yesterday 11:08 PM

    It is simpler than that- Merkel is telling the little guy to shove it up his arse.
    Commenter's avatar

    viridiana

    Yesterday 09:58 PM

    Being as lazy, as we are, we are doing well.... So ... What is the point of working as hard as you?


    Ferrovial, ACS and FCC via their subsidiary Alpine were awarded contracts worth some £ 1,2 billion as part of the huge Crossrail project, the single biggest piece of transport infrastructure within the UK national plan.
    Infrastructure is at the very centre of Britain’s economic development plans. The country has drawn up its first National Infrastructure Plan, outlining a vision for the UK’s infrastructure of the future, and how both the private and public sectors can get involved. More contracts are due to be awarded in early 2011, leading up to the start of tunnelling activity. This will create more opportunities for Spanish businesses than just construction: from ground surveying to creative work and tourism promotion. It is the UK’s biggest tunnelling project since the Channel Tunnel in the early 1990s, and will draw together excellence from a wide range of construction specialists, suppliers and service industries.
    It is a good example of how the UK Government and the best skills in the private sector are working together to create infrastructure that will benefit the UK and its people.

    In total, the plan outlines some €240 billion of investment required over the next five years, offering exciting opportunities for overseas businesses that are interested in expanding into the UK. This means that Spain, with its expertise in information and communications technology (ICT), aerospace, automotive and renewable energy is a vital partner for the UK.
    This country is now one of the largest investors in the UK, with around 450 Spanish companies registered there.
  • Commenter's avatar

    Colchique

    Today 12:08 AM

    yet she did tell the same thing to german banks

Posted by Britannia Radio at 03:46