Was it the Merkozy power couple who were the real winners after the emergency summit on the Eurozone crisis today? Liam Quinn examines the details of the new deal.
From a British perspective this morning’s EU Crisis Summit meeting was a resounding victory for David Cameron.
However, overall it was a victory for the power couple of President Sarkozy & Chancellor Merkel. (Hereby referred to as Merkozy)
23 of the EU members signed up to the new deal in an attempt to salvage the Euro. But in reality, no deal to save the Euro occurred. What actually happened is that the members signed up to a set of regulations that are as equally stringent as they are ridiculous. These rules are:
i. “A commitment to “balanced budgets” for eurozone countries- defined as a structural deficit no greater than 0.5% of GDP”
ii. “Automatic sanctions for any eurozone country whose deficit exceeds 3% of GDP”
iii. “A requirement to submit their national budgets to the European Commission, which will have the power to request that they be revised”
It is easy to take these apart one by one. Whilst the first rule is sensible in theory, it will prove impossible. The original Maastrict Treaty imposed similar deficit restrictions (3%). When this was ignored, the EU introduced the Growth & Stability Act. This was then flouted and ignored by none other than the French and Germans. This will simply happen again and again.
The second point is simply ludicrous. If a government is struggling to control its spending and debt, why would you impose financial sanctions, increasing the pressure on the government? It is completely illogical.
Finally, the European Commission will have the final say on the fiscal policies of the 17 Eurozone members. They have in essence signed away all of their spending powers. Ultimately they no longer control their own fiscal or monetary policy.
The reasons above would perfectly explain why David Cameron refused to sign the original Treaty. But he was pushed to concede even more. Merkozy are seemingly suddenly in favour of a Tobin Tax. A Tobin Tax is a tax on every financial transaction by bankers and the City (in a nutshell). Whilst the tax itself remains minute, the revenue raised relies disproportionately on the City of London. The UK is already the 2nd biggest net contributor to the entire EU system. Cameron was being asked to give away sovereign power over fiscal management and in return Merkozy would take EVEN MORE money from the UK.
On a side note, the City of London does need more regulation. The UK relies far too heavily on this one sector, however, regulation is not a synonym for tax, it never has been.
The biggest surprise of the whole summit was that David Cameron actually stood up for British interests. Before the summit, he had threatened to use his veto, but many commentators simply ignored it as fighting rhetoric. It is no wonder that Sarkozy blanked Cameron earlier today. Merkozy and their predecessors have been used to British leaders rolling over and playing ball at all stages. This was a shock to the system.
Compounding David Cameron’s victory today is how his actions have left the Labour Party floundering. They aren’t sure what to make of it; they can see that popular support is on the side of Cameron. Douglas Alexander has been doing the rounds on Sky/BBC criticising David Cameron for isolating Britain and not negotiating a good deal for the UK. This is nonsense; he has protected our interests and ensured we do not give any more sovereign powers away, something the Labour Party cannot argue proudly about.
As I mentioned earlier, the UK is the 2nd biggest net contributor to the EU, it still has political clout, we haven’t lost any of our trade agreements, the Left hyperbole has gone into overdrive over “isolationism”. One great piece of news for the Coalition today is that the trade gap has narrowed at the quickest pace since records began, mainly through exports to India, Russia and China increasing dramatically, showing that the EU is not our only trading partner after all.