Time to show the EU and the markets
that we’re not bluffing

Number 10 issued the following release last night about today’s EU summit.

‘Downing Street has said that the Prime Minister would resist any change in EU rules that would involve a loss of national sovereignty’.

He heads out there knowing (or rather, one hopes he does) that the number of opinions about ‘what to do’ in sorting out the eurozone is rising daily….and that more and more of them are pointing the finger at Germany. Yesterday, top Italian economists released a report damning the austerity programme, and including this paragraph:

‘… the crisis has been exacerbated by the deflationary economic policies of wealthier members, especially Germany, where salaries have been held down despite productivity gains – thus penetrating foreign markets, and increasing Germany’s European market share…’

This is standard social democratic fare of which the French would be proud – except that Nicolas Sarkozy is a man of the Right….and he has just 48 hours ago staked his colours firmly into Angela Merkel’s high ground.

To some extent, Germany deserves to be on the high ground (the Franco-Italian view that they should’ve tried less hard is frankly surreal) but as discussed in yesterday’s Slog piece, this is looking increasingly like an effort to to save Franco-German banks with bad debts among the PIIGS.

In Germany itself, a new survey has found that nearly 9 out of 10 voters are dissatisfied with Merkel’s government, and Frau Merkel’s personal standing has plummeted some 20 points over the last three weeks.

Ironically, the UK currency is beginning to benefit from eurozone doubts and woes. Currency dealers the Slog spoke to yesterday are increasingly arguing that Sterling could become a relatively safe haven – one, because it isn’t the Euro, and two, because Britain’s bond debts are much longer term than those of the eurozone countries.

Whether that is merely wishful thinking or a potential boost, much now depends on Osborne’s emergency Budget next Tuesday. If the markets see it as Britain buckling down to slashing costs, this can only make the Euro’s position weaker.

In short, Cameron is walking into a summit where clearly, every lever will be pulled and subterfuge tried in order to steamroller the Sarkozy-Merkel-van Rompuy plan through – for that is what the bailout/regulatory scheme is now. But one where he has no need at all to feel weak or apologetic.

Given that context – with all the euro States in reality very much on the back foot and suffering concussion – the Downing Street release reads a little too weaselly and flim-flam for some tastes.

There would for example be no loss of Sovereignty at all if Britain were to accept an expensive role in bailing out eurozone banks – having already spent £890 billion bailing out its own. And it could even be argued that there would be no loss of sovereignty if (say) a new body – that included one or two British MPs – became the instititution conducting fiscal surveillance.

The weasel then would be that British legislators were seeing it before Parliament in full session…which made it OK. Except it wouldn’t, of course, because the Commons would be powerless to change anything afterwards.

The rules of the game have changed now, and the Prime Minister must recognise this. Our view should be a commercial one: if we can’t cut the cost of being in the EU, then it should simply become just another Government cut.