by | Dec 19, 2011

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Much has been said in the media this year about David Cameron’s increasingly difficult relationship with his European partners. And that’s not so surprising when you think about it.

Cameron’s November meeting with Germany’s Chancellor Angela Merkel – at which he told Mrs Merkel that the European Central Bank should be prepared to act as a lender of last resort to all euro zone countries – was reported in Britain as positive evidence of how Britain’s non-membership of the Euro group gave it a fresh perspective. But in Germany the Cameron lecture was seen as a blatant piece of interference by a non-participant. That was pretty much Frau Merkel’s personal viewpoint too, although she was diplomatic enough not to let it show.

This is all a particular pity, because Britain genuinely does have a unique vantage point in this matter. As it happens, British financial institutions are much less heavily exposed to the Greek debt situation than France, where the French/Belgian Dexia Bank fell over in October after losing its ability to raise capital because of its Greek exposure. What’s awkward is that, a non-Euro club member, Britain is inclined to underestimate Germany’s worries about how a major issue of bond debt by the European Central Bank might put the skids under the currency and leave the successful northern countries supporting the feckless southern contingent.


An Ever Closer Union?

But the single most important point about the Prime Minister’s Berlin encounter, surely, was that it left the Euro club’s members feeling vaguely but perhaps justifiably annoyed with a London whose own sophisticated financial trading environment just happens to dwarf its European rivals – especially with regard to derivatives trading. A sore point with both Brussels and Washington, and one which they would both like to restrict if they possibly can. These are dangerous waters in which to make enemies by appearing insensitive, as Mr Cameron managed to make himself look during his meeting with Frau Merkel.

“Many Tories still regard the European Union as the work of the devil.”

But cabinet members such as Foreign Secretary William Hague have been moderating their positions noticeably in recent months.

That is a travesty of the situation, of course. Since his appointment as Conservative Party leader exactly five years ago, the British Prime Minister Cameron has probably moved further toward a properly Europhile stance than any of his contemporaries. Mr Cameron is still grappling with a sizeable Eurosceptic rump within his own party: there’s not much question that the bulk of the party’s grassroots membership still regard the European Union as the work of the devil. But on the positive side, cabinet members such as Foreign Secretary William Hague, a former Eurosceptic, are toeing the Euro-friendly Cameron line with more public enthusiasm.

A noticeable exception so far seems to have been Chancellor George Osborne, who hasn’t been allowed very much airtime on European topics since July, when he unwisely declared that Britain wouldn’t be contributing to a Greek bail-out because it was entirely a Eurozone problem, so yah boo sucks. (I paraphrase his sentiment lightly.) Let us say right away that diplomacy is not Mr Osborne’s strongest suit. But there’s no doubting that George the blunt instrument has been singularly successful in enforcing an austerity programme that is the envy of continental Europe. And that’s got to be worth listening to?


“Has Osborne got anything to say about the Euro problems?”

We don’t know. So far, the Prime Minister seems to be keen to keep him away from the microphone.

Certainly, the parlous state of the southern European bond market has brought a welcome flood of foreign money into gilts recently – driving up the value of the pound and forcing benchmark gilt yields down sharply. That’s good, of course, although it has also had the unfortunate side-effect of kaiboshing UK pension annuity payouts, which are based on gilt yields and which are reckoned to have fallen by 40% since August. But, that aside, has George got anything useful or relevant to say about the Euro and its problems? We don’t know. At present, the Prime Minister’s instinct seems to be to keep him away from the foreign policy microphone.

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