The European Council meeting raises more questions than it answers.
The biggest question is whether greater fiscal union is any more than a sticking plaster for the Euro’s woes – the biggest three banks in France were downgraded by Moody’s only as recently as Thursday.
It is astonishing that Europe’s leaders still don’t see that the only way for the Eurozone to be viewed as a single sovereign credit risk (where the strength of Germany and northern European economies more than makes up for the weakness in the South) is by the creation of a credible lender of last resort to underwrite the obligations of its members. The reason why sovereign risk is seen as ‘undoubted’ by the markets is because, if it comes to it, the lender of last resort can print money to inflate away the debt. Without this at Eurozone level, the crisis will surely go on until it drives European banks to collapse. So the answer to that first critical question – does this solve the crisis – must surely be no.
The next question is whether Sarkozy’s ambition to have a treaty within a treaty is even feasible from a practical point of view. The EU institutions – the ECJ and the Commission – exist for ALL the 27.
It’s not clear that one group of members can simply ‘annexe’ those institutions that have been developed (and paid for) over many years by the EU members, and establishing new ones to support a new treaty would take far longer than the markets would bear. It may well turn out that Sarkozy is prevented by EU rules from calling Britain’s bluff after all.
And then finally, why did David Cameron hold out against 24 other EU member just to protect Britain’s financial services industry? I think he made absolutely the right decision for Britain – we may not love our finance industry at the moment, but it certainly pays the bills. The industry accounts for 11 per cent of our total tax take, around £50 billion a year; it employs nearly 2 million people in Britain and is our most successful export. And most importantly, the future growth potential in financial services lies in North America and the developing markets of China, Brazil, India and Asia,where we have the opportunity to retain and grow our status as a world leader, but only if overzealous EU regulation doesn’t make us uncompetitive.