Cameron has upset the Germans, who, in response, have started to say things which will catapult Tory backbenchers into orbit. Essentially the message from David is, get your act together and find solutions to the euro crisis. The message from Angela and her followers is, even though Britain is not in the Euro, it will still have to pay towards the rescue and restructure.
Last week it was all about new governments in Greece and Italy. Both appear to have new administrations, although neither is yet functional. The market turmoil has not steadied in consequence. It grows worse. A new country has been added to the list of possible casualties; France. There is disagreement between France and Germany over the role of the ECB. No other country from outside is willing to lend to Euroland bail out funds in whatever form. This includes the U.S. and cash rich China, Russia and India.
Thus it is that the dynamics, forecast by this blog a while back, are beginning to take on a very simple form. The only country able to pay is Germany. It is not yet fully clear that it is willing, but if and when it is, it, as paymaster, will set the rules. Other countries will have to surrender a good deal of sovereignty in order to survive financially. They will not be ceding to a collective. They will be ceding to one country; Germany. Whatever further structures and councils are set in place, they will dance to Germany’s tune, unless a taxation system is set up to create enough cash flow to take the strain. This is why there is such enthusiasm for the financial transaction tax.
Taking a deeper look, it seems to this blog that the moment when new governance arrangements would make all the difference may have passed. This is because the markets have now begun to see that the overall debt, or if you prefer leverage, of the entire western structure is, if not unsustainable, certainly crippling. Sooner or later there will have to be a universal write down to sustainable levels for everybody, otherwise stagnation is the only prospect.
To illustrate this, it is worth looking back to the end of the second world war. Germany and Japan emerged beaten, with their countries and economies so smashed to smithereens that they had to start again from scratch. They rose to become numbers two and three in the ranking of economic powers of the world, behind only the United States. On the other hand Britain, having won the war, was crippled by debt and outdated infrastructure which it could not afford to renew. It lagged ever farther behind, never catching up or achieving the standards of prosperity of its defeated enemies. They emerged out of the war they had lost, stronger. Britain, having won, emerged weaker. When it did begin to prosper, it did it by debt. Now, once more within a span of sixty five years, Britain is struggling to reduce a growing debt mountain.
The moral is that it may be better to take the pain in a single dose early.