Criticisms of euro deal builds

27th October 2011

The Daily Mail seizes on comments from George Osborne where he warned the House of Commons of an emerging eurozone caucus.

The paper quotes Osborne saying: "We have to be alert to the danger of caucusing … in areas that should legitimately be the preserve of the 27.'

The Mail says this confirms fears that the eurozone is taking on the trappings of a state within a state and that the 17 eurozone states will starting coordinating decisions on business and social policies, to the detriment of Britain and the other non-euro countries.

The Huffington Post reports the Chancellor's full statement here to show it context.

The pro-European Justice Secretary Ken Clarke says a two-tier EU was 'one of the big issue we have to address in due course'.

He adds: 'So what we have to make sure is that does not exclude us from proper participation in decision-making, particularly on the single market but of course on all political issues as well.'

However others wonder if the decision is already out of British hands.

Meanwhile the Guardian's David Gow foresees a European Union without the UK anyway because there will inevitably be changes to European treaties and Britain may no longer be welcome nor wish to be a part.

"Angela Merkel and David Cameron originally reached a deal to resolve their own differences after he pulled the Tories out of the EU's main centre-right grouping, the EPP: he would bang the drum for eurozone stability, saying it was in the UK's vital interests; she would keep quiet about treaty change. He has kept his side of the bargain; she, under the pressure of events, has not. Not only does she say treaty change is no longer taboo, she's now actively encouraging it."

In Germany however Merkel receives a good press. Here Spiegel suggests she is calling almost all the shots. It writes: "Merkel has presented herself as a good European. At the same time, she has neutralized two antagonists. She is now leading the competition with Nicolas Sarkozy for leadership of Europe. Contrary to what the French initially proposed, the EFSF backstop fund will not be given license to run up as much debt as it sees fit. Instead the German model of leveraging the fund to provide insurance on bonds has won out. Meanwhile, back in Germany, Merkel has reduced the role of the opposition parties in the euro rescue debate to that of extras. Be it the Social Democrats or the Greens, they will merely rubber stamp whatever she hands to them."

More generally and less politically, the Economist is still worried about contagion.

"Even if the euro zone succeeds in avoiding CDS payouts, this could prove a Pyrrhic victory. If losing half the face value of a bond does not amount to a default, what does? Undermining the value of CDS insurance could deeply distort the market. If banks or other investors lose faith in their ability to hedge risks, they will be tempted to cut back on risk or demand higher yields. So, perversely, sparing a CDS payout on Greece could push up the borrowing costs of other countries.

The website is also concerned about the nine month deadline for banks to find more capital warning that banks may be tempted to cut back on capital intensive business which could include business lending. This could bring about a slowdown which stresses the whole system."

On the Telegraph, economics commentator Andrew Lilico is worried about the precedent set for CDSs of other countries.

He writes: "Had the larger Greek default triggered CDS payouts, one might reasonably have expected Italian bond yields to fall – at least once the initial dust had cleared, because the credibility of insurance was greater. But what now?

"Had everyone already assumed that Italian and Portuguese sovereign CDS were worthless, or were there some poor souls still hoping they might provide some protection? "

Also on the Telegraph Ambrose Evans-Pritchard wades into the idea that Europe is approaching a fiscal union. It is, he says, nothing of the sort.

He writes: "None of this is fiscal union. There is no joint bond issuance, no move to an EU treasury, no joint budgets with shared taxation and spending, no debt pooling, and no system of permanent fiscal transfers. Nor can there be without breaching a specific prohibition by Germany's top court, a prohibition that could be overcome only by changing the Grundgesetz and holding a referendum."

More from Mindful Money:

Eurozone Debt Crisis: LIVE

Does the Eurozone crisis matter to emerging markets?

New Global Titans: Stock-picking to benefit from emerging market success

Creativity and financial crisis: Will this provide the answers?

To receive our free email newsletter sign up here.

Leave a Reply

Your email address will not be published. Required fields are marked *