Tuesday, December 13, 2011

At the weekend did the UK miss the Titanic or a life raft?

There have been zillions of words written about this weekend’s EU summit but none of them adequately explain (at least to me) what happened.

Terry Smith is a very respected UK business commentator said that the ejection of Britain from the EU leaves us: "as isolated as somebody who refused to join the Titanic just before it sailed".

Another stream of comments portray the result as a catastrophe for the UK.

Let’s forget the detail of the “who said what and why” and look at the group dynamics that must have gone on over that fateful supper in Brussels.

Cameron annoys the hell out of me – don’t know why, but he does. I suspect he has that effect on others, including his fellow heads of state.

However, I am sure that the other egomaniacs who run the countries of Europe are equally objectionable. Cameron’s personal foibles might have contributed to the outcome but I just cannot believe they were the cause. So what was?

I think two factors were at play. UK Prime Ministers and the UK populace have viewed, in varying degrees, the paraphernalia, regulations and directives that the EU is a world leader in generating as being 
at best an annoyance and at worst downright dangerous. The UK didn’t enter the Euro because it didn’t think it would work and hasn’t been silent in reminding the world that it was right. 

Nobody likes a Smart-Alec who was right and is not restrained in telling you so.

Finally, there is fear. European prime ministers are terrified of what comes next. All they know is that it is not going to be nice and that they have minimal chance of influencing the outcome.

There is a famous line in the Godfather when Tom Hagen says to Sony, after he suggests some violent act that: “This is business not personal.” The point being that professionals strip out personal/national feelings and make decisions based on facts not emotions.

I think what happened last Friday was personal not business.

OK, enough of the ‘why’ what about the “so what”? The European states that have agreed to this pact, or whatever it will be called, have effectively discarded one of the very few levers of the economy they controlled. If you are in the EU you don’t control your interest rate, money supply or the exchange rate and now you don’t control your budget deficit.

As the FT said: The only immediate prospect offered to the indebted states of Europe is “internal devaluation” – for which read cuts in wages and pensions, higher taxes and much higher unemployment.

A quote from the Times said: Euro-zone countries have been deprived of all policy levers to combat deflation and reverse their crushing debt spirals: They can't devalue; they have no control over spiralling borrowing costs; credit creation is being suffocated as confidence in banks evaporates and liquidity dries up.

I have absolutely no idea how all of this is going to play-out. All I know is that a group of people who should know better made a decision (that might have been right) for very wrong reasons. A situation that cried out for clear thinking ended up being a school playground punch-up. Not good. Dick Stroud

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