Update: The United Kingdom is the only country among the 27 nations of the European Union not to accept a Franco-German proposal for closer fiscal coordination and budget discipline. Prime Minister David Cameron is widely seen as adhering to the demands of his Conservative party anti-unionists, and the City of London financial district. According to President Sarkozy, "David Cameron a demandé, ce que nous avons considéré tous comme inacceptable, un protocle dans le traité permettant d'exonérer le Royaume-Uni certain nombre de réglementations sur les services financiers". Although Germany succeeded in gaining concessions from the the other countries of the Union for tighter fiscal control, it still refused to allow the ECB to issue euro-obligations to pay off some of the debt of nations in crisis. The proposed treaty changes came after a marathon negotiating session that began Thursday evening. If the treaty is signed into law, and that is not a done deal since some governments will require parliamentary approval and even referendums, member nations will have to submit their budgets to the European Commission for review and bring their budgets into balance. Deficits above 0.5 of national GDPs will automatically engage an unspecified "correction mechanism". The European leaders also agreed to bolster the IMF which is making emergency loans to ailing countries by €200 billion. Markets reacted positively to the outcome of the summit that saw twenty-six sovereign nations agree to give up some control over their fiscal policy to continue the union. What is not yet clear is how the
UK will be treated by a European Union it has excluded itself from for the sake of lax financial regulation.
{9.05.11}It all started with Greece, the European financial meltdown, that is. When traders began to notice the size of Greece's sovereign debt compared to its tax base they began to flee the Greek market. This chart courtesy of Gary Dorsch at
Market Oracle sums up the impossible:
With a shrinking economy and dissolving tax revenues, any Greek government will find it impossible to pay back its creditors in full. Nevermind that Greeks were not overly enthusiastic about paying their taxes to a corrupt government to begin with. No private lenders want to lend Greece more money. The EU is keeping the country from defaulting with emergency loans that the rest of Europe's taxpayers will pay for eventually. Greece's unemployment rate hit 18.4% in August, and the economy contracted at an annual rate of 5.5%. The country cannot survive financially under current debt terms. A write off of some debt (default) is necessary and that is what Athens is demanding now. Otherwise, it will be forced to drop out of the eurozone, and return to the drachma which will certainly cause hyperinflation because the national currency is so devalued. That in turn will bankrupt Greek banks and pension funds which have loaned the government about €75 billion. It is European fiscal union or bust, and that is what Ms. Merkle will be peddling at the upcoming summit on December 9th.
