Neither austerity nor City exemptions will do, say Cameron's critics

By staff writers
December 10, 2011

David Cameron's decision to veto EU treaty reform possibilities on financial regulation and fiscal consolidation has drawn huge criticism and puzzlement across the continent and beyond.

But while many Eurosceptics rejoice at what they see as a first step towards distancing the UK much further from mainland Europe, or even leaving the EU eventually, progressive critics are noting that there are serious problems with some of what has been put forward at the summit to tackle the Eurozone crisis as well as Mr Cameron's response to it.

The British PM's refusal to sign up to a full treaty was described as “unacceptable” by French President Nicolas Sarkozy, while German Chancellor Angela Merkel called Mr Cameron’s alternative proposal a “rotten” compromise.

The Conservative leader, apparently backed by compliant Liberal Democrat deputy PM Nick Clegg, sought to exempt City of London institutions and banks from regulation and from a redistributive Financial Transaction Tax (FTT).

Occupy London supporters and commentator Shamik Das accused Mr Cameron of "acting in the interests of the one per cent", and putting the concerns of large Tory donors, corporate allies and right-wing backbenchers ahead of the needs of the majority.

Mr Sarkozy, France's fellow right-of-centre leader, said that it was not credible to seek to avoid regulation for UK, when it is now generally accepted that deregulation was a major cause of the financial crisis.

New Economics Foundation (nef) fellow David Boyle said that "David Cameron has missed an opportunity to reform a dysfunctional, City-focused UK economy."

He wrote on the nef blog: "Yes, the City pays £53 billion in taxes, which is certainly important, and would be a sign of UK economic success if this came from the City playing a useful role nurturing and supporting the real economy – but, as it currently stands, it signally fails to do so."

Boyle continued: "The tragedy is that the City has become a huge engine designed for its own self-aggrandisement, vacuuming up the talent and resources out of the UK’s economy in order to make its key figures immensely rich."

"It is allowed to continue this largely useless work of enriching itself purely by paying large sums to the exchequer. Any threat to its privileges, and everyone looks at their tax revenues and leaves them alone," the nef fellow declared.

Meanwhile political economist Ann Pettifor, Director of Advocacy International Ltd and PRIME (Policy Research in Macroeconomics), who predicted an Anglo-American debt-deflationary crisis back in 2003, wrote on her Debtonation website: "I find it poignant to watch European politicians and their advisers in Brussels, piling the pressure on their own shoulders and frantically sweating over a solution to 'the eurozone crisis'."

"The fact is the eurozone is a side show. This is a global financial crisis," she averred.

But while there is widespread support from progressives and 'Green New Dealers' for the Euro commitment to regulating financial services and banks (accompanied by some scepticism about whether it will be achieved), others point out the fiscal union and centralised budget control will have other far less desirable consequences.

Paul Mason, the BBC's economics correspondent, wrote yesterday morning that "by enshrining in national and international law the need for balanced budgets and near-zero structural deficits, the eurozone has outlawed expansionary fiscal policy."

The kind of quantitative easing and neo-Keynsianism put forward by Barack Obama and Gordon Brown would effectively become "illegal", he suggested - something that those who argue that only productivity, not austerity, can deal with debt, are very worried about indeed.

But it seems that there are to be major and minor loopholes in what is being drawn up in Brussels. Tight debt requirements could be eased if the recession deepens seriously, for example - which some pundits say is already happening. Trades Union Congress analyst Duncan Weldon wrote on the ToUChstone group blog: "Citibank now expect that European GDP will fall for the next six quarters something not experienced by Japan in the 1990s. 18 months of renewed recession is a grim prospect."

He added: "The European Banking Authority believes that Eurozone banks face a capital shortfall of EU115 billion. This morning [9 December 2011] Moody’s downgraded the ratings of three large French banks. Standard & Poor has placed the sovereign ratings of the entire zone on negative outlook."

Meanwhile, commenting on Mr Cameron's stance for the New Statesman magazine, Rafael Behr has described the Euroscepticism as a "self-fulfilling prophecy". He wrote: "[T]hey will find, as they always do, that pushing for separation leads to diplomatic isolation, which reinforces their suspicion that the whole thing is a conspiracy against Britain. The prophecy fulfils itself. So they will insist that Cameron now sets about the business of 'repatriating' powers from Brussels, which, of course, he is much less able to do having isolated the UK and antagonised fellow EU leaders. And when Cameron cannot then secure adequate 'repatriation'- and nothing short of divorce is adequate for some Tory backbenchers – the calls for a referendum will sound out louder than ever."

"The Prime Minister's non-deal in Brussels .. has bought him just a brief a moment of respite from rebellion in his own party. For that, he has accepted a downgrading of UK diplomatic relations with our major trading partners, leading us to the outermost margin of the EU and ever closer to the exit," wrote Behr.


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