Strange as it might seem, I could not care less whether Cameron has appeased his euro-sceptic back-benchers (which seems to be a major obsession of the media today).
I’m not even particularly impressed by the chorus of cat-calls that we have isolated ourselves from Europe.
So although I might be called ridiculous to say so, I’m mainly concerned as to whether he has done the best thing for Britain.
And, alarmingly, I suspect he may have.
Treat the disease, not the symptoms
There is an old wives’ tale: ‘Feed a cold and starve a fever’. It derives from the Theory of the Four Humours (so it’s nonsense), and I won’t bother you by explaining it!
But it contains a basic, immutable truth: if you’re heading in the wrong direction, the answer is NOT to carry on regardless. The answer is to turn round and go the other way.
Let’s face it, few people writing about the euro-crisis in the newspapers know sufficient about economics to understand it, and even the ‘experts’ who try to explain it are necessarily simplifying to the point of parody, and only – at the end of the day – advancing their particular theory.
As far as I can tell, suggestions seem to fall into two categories:
1. Lack of regulation
This approach lays the blame on ‘rogues’ – profligate governments, incautious bankers, blackguard speculators – and suggests that they have been given too much freedom to act fast and loose within the Markets. Solution: MORE regulation!
This school (which usually goes on to predict the ultimate inevitable collapse of the euro) blames the constraints that the euro imposes upon the member states – red tape, workers’ rights, the inability to devalue or set interest rates etc. Solution: Deregulation, more freedom!
Now both these positions are political, and I suspect that each may be true its own way … or neither. I doubt that they are mutually exclusive. Within the suggestions, some will be more important than others. Honestly, I’m not clever enough to say, and I suspect NOBODY really KNOWS.
Have They Made the Most Dreadful Mistake?
Sarkozy and Merkel have no such reservations. They have made their choice – it is profligate governments who are to blame, the solution is fiscal regulation, and they want penalties for any government whose borrowing exceeds 0.5% of GDP. They wanted also a transaction tax (which would release funds from the Markets and damp down money flows).
If the problem is Lack of Regulation, then indeed they are doing the right thing.
And Cameron was a fool not to join them.
But what if the problem is over-constraint? What if the problem is lack of manoeuvrability for the governments of Greece, Italy etc.? If that is the case, then greater restraint, greater centralisation, and more power at the core will turn out to be exactly the WRONG thing to do.
The restriction on borrowing, particularly, is a straight-jacket which I find terrifying. Can you remember Black Friday, when interest rates soared because Britain was tied into the ERM? Similar straight-jacket. Unmitigated disaster.
When a recession strikes quickly, governments NEED to borrow, albeit temporarily (Gordon Brown demonstrated that). Tied to a 0.5% cap on borrowing, especially if it is running at maximum allowed borrowing, a government will find itself with one solution only – austerity – to meet a sudden recession. In plain man’s terms, unable to borrow, a government suddenly faced with a million more unemployed will either have to cut other spending, or refuse to pay them any dole. And it certainly won't be able to cut VAT to give a short, sharp stimulus to the retail economy, or bring forward all its infrastructure projects to stop the construction industry going into meltdown.
The Wisdom of Sitting on the Sidelines
So I, for one, am quite glad that Cameron has refused to join Merkel and Sarkozy.
Let’s be honest; their motives here were as much (if not more) about increasing Franco-German power within the EU as about solving the crisis.
If they had really wanted to solve the crisis, they would have named the ECB as lender of last resort.
But they had no intention of exposing their own economies in that way. They wanted a closer union, dominated to a greater extent from the centre, with the peripheral states bound by rules to stop them needing funding from the core …and they wanted the City of London to pay for it all.
I would have said ‘No’ too.
Cameron has NOT isolated Britain with Hungary. We are NOT in 'a minority of one', as BBC Radio 4 has just suggested. There are a number of countries which for the moment have decided to ‘wait and see’ – not least Sweden, that model of caution.
Britain is not a eurozone country. We do not NEED to ‘do something now’!
The Markets have not (yet, anyway) declared that the eurozone is right and Britain is wrong.
So let’s wait and see.
If Sarkozy and Merkel are right, and the answer IS fiscal regulation and closer union, we can always sign up later.
If they are wrong, and the euro is catapulting itself towards economic crisis and collapse, best stay well out of it.