WE JOURNALISTS are probably too bleary-eyed after a sleepless night to understand the full significance of what has just happened in Brussels. What is clear is that after a long, hard and rancorous negotiation, at about 5am this morning the European Union split in a fundamental way.
In an effort to stabilise the euro zone, France, Germany and 21 other countries have decided to draft their own treaty to impose more central control over national budgets. Britain and three others have decided to stay out. In the coming weeks, Britain may find itself even more isolated. Sweden, the Czech Republic and Hungary want time to consult their parliaments and political parties before deciding on whether to join the new union-within-the-union.
So two decades to the day after the Maastricht Treaty was concluded, launching the process towards the single European currency, the EU's tectonic plates have slipped momentously along same the fault line that has always divided it—the English Channel.
Confronted by the financial crisis, the euro zone is having to integrate more deeply, with a consequent loss of national sovereignty to the EU (or some other central co-ordinating body); Britain, which had secured a formal opt-out from the euro, has decided to let them go their way.
Europe's blithering idiots and their flim-flam treaty - Ambrose Evans-Pritchard
This "fiscal compact" is not going to make to make the slightest impression on global markets, and they are the judges who matter in this trial by fire.
Yes, there is more discipline for fiscal sinners, but without any transforming help. Even the old "Marshall Plan" of the July summit has bitten the dust.
There is no shared debt issuance, no fiscal transfers, no move to an EU Treasury, no banking licence for the ESM rescue fund, and no change in the mandate of the European Central Bank.
In short, there is no breakthrough of any kind that will convince Asian investors that this monetary union has viable governance or even a future.
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No doubt these dramatic events will be uncomfortable for Britain, but this will all be swept away by bigger events before long. The Europols have not begun to work out a viable solution to their deformed and unworkable currency union, and perhaps no such solution exists. The system will lurch from crisis to crisis until it blows up in acrimony.
By then, a separate cluster will have emerged (not the 10 "outs" against the 17 "ins", always a ludicrous concept), but rather a loose Anglo-Nordic-Swiss grouping that may not do so badly on the fringes and may begin to solidify into a seductively comfortable outer tier.
Eurozone banking system on the edge of collapse - Harry Wilson
Senior analysts and traders warned of impending bank failures as a summit intended to solve the European crisis failed to deliver a solution that eased concerns over bank funding.
The European Central Bank admitted it had held meetings about providing emergency funding to the region's struggling banks, however City figures said a "collateral crunch" was looming.
"If anyone thinks things are getting better then they simply don't understand how severe the problems are. I think a major bank could fail within weeks," said one London-based executive at a major global bank.
Many banks, including some French, Italian and Spanish lenders, have already run out of many of the acceptable forms of collateral such as US Treasuries and other liquid securities used to finance short-term loans and have been forced to resort to lending out their gold reserves to maintain access to dollar funding.
"The system is creaking. There is a large amount of stress," said Anthony Peters, a strategist at Swissinvest, pointing to soaring interbank lending rates.
France Has Second Thoughts About the Euro - Michel Gurfinkiel
The problem of the euro is that it is a currency, but not money. Money is largely magic. It is the sum total of what allows production, trade, work, innovation, profit. It works as long as there is confidence in it. “Give me good politics, I’ll repay you in good finance,” said Baron Louis, the finance minister of King Louis XVIII under the French restoration. In other words, see to it that everybody thinks he has a future under your government, whether he is a Royalist or not. As long as that will be the case, it will be comparatively easy to manage business, raise taxes, and balance budgets.
Baron Louis’ modus operandi was the secret of the American era of prosperity from 1945 to 2008. In a globalized world, the United States — as a benevolent hegemonic power — was providing good politics, i.e., confidence, and it allowed for good business everywhere. Whatever the theoretical state of the dollar and other currencies, the United States had iron: the will and the practical means to make war if needed. It cost the American taxpayer 4% to 5% of its GDP annually — no other Western business-oriented nation (except Israel) invested as much. Europe as a whole never took off from a 1% to 1.5% level. France and the UK never raised above 2%. And the American iron transmuted into gold.
The Europeans got weary of American leadership — especially when things were so good throughout the Reagan and then the Clinton booms — and most people forgot why they were so good. They mused about having their own currency and outdoing the dollar. They did it. They created a currency. But no money. Because they were just unable and unwilling to get together and to build up a federal European government and a federal European army. They did not realize there is no gold without iron.
Just in order to exist in front of the dollar as a mere currency, the euro had to be the most deflationist one ever, i.e., to be linked to superhigh interest rates and a rigid no-inflation policy. This in turn meant that local European economies were suffocated, and that the European welfare state was unworkable overnight. The only way out was to make maximum use of the non-European, still American-centered, globalized world. Even there, however, success was linked to inner discipline. The only eurozone country that really survived the euro was Germany, where industry workers agreed to lower wages in order to stay competitive.
