Friday, December 09, 2011

UK's Cameron needs to take a lesson from The Gambler

Lissen up, David: Click here!

And listen especially hard when Kenny Rogers has this to say:

And the night got deathly quiet, and his face lost all expression.
Said, "If you're gonna play the game, boy, ya gotta learn to play it right.

You got to know when to hold 'em, know when to fold 'em,
Know when to walk away and know when to run...

Ev'ry gambler knows that the secret to survivin'
Is knowin' what to throw away and knowing what to keep.

Because you lost big in the wee hours of last night.
Perhaps you missed their eyes ...?

He said, "Son, I've made a life out of readin' people's faces,
And knowin' what their cards were by the way they held their eyes.
 Cameron threatened to use his veto to block a deal that all 26 of the 27 EU members had agreed upon, by asking for special treatment for London's financial centre:

German sources said they were surprised by the British veto, although in the run-up to the summit they had received "different signals" from the British. Merkel recalled it was 20 years to the day since the EU struck the accord on monetary union in the Dutch city of Maastricht and that even back then the British had secured their opt-out from the euro. "We always respected that and through all these years Great Britain has played a positive role."

Merkel pointed out that despite the British blocking, the UK had as much an interest as anyone in a successful single currency. "Like all the rest of us, Great Britain depends on a stable euro. We're all in the same boat."

In the wee hours of the morning the UK Prime Minister played his ace, and lost:
When it became clear that Britain was going to wield its veto to block a revision of the EU treaty, there was a break at 3am for coffee and fruit salad as the treaty negotiations moved into the second phase. This was a discussion on how a treaty would be agreed by the 17 eurozone members plus any other states that wanted to sign up.

Cameron intervened to say that the institutions of the EU, such as the European commission and the European court of justice, could not be used to enforce the fiscal compact. This was challenged by Merkel, Sarkozy and Barroso.

According to senior French sources, Cameron told Merkel: "The ECJ does not belong to you." The German chancellor responded: "But we can use it anyway."...

She brushed aside British objections to using EU institutions as instruments in the new eurozone regime, saying Berlin had taken legal advice and that there would be no problem. But she noted that "Great Britain will watch that closely."

But not all was lost, it seems:

Cameron insisted that his relations with Sarkozy and Merkel had not been harmed. "David shared a lift with Angela after the summit broke up," one source said.

A pity, but understandable: London's prosperity depends on the lock it has on the international financial world, and Cameron felt he had to defend this at all costs.

But he overplayed his hand, and lost. Now Britain will pay the price over the coming decades.


  1. Or not. A Europe dominated by Germany and France is not likely to be a Europe most Europeans want to live in. I know revisionist history tends to make France out as a victim of WWII but we need to remember that after their surrender to Germany they collaborated with the Nazis to an incredible extent. The myth of the resistance notwithstanding, the French and the Germans will make scary overlords for the rest of Europe.

  2. Europe will survive this and the UK will watch on the sidelines as always

  3. Pay what price? Cameron will be celebrated for saying no. (I mean, his reason for saying no: that he didn't like what they wanted to do with financial centre rules, is, I think, a cover. Bogus.) He said no, because the deal's dumb and pointless. Solving a problem no one has.

    Any government not needing eventual German/French/Scandinavian financing should not be in this deal. The only reason France, Germany and the Finns are in is because they know that there must be a deal to avoid a Euro collapse, the reason the weak countries are in is that they have no options left beyond leaving the Euro. Britain's already not in the Euro.

    The best deal for Britain is what has happened: a deal, and therefore no immediate Euro collapse (and subsequent depression), and no shackling itself to stupid financial gimmickery, such as balanced budget admendments over the business cycle, and financial punishments for being in debt (just like a loan shark). These rules, for all their merits (it's defensible to argue that budgets should be balanced), avoid the real causes and effects of the current crisis: Spain had balanced budgets, yet it still succumbed. There is nothing at all in this deal about growth. NONE. Furthermore, there is nothing in this deal for recession-affected countries to finance growth through debt (which was the way out of the great depression) or deflation (Argentina, for example): in fact, the deal seems to preclude this. There is no plan for Central bank intervention to stabilise bonds in crisis countries.

    The "deal" is an attempt to entrench the political idea that running deficits is the reason why bond yields in the Italy, for example, were high. That's not the whole story: just look at the US: enormous debt and deficits, lowest yields, and record low cost to service its debt in terms of GDP. Similar story in Britain.

  4. David Cameron handled the negotiations in an inept fashion. He had valid concerns about the imposition of a tax on financial transactions (the Tobin tax), and about capital requirements for banks: the City wanted to avoid these and to continue their position as the dominant aggregators of funds flows in Europe.

    But the way Cameron negotiated for the concessions he wanted was amateurish. It seems that he and his team talked themselves into two things which gave them the sense that they had the upper hand - that their veto was a seal stopper because Merkel wanted a full Monty total EU treaty change, and that their veto was buttressed because without a full Monty deal, the Eurozone countries could not use the European institutions (ECB, International Court etc) to implement the changes needed for the Eurozone deal Merkel and Sarkozy wanted.

    Armed with these two weapons,the Cameron crew simply drew up a shopping list of twenty plus demands, couched in dense paragraphs of legalese, and dropped these on the table at the last minute in a take it or we stop everything in its tracks gesture.

    Cameron did not spend enough time and emotional capital in getting the French and German teams to Yes. He did not package the UK demands in tinsel, wrapped in principles, and sold through patience.

    Instead, at a moment of high crisis, when the Eurozone governments were scurrying around, trying to rescue the concept of the European Union, Cameron came off as a grubby little sidewalk store negotiator.

    It is almost incredible that Cameron did not know (or, if he knew, did not factor that knowledge into his bargaining) that Merkel (and probably Sarkozy) had done their homework on whether the Eurozone countries could legally use the European institutions to implement a side-deal between 9 plus EU members.

    So Sarkozy and Merkel kept giving Cameron clear signals that they could do a side-deal among less than 27 nations, and so avoid a British veto, and Cameron kept thinking he had a veto.

    It turns out he does not have a veto and therefore his clumsy stand and deliver stance fell flat on its face.

    If he had prioritized his shopping list, concentrated on getting acceptance of major principles, and tried to work with Germany and France to reach a solution which dealt with longer term issues (which Merkel needs before she can support intra-EU debt guarantees like the much feted joing eurobond and other steps), he might have been greeted as a hero, and come home with some concessions.

    Instead, his bluff called, he came home with squat, and a weakened negotiation posture for future dealing.

    Outwitted, outplanned, outnegotiated, and now out of the deal.

    Cameron seems to have a tin ear.

  5. So he came home with squat. Do you really think he should have come home with a deal that obligated Britain to enforce a constitution provision to run a balanced budget? Is that very smelly kind of economics better than squat?

    You are arguing that Britain should now have balanced budget legislation. Why? Do you think Canada should have the same? Every country?

    What exactly did Britain lose, something concrete, other than some "face"?


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