I meant David Cameron. Not Diaz.
The Telegraph has published an article which states that the EU can force Britain to fund the Greek bail-out through Qualified Majority Voting. My understanding is that this is not correct.
I wrote on CH –
Technically this post is incorrect. Article 122 of The Lisbon Treaty allows the Council Of Ministers to propose that members states go to the rescue of a member state in economic difficulties in ‘a spirit of solidarity’.
There is no QMV to enforce a bail-out. There was such in the original equivalent article in the EU Constitution, but the Lisbon version watered that down to this ‘spirit of solidarity’.
It is possible that a European Court could claim that by signing the Lisbon Treaty, Britain had declared a ‘spirit of solidarity’ and thereby must abide by it.
There will be a battle in the German Courts which insist that the EU cannot replace the nations of which it is comprised, and that only Parliaments can commit their country’s spending to bail-outs, and that bail-outs are specifically declared illegal by Maastricht.
There is a large grey area here, which could take a long time to negotiate. The only way the EU can make this occur quickly is by forcing Cameron through bully tactics to comply.
He is unlikely to cave in.
Clegg might declare that he insists that Britain must support the EU in its hour of need, but that would be a political battle he would inevitably lose in the British media and in the court of public opinion. If he decided to dig in on this issue.
If Clegg digs in, Cameron might appeal to Labour MPs and Lib Dem MPs who would be against Britain paying 10% of the bail-out. There would be a good supply of Labour rebels who would help him get a majority on this issue.
In essence this will be not merely a legal battle, but a political one.
If Clegg states that he will not join the Conservative Lib Dem coalition unless Cameron concedes on this point, he would put himself in a very weak position with the British public and in making another election necessary almost immediately, he would crash his support, and ensure Cameron a landslide. He is unlikely to dig in on this for this reason.
The EU are rushing to ram this through by getting Darling to Brussels last night in secret, to sign Britain’s agreement before Brown resigns as Prime Minister. That is the truly evil and shocking thing that is happening.
As soon as Cameron is Prime Minister, he must and I have no doubt, will declare that Darling’s signature to the bail-out agreement is invalid, as Labour had already lost the election, when he signed the bail-out, committing Britain to finding up to GBP 60 billion.
In any case, if this is the desperate level to which the EU has come, it’s curtains for them anyway. This has more in common with a clandestine burglary than a proper international arrangement.
Cameron will find he gets 100% support from the Britain public to fight here and to win. British people will not agree to paying a huge bail-out to save the Euro. Legally, politically and morally Cameron will be in the right, and in the ascendant. It’s time the EU was brought to heel. And here and now is where it will happen.
If Clegg tries to undo the ability of Cameron to fight now, the Lib Dems will be smashed on the replay election. The EU has a choice of lose now, or lose bigger later. Cameron is up for the fight. Of that you can have no doubt. And what’s more, as usual, and again he’ll win.
UPDATE – one journalist following this story closely is Faisal Islam. Here are his overnight tweets in reverse order timewise –
Press conference was scheduled for 8 hrs ago, though one reason for delay was hospitalisation of German finance minister with allergic reac
about 4 hours ago via web
intrigued by this late night sitting of German Cabinet too — anyone know if its finished? a connection with delay in Brussels is plausible
about 4 hours ago via web
germans understandably need to be seen to be ensuring the right austerity restrictions on aid recipients, post NRW election loss. my view.
about 4 hours ago via mobile web
sources have told me that the bigger 400bn 500bn bilateral guarantee plan is ‘opt in’ and Darling hasnt. my reading of delay is Germans …
about 4 hours ago via mobile web
to be clear, UK only exposed to theoretical liability of 7.5bn euro more on the 60bn euro extra ‘balance of payment’ facility …
about 4 hours ago via mobile web
i left the European council building 2 hrs ago, REPEAT, the EU finance ministers are still negotiating at 1AM Brussels time. shall igo back?
about 4 hours ago via mobile web
Alistair Darling, UK chancellor, is STILL at 1am, negotiating this supposed half trillion euro bailout with the 26 other EU finance minister
about 5 hours ago via mobile web
ok we are hearing about a 500bn euro bailout of the eurozone, with an opt_out for non euro countries such as Britain, euro surging for now
about 7 hours ago via mobile web
What the hell is Darling doing there anyway? He has no legitimacy.
ALSO – REUTERS now call money shorting the Euro ‘éurosceptic’ money!!!!
Here is their ever-so-optimistic overnight market report.
Euro rises, stocks rally on EU crisis plan
Mon May 10, 2010 12:09am EDT
(Reuters) – The euro rose and Asian stocks jumped on Monday after the European Union and IMF carved out an emergency loan package of up to 750 billion euros ($1 trillion) to keep Greece’s debt crisis from spreading through the euro zone.
Hong Kong and Australia didn’t jump. Up 1.3% apiece, and Shanghai fell. That’s stretching the desired optimistic reaction of markets narrative to beyond destruction.
The size of the package and an unexpected pledge by the European Central Bank to buy euro zone bonds if needed gave investors some confidence to return to riskier assets such as stocks, though questions remained about how the scheme would work.
Major global central banks moved swiftly to support Europe, re-establishing dollar swap facilities used during the 2007-2008 financial crisis to help ease strains on financial markets and ensure there was enough liquidity to keep global credit markets from seizing up again.
“These measures are a game changer in the near to medium term,” said Dariusz Kowalczyk, chief investment strategist for SJS Markets, adding the aid package was big enough to deter speculation in the short term about Greek debt default.
They keep saying that, don’t they, each time they announce a package. This is a big one, but it’s not even sure to happen. It’s a desperate PR attempt to halt market movements that are already unstoppable.
The euro rose as high as $1.2950 on news of the deal before slipping back after the ECB abandoned its resistance to full-scale purchases of euro zone government and private bonds.
While some analysts had urged the central bank to push such a
financial “nuclear button” to defuse the escalating debt crisis, others said buying bonds could be tantamount to printing money to finance Greece’s fiscal deficit.
By late morning, the single currency was up 1.3 percent on the day at $1.2920, and was 1.5 percent higher against the yen at 118.55 yen.
Yes but once traders realise that the Euro is fast becoming the Drachma, do they really think it will hold its value? If the PIIGS are thrown out, then the Euro might rise and become the DMark once more
U.S. S&P futures jumped 2.7 percent.
Kowalczyk said global risky assets — equities, commodities and emerging market assets — would be boosted by the latest support measures but added the euro will soon slip again because of the liquidity boost provided by ECB.
Financial markets have been punishing heavily indebted euro zone members, threatening to plunge them into the same sort of crisis as Greece, which could jeopardize the nascent global economic recovery.
The new safety net was meant to protect other countries with bloated budgets, such as Portugal, Spain and Ireland.
This bail-out is ten times what the other countries can afford, and still it is only one tenth the sum that would be required to bail-out the euro financial crisis. The gap is literally unbridgheable, and it will only lose more and more, the longer they take to admit that fact. This is like Britain in 1992 leaving the ERM. The denial phase cannot last much longer.
Jitters over euro zone finances have battered global markets as investors dumped riskier assets for safer ones such as the U.S. dollar, creating fears of dollar shortages in some countries and driving up dollar funding costs.
“While the ECB’s intervention (in bond markets) might attract bad press regarding its mandate and independence, we believe that this was necessary to short circuit the negative feedback loop which was getting more and more threatening for the global economy,” the Royal Bank of Scotland said in a research note.
Barclays are advising their private clients to buy Sterling. Are they mad? The banks feel they must do their governments’ bidding.
“Sceptics will probably argue that this does not solve the medium term debt overhang issues plaguing the periphery (other weak euro zone countries). However they won’t deny that this will give them a chance to implement some fiscal consolidation plans to restore market confidence in the sustainability of public finances in the euro area.”
Before the European announcement, data from the Commodity Futures Trading Commission showed euro sceptics’ bets against the common currency hit a record high in the week ending May 4.
Maybe they are not eurosceptics, just people who understand what debt on this scale amounts to, loss of confidence.
BUT THIS IS NOT THE FULL STORY..
Not mentioned in the Reuters report on the bail-out is the fact that behind the bail-out stands not the ECB, but the Fed in the USA!!!!!
The New York TImes carries the real story like this –
Fed Intervenes in European Debt Crisis
By SEWELL CHAN
Published: May 10, 2010
WASHINGTON — After months of quietly watching from the sidelines, the United States finally intervened in the European debt crisis on Sunday night.
The Federal Reserve announced that it would open currency swap lines with the European Central Bank — in essence, printing dollars and exchanging them for euros to provide some liquidity for European money markets and banks.
The step came after a hectic week in which Washington began to fear that the sovereign debt crisis threatened to infect the American economy and hamper its recovery, according to several United States officials.
The Federal Open Market Committee, the Fed’s policy-making arm, approved the swap lines in a vote taken by videoconference on Sunday morning. The European Central Bank’s president, Jean-Claude Trichet, asked for the Fed’s help in a telephone call on Saturday with the Fed’s chairman, Ben S. Bernanke.
The intervention, which also involves the central banks of England, Switzerland, Canada and Japan, is part of a colossal package intended to quell the restive credit markets with a show of force and resolve that American policymakers had quietly believed was lacking. The package has two other elements: about $950 billion in loan guarantees from the European Union, and a decision by the European Central Bank to intervene in the bond markets through a series of refinancing operations.
An initial rescue package for Greece, totaling around $140 billion, failed to calm investors last week. The sudden plunge in the stock market on Thursday exacerbated the worries of American officials.
The problem is with all the Euro bail-outs is that they are fantasy declarations by impotent bureaucrats. The bail-outs are announced but never happen. This one will be no different. Maybe those nice Americans can kindly sort this out and give us all the money we need..
Mr. Trichet had a series of conversations over the past week with Mr. Bernanke, who in turn received assurances from the Obama administration that the Fed’s actions had the president’s support, according to officials involved in the discussions, who spoke on condition of anonymity.
Anonymity. The world’s economy needs a multi-trillion dollar bail-out and the government officials behind it are unwilling to give their names??? That is not so convincing. This is not the time for whisper, whisper. Either this monster bail-out is real and happening, or it’s not. Now come the ‘ifs’ and the ‘buts’, and of course a few ‘whens’.
“It became increasingly clear that, if they were willing to take very strong measures, that it would be in the interests of the United States to encourage and support that,” one American official said.
The official added, concerning the Europeans, “Clearly they understood that both the European Central Bank, in the first instance, and then the global community was much more likely to try to help them if they were first willing to do something big themselves.”
That phrase really says it all. They are not willing, Mr Nice American
In a statement, the Fed said the currency swaps were intended to make it easier for European companies, institutions and governments to borrow dollars when they need them, “and to prevent the spread of strains to other markets and financial centers.”
The statement said the action was taken “in response to the re-emergence of strains in U.S. dollar short-term funding markets in Europe.” The statement added: “Central banks will continue to work together closely as needed to address pressures in funding markets.”
The program announced Sunday night is broadly similar to one that the Fed introduced in December 2007, as the United States entered a recession caused by the collapse of its housing market.
Under that program, the Fed provided dollars to central banks in exchange for an equivalent amount in foreign currency, based on prevailing exchange rates. The parties agreed to make the same exchange in reverese at a later date — anywhere from one day to three months later — using the same exchange rate as in the initial transaction.
The swap operations do not carry any exchange rate risks or credit risks, the Fed said. The Fed would not be a party to whatever dollar-denominated loans the European Central Bank may make to European financial institutions.
(An equivalent program was announced in April 2009 to give the Fed the ability to provide liquidity to American institutions in foreign currencies, but the Fed did not end up having to use that program.)
THIS IS HOW IT WORKS – NO INTEREST PAID BY THE FED, BUT THEY RECEIVE INTEREST
The Fed actually made money from the previous dollar swap program. The foreign central banks paid the Fed interest equivalent to what they made from lending the dollars. The Fed, however, did not pay any interest on the foreign currencies it took in exchange, having agreed to hold them instead of lending them out or investing them in the private markets. The new program is designed the same way.
In December 2008, at the height of the previous swap program, the Fed held $582.8 billion through the central bank liquidity swaps. That number fell to zero by the time the program ended in February of this year.
The swaps are likely to produce a significant, if temporary, expansion of the Fed’s already giant balance sheet, which now totals around $2.3 trillion. The balance sheet grew as the Fed purchased mortgage-backed securities and longer-term Treasury debts as a way of holding down long-term interest rates.
It all sounds very impressive, doesn’t it. And yet. How long will Americans and others (Canadians, Japanese, British) be willing to bail out the Euro, which is unsustainable. They cannot bail-out forever.
The Americans are only borrowing the Euros, and are lending dollars in return. They pay no interest. Yet they will receive interest. The currencies can be returned at the same exchange rate at which they are lent.
The idea is to suck Euros off the market to stop the currency from falling, and then flood the markets with dollars to stop it rising. Yet the owners of the Euros will have to receive them back again, no doubt worth far less than when they lent them.
The Americans will get their dollars back too worth a lot more than when they lent them out, as well as receiving interest meantime. It’s a win/win for The Fed, and a Lose/Lose for the Europeans and The ECB. Long term it means there will be even more unwanted Euros flooding on the market, as the loans mature. Better to take your Euro losses now, while the currency is still worth something.
This kind of deal worked internally within the US to stop the mortgage crisis bringing down the house, as it were, but there is no real trust in the European debt crisis. Each dog will be fighting for himself. This time The Fed could get burned. The dollars might never be seen again, as the Euro becomes as worthless as toilet tissue. It seems like win/win for The Fed, but it will only be so if they end up getting re-paid.
What chance they don’t?