It is not only the British who resent the idea of bailing out busted Eurozone countries. Countries within the eurozone feel the same way, but feel obliged to join the rescue party after joining the currency. Tiny Slovakia is a case in point.
Slovakia’s economy shrank fast last year after joining the Euro and seeing her currency appreciating by 20%. She is no longer as low cost a competitor as she was, and the effects are obvious.
The FT writes – The Slovak economy shrank by 4.7 per cent last year, and unemployment has risen to 12.3 per cent, in large part because of sagging demand in western Europe for the country’s main exports – cars and electronics. Mr Fico’s populist government, dedicated to maintaining generous social benefits, proved to be unable to rein in spending. The deficit jumped to 6.8 per cent last year, up from only 2.3 per cent in 2008. The economy is expected to grow by about 3.5 per cent in 2010.
If you’re lucky.
One of the first tasks of the new parliament (after recent elections) will be to vote on a €800m ($969, £666m) aid package to Greece, Slovakia’s contribution to the bail out. The issue is very controversial in Slovakia, which adopted the euro last year, because Slovakia is poorer but better managed than Greece, and most Slovak parties are opposed to approving the aid.
Was the Euro worth it, is a question they are realising should now be asked. They are no longer so competitive, and now are being asked to bail out spendthrift countries like Greece, to boot. Will Slovakia do what Germans want to do in their hearts, but as yet dare not do, that is refuse to pay up?
It will be a nice situation if even one country votes against the bail-out as proposed. Tiny Slovakia could yet be the first country to trip up the Euro.
EXTRACT – I added that respected commentators believe that the EU’s “shock and awe” rescue package might not materialise, and that if it does, the aggressive associated austerity measures demanded from Greece might not be politically deliverable. There was already blood on the streets in Athens. By this point I could almost hear the other MEPs (except Anna) squirming with embarrassment. I expressed my own view that Greece would be forced to restructure its debts (a polite term for default), and might have to quit the euro.
I agree with this, of course, except default by Greece would be an advantage to those she owes money to. They could get 80% if Greece were to quit the Euro now (or whatever factor the Drachma depreciates by against the Euro), but that would be down to nearer 20% in 5 years time. With debt gone wrong, it pays to negotiate the situation quickly while there is still something there to pay with, for your own advantage, not only that of the Greeks.
That’s what the creditors have not seemed to realise. Defaults happen because it increases the chances of being paid. The ‘Shock & Awe’ nonsense is an attempt to bamboozle creditors, but it will not happen, and even if it does, it won’t work. The sooner Greece defaults and relaunches the Drachma, the sooner the situation can mend. The longer the situation is left as it is, the worse it will get.
It’s merely the climbdown required by some very arrogant and foolish people that is holding everything up. The Slovaks know they will never see their US$1 billion again. That’s around US$20,000 for every man, woman and child in Slovakia. Simply speaking, it ain’t gonna happen. Slovaks will be grateful to Cameron for vetoing the bail-out, not to mention Germans and French. The EU is already in an impossible position. From here, it can only get worse.
EWI International writes – A February 2010 poll in the German newspaper, Bild am Sonntag, found that two-thirds of Germans adamantly oppose any EU country providing assistance to Greece. Even more telling, a majority of Germans, or 53%, want Greece to be expelled from the euro if necessary. One way or another, EU leaders, too, will give in to this growing public anger.
The gap between the EU and the people of Europe could not be greater. The EU is ploughing on, hoping to impose economic government on the EU through QMV, claiming that the Lisbon Treaty will be sufficient to push the measures through. If they do, British Conservative backbenchers will initiate a battle to reject its application to Britain.
understands that the commission is currently planning to pass the legislation to create the budget “peer review” system on the basis of qualified majority voting (QMV).
Under this procedure, Britain would not be able to veto the proposal and without the support of Germany, France, Italy, Spain or Poland, Mr Cameron cannot muster a blocking minority.
“The proposals, which came from the Commission, are based on existing treaties. Some of the sanctions are only for euro zone countries. Other measures, like the peer review, are for everyone. The decision will be taken by QMV,” said an EU source.
“If Britain cannot stop or change this proposal before October it will be too late because it can be outvoted.”
The British argument that, because Mr Van Rompuy’s task force is composed of national finance ministers, the decision on budgets will be taken by unanimous consensus has been dismissed.
“The task force does not replace the legislative process. It just speeds up the political agreement before legislation is proposed by the Commission,” said a diplomat.
A British diplomat said that “no decisions have been taken” and that Britain broadly supported the other EU measures to tighten up budgetary discipline.
”We have been and will continue to be very clear that we’re not prepared to submit a draft budget to the European Commission. The UK budget will continue to be presented to parliament first,” he said.
”Ultimately, this is just one idea for a solution to a much bigger challenge – how we prevent a future economic crisis in Europe – so we’re going to need a number of measures and we’ve got to get this right and ensure that all member states are happy with the outcome.”
Bill Cash, a Conservative MP, said that if an EU vote was taken the Commons would have to act to preserve its “power of the purse” over budgets, a key plank of parliamentary sovereignty.
“These proposals must be rejected. If there is any attempt to use QMV not only must the UK vote against but measures would have to be taken by the parliament to maintain the sovereignty of Britain,” he said.
Mats Persson, the director of the Open Europe campaign group, said: “Bulldozing over Britain on a matter of economic and parliamentary sovereignty at this sensitive time would do nothing to improve EU-UK relations. It also runs counter to the constructive sprit now needed to save the euro zone and get Europe’s economy back on track.”
This will be the Coalition’s acid test as far as eurosceptics are concerned. If Cameron yields over this issue, he will be badly damaged. If he succeeds in rejecting it, his standing in the Party and the country will soar.
If this political battle is lost, the economic battle for the Euro to survive will be in exactly the same position. As stock markets head down in the next leg of the bear market, the optimism on which the EU and the Euro hang, will be swept away. They can make as many rules as they like, but the de facto situation will make their aspirations irrelevant.
Bits of paper can be sent to Brussels to supervisors, but if people across many European countries take to the streets in anger and frustration, while the bureaucracy tries putting Humpty Dumpty back together again, the ‘wall’ will just be pulled down.
People will turn to their national governments for salvation from the coming crisis, and demand that the EU is isolated and ignored. It will be the will of 500 million people against that of a few hundred diehards hiding in an office in Brussels. No contest.