Friday, December 16, 2011

Economic weakening of UK: look who's talking

The French are more vocal in their expressing dislike of UK for snubbing the EU, than the Germans.

Yesterday the governor of the Bank of France, Christian Noyer, said: 
"Great Britain is in a very difficult economic situation, a deficit close to the level of Greece, debt equivalent to our own, much higher inflation prospects and growth forecasts well under the eurozone average. It’s an audacious choice the British government has made," referring to rejection of updated EU treaty.

French policymakers were angered last week when Standard and Poor’s, a ratings agency, threatened to downgrade eurozone nations — including France — if leaders did not act urgently to address the single currency crisis. In an interview with Le Télégramme, a French regional newspaper, Mr. Noyer said the downgrade did not appear “justified in regard to the economic fundamentals”.

“Otherwise, they should start by downgrading Britain which has more deficits, as much debt, more inflation, less growth than us and whose credit is collapsing,” he added.

I trust the three ratings agencies to judge the financial situation more than politicians interested in preserving appearances. And the ratings agencies are suggesting that it is France, and other continental nations that need to be reviewed. Today Fitch Ratings lowered France's outlook, and is reviewing ratings for Italy and Spain, citing failure of EU leadership to find a “comprehensive solution” to the debt crisis.

The last part is the part that amuses a cynic like me the most. The agreement reached by 26 European nations (EU minus UK) is all about promises to maintain fiscal discipline, which is nothing but wishful thinking that ignores that underlying problems that lead to the deficits in the first place. The truth about EU as a suicide pact is revealed by the shady behavior of it's leaders. You may think, despite my statement of the emptiness of new EU agreement, that it there is merit in the fact that 26 nations reached agreement. Actually, three of them are uncommitted, and only promised to try to ratify the new treaty. Here's the real kicker, and why statement about lack of 'comprehensive solution' is mild: there is no agreement, there's only an agreement to agree. The 'new EU' rules are still being put together, and should be worked out by ... March. After that, all EU member states will bring the new rules up for a ratification in national assemblies.

This is just great. These EU bureaucrats think they after they surpassed the legal boundaries of past agreements, by directly bailing out Greece among others, they can come up with new and and more extensive regulations on the fly. The real absurdity is that these 'means justify ends' are destroying the last vestiges of faith in all EU agreements by over-reaching their mandate and trampling on national sovereignty. What is to stop EU from changing rules again in another couple years, while financially stronger 'core' nations dictate to the weaker ones?

Agreements at the heart of EU necessarily are win-lose for different member states. That is why the union is unstable economically, and political disharmony is likely to get significantly worse during the breakup of EU with layers of rules, debts and obligations. This entanglement of money through an unnavigable web or rules makes the slicing up of sub-prime home loans that precipitated the mortgage crisis in the US look like an orderly and well-thought out process.


  1. Hey Max. Google Gordian Knot and Doug Kornfeld.

  2. "Men are even lazier than they are timid, and fear most of all the inconveniences with which unconditional honesty and nakedness would burden them." Friedrich Nietzsche.