One of the minor mysteries of the Euro crisis is why markets have been so eager to be taken in by the latest European effort to kick the can down the road. Every time it gets harder to kick the can a reasonable distance, and every time the interval between kicks gets shorter. This time, the interval between the creation of a so-called fiscal union in Europe and a renewed loss of market confidence was barely 72 hours. It’s like a Godzilla movie where the army steadily deploys bigger and bigger weapons, only to find that even an atomic bomb barely slows the monster down. And at some point, you can’t escalate any further.
I understand why the Europeans keep on kicking – as long as they’re alive, they’re not dead, and giving up on the Euro means giving up on the European project and the world view that goes along with it. What I don’t understand is why markets buy for a moment the idea that manipulation of EU structures can solve the underlying economic, monetary, and fiscal problems that have created the crisis. Similarly, the argument that the ECB or Germany should step in and settle everyone else’s tab ignores the minor but possibly relevant fact that neither actually have the resources to do so, and the further relevant fact that the ECB’s legal authorities are as limited as the German people’s patience.
Another small mystery is why David Cameron’s rejection of the fiscal union has touched off such a firestorm of contempt among the intelligentsia. “Britain isolated!” shriek the FT, the New York Times, and virtually ever other organ of the wise and the great, who in their smug wisdom declared the Euro a sure thing a decade ago. These claims about isolation are, frankly, nonsense. Britain is no more isolated than Canada. Britain is a member of the world’s foremost security alliance, NATO, and of its foremost trading organization, the WTO, as well as a myriad of other institutions. It is obviously less “isolated” than Norway or Switzerland. The only way Britain is isolated is if the EU is the world, which gives you a pretty clear sense of how Europhiles think about Brussels. What’s less clear is why anyone else should adopt that delusion.
The paradox of David Cameron is that, having devoted the better part of a decade to trying to get the Tory Party to shut up about Europe, at the cost of considerable unhappiness among a lot of Tory MPs, he now finds his popularity soaring because he stood up to Europe. The bounce in the YouGov polling from December 7 to December 13 is a nine point swing, about the same as Obama got when bin Laden was killed. There’s a slogan for you: “The EU: Now as popular in Britain as Osama!” Unfortunately, Cameron has never understood that Europe is not an issue merely because crazy Tories talk about it. It’s an issue because Europe is, actually, an issue. It’s not frequently a salient issue, and there is something to be said for Cameron’s belief that rambling on about Europe at all times is not the way to win elections, but if there was ever a moment for Cameron to tack right and hold a referendum repatriating powers from Brussels, this is that moment.
To me, the funniest – and most revealing – part of the entire affair is the argument that Britain will suffer for its “isolation.” The nicer version of the argument holds that the EU is about to make a lot of rules – or, to be more exact, about to make even more rules – that will be bad for Britain, and Britain needs to be at the table to mitigate the damage they’ll do. The less nice version of the argument is that the EU, long generous and forbearing towards an ever-wayward Britain, will now lose patience and wreak a mighty vengeance upon it. Given the EU’s current difficulties, this makes me chuckle. No matter which version of the argument is proffered, though, it comes down to the underlying assumption that the EU is akin to a hostage-taker who punishes disobedience by his captives. That may be so. But if it is so, why stick around at all?
Because Britain needs to keep on contributing a net billions of pounds to the EU? Because, in a WTO world, it fears trade discrimination? Because Europe, desperate to sell its debt and attract investment, is going to shut out the City of London? Because Britain needs the regulatory burden the EU imposes, or wants to be part of Europe’s mini-reset with Russia? The problem with the semi-disguised threats the EU’s self-proclaimed friends in Britain (and the U.S.) are now dispensing is they tend to suggest that Cameron has not yet gone nearly far enough.