Merkozy Proposals Will Not Resolve Euro Crisis

Recent days have seen massively intensified pressure to bring about a resolution of the Eurozone crisis before 9th December. Sarkozy said the other day that he and Merkel intended to "frog march" their proposals through, such was the urgency of bringing about a resolution. The deadline itself set a week ago in terms of "9 Days to save the Euro" itself puts pressure on politicians, bureaucrats, and Central Bankers to reach an agreement. If that were not enough, S&P have come out and threatened to downgrade the credit rating of virtually all Eurozone economies including Germany! But, the proposals put forward by Merkozy cannot resolve the crisis.

Those proposals are still based on the idea of pushing through the kind of austerity measures which have already collapsed the Greek economy, sent Ireland into a sharp contraction over the last year, and are having the same consequences in Portugal, Spain and probably shortly Italy. There is a reason the proposals are framed in these terms at the moment. Elections are due shortly in France and Germany. In Germany, in particular, any suggestion that Merkel was about to sign up to a deal whereby German taxpayers wrote a blank cheque for every Government in Europe, would be electoral suicide. Anyone who has been involved in politics at any kind of administrative level, or involved in Trade Union negotiations will see through much of the rhetoric, to understand that the participants real positions are not those on public display.

The proposals put forward by Merkozy argue for establishing in law the 3% limit for deficits as a proportion of GDP, that was originally formulated at Maastricht. Every state would have to put into law something along the lines of a Balanced Budget requirement. For now, Merkel continues to oppose the idea of Eurobonds, and of the ECB acting as lender of last resort. But, in reality, this week the ECB has already been forced to intervene to buy up the bonds of peripheral economies in Spain and Italy, because the Yield on those Bonds had risen to unsustainable levels. In theory, it has to sterilise this intervention, by withdrawing funds from elsewhere. But, ECB intervention is now becoming so great that this sterilisation will become impossible. Already, the argument is being put forward that it would be possible for the ECB not to sterilise this money printing, on the basis that its mandate to control inflation justifies it due to the threat of deflation.

Greece has already demonstrated that without growth, it becomes impossible to repay debts, and growth can only arise through stimulation of these economies, promoting investment. The only rational means for that to happen is either through fiscal transfers from surplus economies within the Eurozone i.e. Germany, or through borrowing. But, if each Eurozone economy is to be constrained in its deficit then this is doomed to failure. Greece and other economies cannot borrow at anything approaching sustainable levels to achieve that. Unless, therefore, Germany is about to make a huge fiscal transfer to Greece and other debtor economies to cancel out their debts, and provide the resources for investment to bring about the necessary growth, the only option is the issuing of EU Bonds i.e. to borrow on global Capital Markets the money required, and backed by the fiscal power of Germany, and the Monetary power of the ECB.

Its doubtful Merkozy do not realise this, and certain their advisors have pointed it out to them if they didn't. Its likely then that all we have seen so far is the opening steps in a diplomatic dance of European politicians prior to them bringing about a solution based on the above. If that is not the case then the Euro is dead, and we are looking at a huge financial, economic, and political crisis. Without such a resolution the markets will attack the Bonds of all Eurozone economies, as the S&P potential downgrading shows. It would mean Greece exiting in short order, followed by a collapse of its economy, and a knock-on effect to international Banks that would put Lehman's in the shade. It would be quickly followed by the exit of Portugal, Ireland, Spain, and probably Italy and most of the other smaller economies.

Because of the seriousness of those consequences its doubtful that EU politicans will fail to come to the necessary conclusions. It is also why Cameron has been left powerless. He cannot stand in the way of Eurozone leaders implementing a resolution with or without him. If he stands aside to avoid upsetting his backbenchers and their demands for a referendum, so that an agreement of only the Eurozone 17 is made, then Cameron and Britain is marginalised, cut out of all future decision making in that regard. He cannot concede to a referendum that would delay a new Treaty, because he can't guarantee he'd win it, and the delay would be sufficient to destroy the potential for a deal anyway.

The Liberal-Tory policy on Europe has hamstrung them, but the real problem arises from Britain's stand-offish attitude towards Europe over decades, including the decision not to join the Euro in the first place. It means that Britain is now, and for the foreseeable future merely a by-stander when it comes to European decision making. That will be welcomed by the Nationalists. The Tory eurosceptics and their co-thinkers in UKIP and the BNP, will welcome such a development seeing it as a step on the way out of Europe altogether. They will be joined in that approach by the National Socialist Left in the CPB, and other such organisations. That would, of course, be even more disastrous for British workers.

The idea that Britain could prosper outside the EU is mad. It could not have the same kind of relation that Norway or Switzerland have to the EU, as some of these nationalists often argue, because Britain is a much larger economy than either Norway or Switzerland. With its continuing links to the US, and Imperial history, Britain would be seen as a competitor to an EU State, and would be treated as such. But, its inevitable that these bourgeois politicans should end up in this situation, because they continue to see things in Nationalist terms themselves. Only workers armed with a revolutionary, socialist, internationalist programme can begin to provide workers in Britain and the rest of Europe with a solution to their problems.

The basis for that has to be the building of a European wide Labour Movement, a single European Trade Union Movement, a single European Workers Party, fighting for a consistent democracy throughout the EU, fighting for common Trade Union Rates of pay, Benefits and conditions across the whole of Europe, and opposing the current policies of austerity that are driving Europe into a severe crisis.