Almost 67 years ago, U.S. General McAuliffe told the German command that the U.S. forces at Bastogne would not surrender and actually said it in a one-word response: NUTS. In a parallel response to German/Franco demands that all European nations surrender their sovereignty by succumbing to a “FISCAL COMPACT”, British Prime Minister David Cameron basically said the same as the U.K. moved to cast a veto vote on the proposals that resulted from the European Summit.
Now, my readers know that I am not a fan or supporter of the British PM or his Chancellor of the Exchequer, George Osborne. I believe that the Brits have dithered for too long in seeing how the EU DEBT CRISIS was “resolved” and was critical of British jawboning EURO issues when it was not their money on the line in a direct fashion. BRITAIN HAS A GREAT DEAL TO LOSE IN FALLING OUT WITH BRUSSELS AS THEIR ECONOMY IS HEAVILY DEPENDENT ON THE EUROPEAN UNION FOR ITS EXPORTS AS WELL AS THE FINANCING NEEDS OF THE EU. If Brussels moves to punish the U.K. for Cameron’s VETO, English business is due to suffer: A difficult price at this time as the U.K. economy is already suffering under the Osborne austerity drive.
In a Bloomberg article Friday, it was reported that Cameron had to veto the 27 nation proposal “without ironclad guarantees of a British veto right over future financial regulations. Cameron called them a threat to London’s standing as Europe’s leading financial center.”
It has taken a long time for British leadership to challenge Brussels over the German/French desire to move the European financial center from London and place it on the CONTINENT. The advent of EUREX and the movement of the BUND from the LIFFE was always tinged with nationalistic overtones. It will be important to see if the EU COMPETITION COMMISSION softens its opposition to the NYSE/DEUTSCHE BÖRSE MERGER. The powerful combination of the two major exchanges would give a strong boost to Frankfurt.
Because of the fact that Sarkozy needed some perceived victory, it seems Cameron had to be the fall guy. Merkel had already left Sarkozy looking weak, so the little man in search of a balcony turned to his Ethiopia, Britain. Is the U.K. the loser as some of the EU cheerleaders maintain? Far too early to tell. The markets will be an important barometer as the EURO/POUND cross will become a very important indicator of market sentiment. Will the POUND rally as a haven or will the possible threat to the British economy be a reason to sell the POUND? Remember that after all the German threats at Bastogne, the 101st AIRBORNE held in what was a dire situation turned important military event for the U.S. in World War II.
***The more news that has emerged from the EU SUMMIT, the more confusing it all seems. There are so many conflicting reports about what was decided and more importantly what the time line will be for approval. At the end of the day all that has been agreed to is that the rules of the ORIGINAL STABILITY AND GROWTH PACT (MAASTRICHT ACCORD) are going to be fully enforced by an EU oversight panel and the European Court of Justice. And this time we REALLY, REALLY MEAN IT (unless, of course, there are extenuating circumstances). It is very hard to determine what the outcome is truly going to be and, more importantly, who is going to step into the void to BAIL OUT THE BANKS and, OF COURSE, THE DEBT-PLAGUED SOVEREIGNS. Bottom line though, and for the umpteenth time, it is the BANKS that are the real problem.
French banks’ balance sheets are laden with sovereign debt because as we know, SOVEREIGN DEBT WAS/IS AAA RATED WITH VERY LITTLE RISK, SO BUY ALL YOU CAN. HAS THIS PROBLEM BE RESOLVED? NO. The balance sheets of Europe’s lending institutions will have to wait for the ECB, ESM and IMF to be given the authority to create enough liquidity to relieve the balance sheets of discounted assets. The fact that Italian, Spanish, Irish and other debt is trading at spreads well above the CORE means that EUROPEAN BANKS WILL HAVE TO CONTINUE TO REPAIR BALANCE SHEETS BY SELLING DISCOUNTED ASSETS.
The problem again has not been alleviated! Sarkozy goes to Paris claiming “victory” so as to lift his national standing heading into the 2012 French presidential election. Chancellor Merkel looks to be in far better political shape as her hardened position is positively accepted in Germany, but she has to face the electorate in 2013 and much can happen. The best summation of the EU SUMMIT, can be found in the LONDON TELEGRAPH by AMBROSE EVANS-PRITCHARD: “EUROPE’S BLITHERING IDIOTS AND THEIR FLIM-FLAM TREATY.” Yes, AEP IS A PERENNIAL EUROSKEPTIC BUT THAT DOESN’T MEAN HE CAN’T SEE THROUGH THE FOG OF ARROGANCE.