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EU Attempts To Dig Itself Out Of A Large Hole!

The Story So Far: Having failed to ever instil any form of discipline across EU member states on borrowing, having allowed too many member states to build unacceptable government deficits, having for the best part of a decade allowed too much cheap liquidity to flow into the hands of member states that could ill afford to take on the debt, by its failure to act soon enough and having allowed the Greek sovereign debt situation to get all but completely out of hand risking not only the stability of the Euro but also seriously damaging the credibility the European Central Bank, having failed to understand the meaning of the word contagion or comprehend what additional damage rating agencies would be almost duty bound to impose on national debt ratings and having for far too many years adopted an unnecessarily arrogant, holier than thou attitude toward others in the wider international community today at last European finance ministers have belatedly announced a package of support measures that including the estimated EUR250bn contribution from the IMF provides a total underwriting rescue package worth EUR750bn should help prevent additional contagion and create much needed Euro stability.

Commentary: Brussels will apparently provide EUR60bn of emergency short notice funding plus a yet to be fully quantified guarantee basis that would allow a proposed special purpose EU vehicle to be empowered to raise EUR440bn of necessary debt through markets. Sounds good but with so much damage done by the poor handling of the Greek crisis we would be pretty damned stupid had we not welcomed this seemingly well thought out plan. The Euro lives on then and so for now does the EU but is there something else in this plan – might history regard this I wonder as a Swan song of the current oversized EU machine? Maybe it will.

While we are happy with the support scaffolding announced today aimed primarily at propping up certain ailing member state economies, the Euro itself and in creating some necessary stability and that assuming it stays intact and is ratified by all member governments that this will do the job, well probably for the next two years, we do have other concerns. For instance we should not lose sight in all this that the EU and indeed, the European Central Bank have by the profound arrogance shown by some individuals and through their respective impoverished and disunited attempts to solve the immediate Greek crisis been very seriously damaged. Indeed, probably fair to say that what we are seeing announced by the EU finance ministers today has needed to be significantly larger than it might have been had the EU and ECB ensured that a system had been developed to cope with a situation such as Greece. Still, we welcome the disciplined approach that IMF involvement adds to the plan and that forces all EU member states to act on deficits.

Now here is another thought… I possibly detect that by the very speed that EU ministers have acted over the weekend that this may also be seen as an act to save their own skins – indeed the whole skin of the EU perhaps? Sure, I am being a touch cynical but being Euro neutral I can at least allow myself time to do that! Realistically though I detect that in the rush to cover the tracks of failure on its Greek sovereign debt issue handling plus direct incompetence of failing to act soon enough to halt the possibility of contagion of the whole sovereign debt issue through countries such as Portugal, Spain and possibly even Italy and the UK that the bottom line of this is an attempt to regain the initiative.

As I say, huge though they are in terms of the actual amounts that EU finance ministers and the IMF have apparently agreed will be underwritten I have no particular issue. However, every cent that markets require to put into to supporting sovereign debt is one cent that will not be going into national economic development in pure investment terms. In other words equity markets could find themselves starved. Nevertheless, though the EU and particularly the Eurozone area stand accused of shutting the gate after the horse has bolted what they have done is better than another kick in the teeth.

Lest we forget though that given the nature of the Eurozone crisis that our arrogant Brussels colleagues allowed to unfold I believe that the credibility of the Euro and the ECB has been sent back by six or seven years at least. Indeed, the crisis has exposed that the whole system of EU government is not working, is far too costly and bureaucratic and is also far too large for its own good. For now though we welcome this arrangement notwithstanding that it will take ten to fifteen years at least to sort out the deficit mess that through a combination of EU and ECB indiscipline, ineptitude and arrogance has been allowed to take hold. Bear in mind too that the devil will always be in the detail and that right now we are not yet privy to that! Also be aware that given the amazing speed in which the group of European finance ministers agreed such a huge package of potential support we must assume that when they get home some will need to sell it to their respective governments. Not the end of the problem then, not even the beginning of the end of the problem but at least the beginning of a much better approach as to how the problem should be addressed.


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Bill Cash has been the Conservative Member of Parliament for Stone since 1997 and an MP since 1984.

He is currently the Chair of the European Scrutiny Committee and the founder member of the European Foundation...

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