Saving the Euro – a ground hog post for a ground hog day.

By johnredwood | First  Published: July 22, 2011


The winners last night at the EU summit were the Greek army. Today they can relax. Their future wages are now going to be paid by more EU loans, at lower rates of interest.

The losers last night were the French and German taxpayers. They have to lend more to Greece, for less return.

The markets say they like the deal. I do not see why. It does not solve very much. It delays sorting out the underlying problems for longer.

As always with political fixes, there is plenty of spin. All have come out telling papers to write that the “Euro has pulled back from the brink”, that ” the crisis has been solved”. Surprisingly many do.

There is a lack of detail. Questions to answer include:

What happens to private sector lenders to Greece who refuse to take a haircut?

Is this a default according to the Rating Agencies? – It looks like one to some of the commentators.

Will CDS insurance trigger? Who pays that?

Is the UK going to accept a cut in the interest rate on its loan to Ireland? We were told the rate was a good one as part of the selling job on it at the time.

When will we hear of the Franco-German plan to integrate the Euroland economies more? Does anyone else get to have  a say on it?

What will the UK demand as the price for its agreement to all this? Can we get some powers and money back?

Why should we believe Greece is a special case?

When will they beef up their intervention funds, so they could withstand a large country needing help?

All this looks like bad news for the better run Euroland states. They will pay more to ailing countries. They will use their own better credit ratings to borrow to lend more to the troubled countries. This could gradually erode their credit status.

Predictably the EU is going for more integration, not less, for doubling the bet on the Euro rather than quitting. They have a lot more to do to create a functioning transfer union. It is going to need much more money to fix, and a further major shift of decision taking from member states governments to the centre. Germany should remember how much it cost and how long it took to fix East Germany, and that was part of the same country. Greece, Portugal and the rest will prove altogether more difficult.

It’s a bit early to open the champagne.


  1. Horatio McSherry
    August 5, 2011

    “Germany should remember how much it cost and how long it took to fix East Germany, and that was part of the same country.”

    John, I think I’m right in saying that Germany still transfers £53bn per year to East Germany, twenty years after the Berlin Wall came down.

    1. lifelogic
      August 5, 2011

      Indeed but can Cameron just keep the UK out of this insanity please. I know the answer from all his action so far is NO but he might see the light I suppose. I heard, on radio 4 today, the anti business secretary and Darling? having an absurd discussion on the issue today. Needless to say no one put forwards any sensible views on the matter or asked any sensible questions – does the BBC ever?

      1. zorro
        August 5, 2011

        He’ll have been on the blower to Merkel pledging support. Someone should be plying with Italian plonk for two weeks to stop him doing anything dangerous…..


  2. Winston's Black Dog
    August 5, 2011

    Well the one racing certainty in all this is that Cast-iron Dave and Little Georgie will come running breathlessly from their holiday resorts eagerly asking how much more of UK taxpayers money they can throw at saving the Euro either directly or by stealth via the IMF.

    It won’t be put in those terms of course and we may even hear the phrase “UK National interest” or equivalent to justify it.

    They represent a country called EU and care nothing about the muppets in the UK whom actually were stupid enough to (partially) vote them into office.

  3. alan jutson
    August 5, 2011


    Could also be summed up in a different way, by relating the PIGS countries, whose economies are not working, to the unemployed, they are both simply surviving on benefits.

    Such benefits are being paid for by those countries whose economies are working.

    Just like our social and welfare services here in the UK, we need a complete rethink, because the under the present system, it simply is not affordable or desireable any more, to continue to bail out forever, those who refuse to help themselves.

    1. Geoff not Hoon
      August 5, 2011

      Alan, I agree with your analogy but the difference perhaps is the PIIGS by and large cannot balance income and expenditure and will I fear be back with the begging bowl again soon.

    2. Robert Christopher
      August 5, 2011

      I agree! And continually throwing more money at these problems has not improved the situation. Interesting times ahead!

      John R: I thought your suggestions on TV (Newsnight: Aug 2nd) on changing the relationship we had with the EU were a well thought out: one step at a time may be slow, but it may be the quickest route.

      I also liked Carsewell’s comment that the negotiators need to visualise what a British victory (in the EU) looks like.
      Keep up the good fight!

      1. Robert Christopher
        August 5, 2011

        The Newsnight piece starts at 18:00 into the clip. Carsewell’s piece is earlier at 16:05.

  4. Denis Cooper
    August 5, 2011

    “What will the UK demand as the price for its agreement to all this?”

    We already know the answer to that question, and it’s “nothing”.

    How do we know that?

    Because “nothing” is what Cameron demanded as the price for his agreement to this radical treaty amendment on March 25th:


    of 25 March 2011

    amending Article 136 of the Treaty on the Functioning of the European Union with regard to a stability mechanism for Member States whose currency is the euro


    In my view that treaty change would probably be enough the moment; it has already been agreed, and now as far as we’re concerned it only needs to be approved by Act of Parliament later in the year, without a referendum; so unless MPs block the Bill to approve it, the opportunity to get any quid pro quo in the form of other treaty changes which would be in our national interest will have come and gone.

    1. cosmic
      August 5, 2011

      Given what’s gone before, I have no confidence that the present government (or any we are likely to have) will attempt to gain any significant concessions. I think part of the reason is there’s a herding instinct, rather like buffalo standing closer together when they see one shot. Anyway, it would be very unBritish, according to the current calculus, to kick our European partners while they are down. If the UK government got into serious negotiations over the repatriation of powers, getting out of the CFP etc., it would lead the way for others and very likely lever the whole structure apart. They definitely don’t want to be seen as doing that.

      I expect more Band Aids to be applied with our money.

  5. Electro-Kevin
    August 5, 2011

    I don’t care how much Germany of France pay me. I won’t wear those stupid balls on my toes.

  6. Mike Stallard
    August 5, 2011

    Let’s go into this a bit deeper.
    Brilliant list of questions, by the way.

    The problem, of course, is that China is now the manufacturing centre of the world. It is also very racist, Communist and it treats ordinary people, Chinese, Africans and Europeans like dirt. Our workers are gradually squeezed out of business because they demand a high standard of living and reasonable working conditions.
    Is it now time to reopen that tariff argument I wonder?
    If the UK did impose duties on imported goods, a tariff war would perhaps result. At least, though, we would have a market of 50 million people to go at. We have lots of coal, some oil and tides for energy. We can easily support ourselves on our farming industry. We have still got the labour force to work at making things too.
    What about it?

    1. cosmic
      August 5, 2011

      Just three observations:

      I don’t believe the UK has been self sufficient in food for at least 200 years and maybe not since the 1500s. I’m willing to be corrected about the situation in WWII but I believe we were dependent on imported food and there was strict rationing and it was a damned close run thing.

      We have lots of coal but much of the reserves are inaccessible on any sort of economic basis. The old pits mostly, could not be reopened, they would have to be redug to get at inaccessible coal at great expense. The digging of the pits in the first place was financed by the easily accessible coal. There have been schemes for underground gasification, but they’ve been around for at least 30 years and haven’t come to anything so far.

      I think you can forget the tides as a practical source of energy.

  7. backofanenvelope
    August 5, 2011

    And don’t forget – Greek Orthodox priests are paid by the Greek state – so the Germans are paying them as well.

  8. David Hope
    August 5, 2011

    It’s somewhat depressing just how many times we are told the next bailout is the last, and the day is saved and the way most commentators buy into it again and again. I remember this blog in particular but also others warning about a bond crisis over 2 or 3 years ago, explaining how one crisis would be swapped for another. My only wish is that everyone from the politicians to the ECB, the BBC and our papers would listen and promote the comments of those who have been proven right time and time again and stop promoting the arguments of those who are utterly discredited. How is any progress to be made when people can’t do that

  9. English Pensioner
    August 5, 2011

    Germany should remember how much it cost and how long it took to fix East Germany
    As you say this was part of the same country and it had to do what it was told and pay the same taxes as the rest of Germany.
    Greece is nominally an independent country and doesn’t have to do what the EU tells it to; if it doesn’t collect the taxes what can the EU do? Indeed, although it is broke, Greece has quite a strong hand – it can threaten to default which will no doubt bring forth more money.
    As large numbers of Greeks are quite anti-German because of what happened during WW2, it could be that their idea is to borrow as much as possible from their enemy and then default in order to get revenge. Just a thought!

  10. John K
    August 6, 2011

    Have any of you noticed which country Greece borders to the east? Why do you think they need a big army? Greece can be criticised for many things, but not this.

  11. John C
    August 6, 2011

    I’ve just heard on the radio a commentator saying that he does not know what all the fuss is about re: Spanish bond yields going through the roof.

    He said that Spain does not need to go back to the market for new money until December. As if international markets don’t look ahead.

    As the Spanish prime minister has called an election for November, Spain will have a lame duck leader until then – the markets love lame ducks.

    And tonight, the USA lost its AAA rating for the first time ever (Standard & Poor’s).

    All this international pumping of money into the system to transfer private debt to public debt has achieved what exactly?

    IMO, the Euro will be over by the end of the year (possibly surviving with the northern European countries – who should have been the only members in the first place).

    I wonder if Blair, Heseltine, Clarke et al will still say they think that the Euro is good for the UK this time next year?

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