The French attack upon the UK’s debts, deficits, inflation and growth rate looked like an attempt to deflect attention from France’s plunging rating. There have been two big differences so far between France and the UK. The first is the UK can print and devalue to keep its debt afloat, whilst France is locked into the Euro. The second is UK government debt rests on very low AAA rates of interest, whilst French borrowing rates have risen above the comparable AAA levels.
The French and others who were very willing to criticise the Rating Agencies for failing to mark down dodgy credits in the private sector prior to 2007, are now having a hissy fit about the Agencies daring to downgrade sovereign debt in good time, before their struggles become more obvious. The Ratings Agencies are doing their job by downgrading overborrowed and overborrowing sovereigns. As Greece shows, countries can renege on their debts. The Agencies do not seem to be leading the markets, but usually follow them. The Euro area threats of downgrades came after the markets had pushed up interest rates in many cases, and after many private sector commentators had warned of problems ahead.
I suspect the French anger about the UK is mainly owing to the need to provide some offsetting publicity at a time of downgrade discussions for France herself. It is also likely that a President trailing in the polls reckons bashing Britain could win him an easy good headline or two in the French press. He has long held a wish to blame Angla Saxon capitalism for any French failings, so these latest rants just carry on with that government tradition.
The main French protagonists say they are doing it as tit for tat, as a response to some UK criticisms of the Euro and the French position. I have long argued that Ministers should have just one line on the Euro “We do not provide a running commentary on the Euro”, with background briefing that the UK has no wish to say or do anything that could make the position of the Euro worse. However, I do not accept that Ministers have said things that justify this very personal attack on the UK in retaliation.
All of this will feed the groundswell of anti EU sentiment in the UK. If our closest friend and ally on the continent sets out to rubbish the UK’s economy and credit standing, it is a far from friendly act. Were France to succeed, it would push up UK government borrowing rates, making us all poorer as a result, as the state had to pay more for its credit.
I agree with Mr Clegg’s wish this morning to condemn xenophobia and chauvinism. It’s a rising problem in many continental countries, as the politics of anger emerges from the troubles of the Euro. I am an open minded freedom loving globalist. Our message should be that we like our new century, which is bringing prosperity and opportunity to many of the world’s poor in Asia and Latin America, thanks to their hard work and enterprise. We should seize the advantage this brings us as well, offering new markets and many millions of new consumers. Over the next ten years Asia and Latin America will rise as a growing proportion of the world’s wealth and trade, and the EU will shrink. The UK’s outlook and foreign policy should reflect that reality.
Mr Clegg says he wants the Euro area members to be able to use the EU institutions to enforce their proposed fiscal pact. He should be careful lest he gets what he wishes for. This pact may well intensify the Euro countries economic struggles and the politics of discontent. The UK needs to be careful to avoid ourselves being more entangled with a failing currency project, which will have a great cost in subsidies, transfer payments, losses on loans, unemployment and economic misery in all too many countries.