Mrs Merkel was no friend of the UK and helped the EU lose our membership

It is true that Mrs Merkel will soon retire from the office of Chancellor after a signal achievement of winning and keeping such a high office for 16 years. No-one else in her era came anywhere near such an achievement. She not only exercised great authority in Germany but also in the EU, where she was the leader of choice amongst the member states that the EU turned to  to strike deals and find compromises to keep some momentum to the project. Being the Leader of the largest population, the largest national economy and the biggest financial contributor in the EU of course helped in carving out that niche.

Her diminishing numbers of fans and supporters in Germany will mourn her passing. They saw in her stability and calm, a woman who eschewed political gestures and strong arguments. She worked behind the scenes, sought compromises, changed policies when the wind changed and often sat on things for a long time before venturing into the argument. For most of her time Germany grew more prosperous, and unemployment stayed low following the SPD led contentious labour market and benefit reforms at the opening of the century.

Her legacy however should not  be air brushed because she was a survivor. She leaves her party gravely weakened, sitting on around half the vote in recent polls  compared with what she achieved in the Federal elections of 2013 (21% in a recent poll versus 41.5%)  and facing a difficult election. We will see soon how the party has performed in the actual election.

She has undermined the policies and principles of the conservative party she inherited. She led the party from support for nuclear power to a policy of closing it down. She changed policy from controlling migration to welcoming in hundreds of thousands of new¬† economic migrants. She claimed to represent German conservative principles in¬† the EU based around low levels of debt and no money printing only to allow or be unable to stop massive Quantitative easing programmes, the issue of EU debt and general large overshoots of the German inspired Maastricht debt and deficit criteria by many countries. She tried to reassure worried Germans that Germany’s wealth and tax revenues would not be used to subsidise high deficit countries elsewhere in the EU, only to permit the build up of over Euro 1 trillion of German deposits at zero interest at the ECB which was lent on at zero interest to the deficit countries. She leaves her successor with difficult issues over the transition to net zero, the requirement to close down the German petrol and diesel vehicle industry and the need to get out of coal whilst ending nuclear.

More importantly, her main legacy in the EU is to have greatly assisted in the unintended exit of the UK from the EU. She led Mr Cameron and Mrs May to think that she had power to settle the EU position, which may have been true, and that she might be the helping hand they needed. Instead she was a hawk denying Mr Cameron any negotiating wins to take home to persuade floating voters to stay with the EU. She offered Mrs May no help to shape a deal which more MPs could have accepted. Her enthusiasm to force the UK into a federal project which a majority of the public were never going to accept sealed the fate of two UK Prime Ministers and allowed Leave to win both the referendum and the 2019 General election.

The debate over bail outs

 

            The Uk government has been right to argue against a further Greek bail out, and right to keep the UK out of any direct Greek bail out. I have argued here that another bail out for a country which cannot afford its current debts will not solve the problem. it just means more money will be lost by the creditors in the end, when the underlying reality is faced.

            On Tuesday the government has to explain to Parliament why it goes along with an IMF bail out of Greece, when it correctly refuses to countenance joining in a direct bail out alongside the IMF.  I expect we will be told three things.  Firstly, the planned increase in IMF capital goes back to the time of Gordon Brown, when he was trying to save the world by nationalising risks and printing money. Secondly, the UK needs to remain as part of the IMF and  therefore has to play its part in increasing its capital. Thirdly, we will be told that the IMF issues stringent terms and has priority over repayments, so maybe it will get its money back.

              All this is true. It leaves  open some other questions which Ministers would be wise to ponder.

¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬† The first is, why should the UK have to put in a larger percentage increase in her contribution than Germany, Belgium, Saudi Arabia and many others?¬† Why can’t we limit our increased contribution to the bottom end of the scale of increases, in view of the UK’s currently heavily indebted position?

¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬† The second is, why can’t the UK find like minds in the IMF and have more influence over how the IMF spends the money?¬† The reason for the current large increases is partly the present and likely future commitments to Euro zone bail outs. Shouldn’t the UK be persuading the IMF that the UK’s position over Greece is correct -no more bail outs?¬† Should the UK be arguing that the Portuguese, and possible other future Euro bail outs may be unwise? If we won those arguments the IMF would not need so much extra cash.

¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬† The third is, shouldn’t we say that the IMF should only lend to sovereign countries in trouble? Euroland members are no longer sovereign in any meaningful sense. The bodies which should go to their aid are the European Central Bank, the EU Euroland members acting as a whole, and individual richer Euroland states. The IMF would not consider making a loan to a County Council or major quango in the UK. It would say the UK authorities have the means and the responsibility to decide whether to lend or not to such a body. So why should the IMF lend to Euroland members, when the Euroland centre and its Central Bank are thought to be strong, supporting a fairly strong currency with low interest rates?

             Using IMF money to prop up a currency which is based on insecure foundations is a very bad idea. The IMF should send Euroland an essay on how single currencies can work and on the responsibilities of the government and Central Bank which back them. It should not lend a penny more to Euroland economies. It should not need the large UK capital contribution currently planned.