What our leaders hide from us

Europe had a very interesting day yesterday. Let’s see why. First was the British PM who delayed the EU Summit for five hours, then an agreement was announced to reduce the Irish sovereign debt by €20 billion and finally it was Mario Draghi, who helped contain the hike of the euro vis-à-vis the dollar, just by an American cent though. In about fifteen hours, from early morning till 22.00 h at night on 7 February 2013, a trained observer could watch the basic EU players confirm their old tactics and tricks. Starting from the outsiders, David Cameron wanted to be seen as trying to pose obstacles to the normal development of the leaders’ Summit. What he wanted most was that his fellow Conservatives back in London, and specially the Eurosceptic of them, watch him doing two things. Undermine the Franco-German axis and reduce the importance of the European Union in its entirety. The British Prime Minister tried hard on both accounts. For one thing he delayed the Summit by five hours. To achieve this he used the old British tool of anti-agro spending argument, that unnerves the French. Thus he started an exchange with Francois Hollande, the French President. Here is how the Brit did it. Before going to Summit, Cameron left to be understood that he wants the next seven EU budgets (2014-2020) to cost “only” €800 billion, instead of €950bn as proposed in a document drafted by Herman Van Rompuy, the President of the EU Council. It goes without saying that such a huge cut would mainly hit the EU’s agricultural expenses, which constitute 40% of the total and primarily favour the large French farm sector. With that, Cameron paid his respects to Angela Merkel, the German Chancellor, a traditional lover of cuts on the EU budget. This time however Germany can go as high as €900bn (the bait has to be fat) but obviously Berlin is grateful to London for doing the dirty job with the French. As for Paris, Cameron had in his pocket the valuable help Britain gave to France in the Mali operations and London could easily cash some of it. In any case the close Franco-British cooperation in North Africa offers enough room to London to raise a voice to Paris. Not to forget that the two have locked Germany out from North Africa. In short Cameron played his game in three courts. The three being, the Conservative Eurosceptic yard of London, the redoubtable Berlin and the friendly Paris. But again Cameron did not want to let Merkel alone, so he pressed Hollande where it hurts; less money to French farmers. The Irish Yesterday was also a very special day for Mr Enda Kenny, the Irish Prime Minister. Ireland holds the rotating Presidency of the European Union and drafts the agenda of all Council meetings, including the Summit. But this was not the only cause for Kenny’s joy yesterday. Early Thursday morning, he announced that he struck a deal with the European Central Bank, to cut down his country debt by €20bn and thus reduce Ireland’s annual state budget deficit by €1bn. Is there any connection with Ireland holding the Presidency? Who knows? ECB must have had a very active but invisible involvement in this story. Well informed sources say that the agreement was planned with the aid of KPMG from many months and the two sides just waited for the right moment to announce it. The deal contains a lot of details, which remain hidden and is considered by many as a gift from the ECB to Ireland, for being “good boy” in fully applying the Memorandum, the country signed with the troika of EU-ECB-IMF. This last intervention of ECB’s brings us to another major but taciturn “achievement” of Mario Draghi its Governor, in holding just a bit (one American cent) the climb of the euro with the dollar. Yesterday, the ECB held its monthly governing council to set interest rates and other monetary policy plans. As markets were predicting the basic interest rate remained unchanged at 0.75%. Mario never lets markets down. Later on in the afternoon when the Governor held the regular press conference to explain policies, he mentioned the traditional ECB’s position that the bank does not have an exchange rate policy. He stressed however that ECB will “closely monitor” what happens in the money market. Some minutes before he had stated that, “we certainly want to see whether the appreciation (of the euro), if sustained, will alter our risk assessment”. Markets didn’t need more to reverse the climb of the euro and its parity with the dollar fell, but only by one American cent. In this way Draghi proved that he could overstep ECB’s rules as he did in cutting down the Irish debt. But let’s examine in-depth what happened today. For one thing the agreement with Ireland is a well hidden aid from the central bank to a government of a Eurozone member state, which is not allowed by ECB’s statutes. Draghi also overstepped the rules, when he left to be understood that the ECB might pursue an exchange rate policy for the euro if…. He had to keep Hollande happy who wants a cheaper euro but at the same time not to let Merkel down. One American cent less did the good job. In total yesterday was a very interesting day in the European Union. The problem is that in all the above mentioned occasions the main players used means that are not quite transparent and contain a large dose of arbitrariness. True targets are well hidden from the eyes of the many and the game is played by the few.