How Cameron unwillingly helped Eurozone reunite; the long-term repercussions of two European Council decisions

Matteo Renzi, Italian Prime Minister, Shinzo Abe, Japanese Prime Minister, Angela Merkel, German Federal Chancellor, Herman Van Rompuy, President of the European Council, José Manuel Barroso, President of the European Commission, David Cameron, Prime Minister of UK, Barack Obana, President of the United States of America, Francois Hollande, President of France, Stephen Harper, Canadian Prime Minister (clockwise). Everybody was there in the G7 Summit of 05.06.2014 in Brussels, except Jean-Claude Juncker. (European Council – Council of the European Union, Newsroom).

Matteo Renzi, Italian Prime Minister, Shinzo Abe, Japanese Prime Minister, Angela Merkel, German Federal Chancellor, Herman Van Rompuy, President of the European Council, José Manuel Barroso, President of the European Commission, David Cameron, Prime Minister of UK, Barack Obana, President of the United States of America, Francois Hollande, President of France, Stephen Harper, Canadian Prime Minister (clockwise). Everybody was there in the G7 Summit of 05.06.2014 in Brussels, except Jean-Claude Juncker. (European Council – Council of the European Union, Newsroom).

Last week’s European Council, bringing together the 28 EU leaders, adopted two groundbreaking decisions. The first one, to propose Jean-Claude Juncker as next Commission President with a 26 to 2 vote was largely expected, and the European Parliament will predictably endorse him. The other Council verdict, to relax the strict application of the Stability and Growth Pact, came as an accompaniment to the first choice, while its particular features have to be elaborated by the Commission, under Juncker, until the end of the year.

The British Prime Minister David Cameron finally didn’t avoid associating himself with the Hungarian Prime Minister Victor Orban, in opposing Juncker, against a rock-hard 26 majority favouring the Luxembourgish politician to lead the Commission. The Brit probably failed to foresee that the German Chancellor Angela Merkel would go as far as to dent the severe austerity of the Stability and Growth Pact in exchange for the backing of France, Italy and many other countries for her choice of Juncker.

Cameron’s disastrous strategy

Holland and Sweden had already distanced themselves from Britain, making clear they are not prepared to test EU’s unity for the sake of Cameron. It seems that the British PM had initially conceived the idea to oppose Juncker, in order to show off his strong critical stance vis-à-vis the EU for his fellow countrymen to see, and by that to solidify his dilapidated political position at home. However, he fell victim of his own lack of flexibility and probably was drifted to unconsciously placing excessive emphasis on the Juncker affair.

Now Cameron faces a cataclysm of criticism in Britain. For one thing, he is accused by the entire British nation of having instigated a historic defeat to his country in the European arena. The pro-EU British political forces now question his ability to support the EU choice, as he says he will do, in a possible referendum about Britain’s position in or out the Union. He is also held accountable of having gratuitously promised such a referendum, if he wins the 2015 election. Ed Miliband, the Labour leader, stated that Britain has come now “closer to the exit door” in the European Union. Even the fanatical opponent of EU, the UKIP leader Nigel Farage said that Cameron was “utterly humiliated”.

It’s not only his political opponents that decry the handling of the Juncker affair. Within his own Conservative party, despite the pretentious approval of his strong stance in Brussels, there are many MPs who don’t hide their dismay over the Cameron management of the whole affair. They are reported by British media as saying that after this unbearable setback, Farage’s UKIP will undercut the conservative vote across the country to the benefit of Ed Miliband in next year’s election, sending the Labour leader to 10 Downing Street. In conclusion, Cameron failed to foresee the extent that his defeat could take in Brussels and he also didn’t understand that the final result will be regarded at home as a national disaster, to be charged solely to him.

Unwillingly undermining austerity

Cameron’s mistakes however brought about Merkel’s retreat from Germany’s so far unyielding political stance in perusing fiscal consolidation and austerity in the entire EU. The Italian Prime Minister Matteo Renzi ahead of the last week’s EU Summit, made it clear to Merkel for the whole Europe to know, that he was ready to trade Italy’s backing for Juncker, in return of a relaxation of the strict austerity imposed by the Stability and Growth Pact rules. Of course he didn’t say it plainly, but he referred to the ‘built in’ flexibility of the Pact. He was not alone though in demanding a relaxation. Some days earlier Sigmar Gabriel, the socialist German Federal Minister for Economic Affairs and Energy and the French Minister of Industrial Renewal Arnaud Montebourg had jointly asked for a relaxation of the Pact too.

On 19 June the European Sting’s leader article reported that, “the German Vice Chancellor… took the pain to go into details to explain what he meant, by the ‘practical support’ to countries with growth problems. Many member states are vigorously applying fiscal consolidation measures, but at a great cost of unbearably high unemployment and GDP losses… To this effect Gabriel stated that, “A the solution could be that the costs connected to reform policies and measures would not be taken into account in calculating the deficit””.

This is exactly what Renzi and the French President Francois Hollande traded with Merkel last week, in exchange of abandoning Cameron alone and showing Britain the EU exit door. Without Cameron’s inopportune ‘Juncker war’, Germany would have kept rejecting all calls for a relaxation of austerity. Already on 20 June the conservative German minister of finance Wolfgang Schäuble had overruled socialist Sigmar Gabriel’s proposal for a relaxation. In reality, at the end of the day Cameron helped the rest of the EU harden its unity. The acceptance by Germany of the demand to relax austerity and fiscal discipline, reunited the Eurozone, irrespective of how this was achieved.

It’s written in the conclusions

The European Council of 26/27 June conclusions foresee exactly that. The relevant passage goes like this, “Structural reforms that enhance growth and improve fiscal sustainability should be given particular attention, including through an appropriate assessment of fiscal measures and structural reforms, while making best use of the flexibility that is built into the existing Stability and Growth Pact rules”.

The European Commission is charged to draft the related proposals and submit them to the Council before the end of the year. To this effect the Council asked the “Commission to report to the European Parliament and to the Council on the application of the EU governance framework by 14 December 2014, as foreseen in EU law (‘6-Pack’ and ‘2-Pack’)”. In reality this mandate gives the Commission the ability to exclude all the structural measures related to growth from the calculation of the fiscal deficit, even generous tax reductions for businesses and households. Nobody can deny the growth character of all tax reductions. In reality the sky is the limit for similar exclusions from the deficit account.

Of course Germany will oppose all the generous deficit reductions. However, with Jean-Claude Juncker at the top of the Commission, and given his growth friendly attitude, Berlin will find it difficult to resist the demands for less austerity by all the rest of the Eurozone member states. In any case the EU forces, longing for a relaxation of the Teutonic austerity have won a great victory but at the expenses of David Cameron.

 

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