Fog in the Square Mile, continent’s credit cut off


LONDON | The European leaders that let British prime minister David Cameron surrender Brussels empty handed will come to regret it before they have the chance to meet again. Even German chancellor Angela Merkel on Friday spelled out some not quite conciliatory words after French president Nicolas Sarkozy, most probably incensed by the peon nature of his role in the drawing of a new fiscal horizon for our European Monetary Union, staged a plain rude gesture in front of the cameras. Yet, the truth is that no one in the continent understands the financial markets as they do in Whitehall.

Premiers, presidents and ministers might share histrionics and poor oratory, not the least a weakness for egocentricity, but what matters here and now is their governments’ record in dealing with the outstanding public debt game. And right or wrong, yields never lie.

Larry Elliott, the economics editor at The Guardianpredicts that unemployment in the island will surpass the 3.2-million level and that the UK is missing the boat on investment in green technology, on board of which he can see the United States, Germany and Japan waving. Elliott forecasts that the same scissors the Cameron cabinet uses to reduce state spending will cut growth rate down to that of a developing country –and he doesn’t refer to China, but to backward republics of the Middle East or Africa.

What’s worse is that these Sybil’s songs are echoed by the reality in which Britons live: the British Chambers of Commerce recently said that there will be about 2.8 million unemployed in 2012, and youth unemployment will approach a 42% Club Med-wise.

George Osborne, the British chancellor of the Treasury, should have learned a lesson former primer minister Tony Blair felt in his own flesh when he promoted the Freedom of Information Act. Its first result was the uncovering of irregularities committed by his Labour government. With the creation of the Office of Budget Responsibility, Osborne has chained himself to this particular Jiminy Cricket, who has already accused official economic data of being too optimistic. According to the OBR, GDP rise in 2011 will not be of 1.7% but 0.9%, and in 2012 it will slip to an even more dismal 0.7% instead of the boisterous 2.5% announced by the coalition.

Osborne’s response, rather seeking to appease a society whose mood is becoming bitter, has been to enable a 1% update of public workers’ salaries, a promise of £20 billion to guarantee loans to small and medium enterprises and, especially, the increment of that particular levy on banks to 0.088% from 0.075% to obtain at least £2.5bn. In more than one way, this represents cheating on both the markets and the City.

Notwithstanding, he can afford to do so. The British economy is tumbling as everyone else’s, but Osborne’s so-called Plan A has prevailed where the euro’s Europe disastrously and miserably frustrates us all. The British government pays record low interests on its debt auctions, and investors trust gilts better than German bunds. Why would anyone in Brussels, Paris or Berlin sneer with pride at the prime minister Cameron’s flying back to London to be glorified by the usual suspects?

It is likely that, blinded by an apparent victory, muffled laughs run throughout the Square Mile, but without Cameron sitting at the EU table, the City’s voice is now mute in that room where it must be heard. The euro’s design always was a miscalculation, and London has told us so from the very beginning while the rest played along in hope or ignorance –the reform of the financial sector is entirely another debate and in this regard as well, the current scenario looks more visceral and intractable.

Historic? That was a shameful summit. If the euro falls, BBC Newsnight economic editor Paul Manson reports, Britain’s GDP may fall by up to 10% in less time than it takes to say Merkozy!

About the Author

Victor Jimenez
London contributor at, reporting about the City and the Eurozone economies. He regularly writes for Spanish newspaper group Prensa Ibérica--some of his features include shared work with journalists of The Daily Telegraph and the BBC.

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