Comment: Cameron’s historic failure over Europe
Instead of defending democracy, the prime minister helps dig its grave.
By Ian Dunt Follow @IanDunt
Italy is no longer a democracy. It is a frontier outpost in the gradual takeover of governments by the financial markets. When technocrat Mario Monti was installed and filled the government with unelected administrators, it was not just a defeat for democracy, it was a victory for the banks.
Monti is Goldman Sachs' man. He was lifted out of academia by Berlusconi in 1995 to work at the Europe Commission, first in internal markets and then on competition. The bank spotted him and made him international adviser.
Something similar happened in Ireland, where Peter Sutherland, attorney general in the 1980s and former EU competition commissioner, became non-executive chairman of Goldman Sachs International and a non-executive director of Royal Bank of Scotland, until, you know, it collapsed, and we had to share the pain – but not, it goes without saying, his salary.
Mario Draghi, who recently became president of the European Central Bank, is a former Goldman Sachs man, as is Antonio Borges, who recently stood down from the IMF for personal reasons.
The banking lobby could not win its war in Greece, where creditors – the big banks of Europe – were forced to lose 50% on bonds. This was an unprecedented defeat, although not one which will save the Greek people from brutal and self-defeating austerity for a generation.
The banks made sure they won their other battles. The big fear, that they could lose out from the situation in Spain and Italy, will not be realised. The most important aspect of Merkozy's eurozone deal this week is that it rules out creditors ever having to shoulder a portion of future bailouts in insolvent eurozone countries.
Even the use of current IMF practise – that experts should decide on a case-by-case basis whether bondholder losses are necessary – is being negotiated, with a push for it to be moved from the text of the treaty to its preamble, where it would have no legal weight.
The idea that creditors should not suffer a loss when their investment goes wrong is the reason we are inflicting unparalleled economic and social misery on Europe. The austerity measures, the rescue funds, even the European Financial Stability Facility, derive from this principle, the principle that whatever happens, we must not penalise the banks. Every national bailout is in fact a bailout of the banks. Add it to the bill.
By cementing the complete subservience of European political life to the market, the Markozy deal does an extraordinary disservice to our continent and our society. But it doesn't stop there. The deal also suggests automatic sanctions on countries that allow a budget deficit of over three per cent of GDP and inserts a rule into eurozone countries requiring a balanced budget. Unlike creditor amnesty, this is at least a commendable economic and political principle – but it directly overrides the principle of national sovereignty.
Nicolas Sarkozy has been offered joint press conferences with Angela Merkel, complete with a torrent of barely-conscionable photographs of them kissing. But these presentations are merely theatre. Everyone knows France is an afterthought. We are seeing the takeover of European national sovereignty by Germany, which will effectively wield a veto against individual states' budgets. The national angle is easy to overstate, however. Germany is merely the handmaiden of the financial markets, which got us into this place and now sit like vampires turning their own catastrophe to their advantage.
The markets reacted with sluggish enthusiasm to news of democracy's acquiesce. Spain's ten-year bonds were down 5.2% while Italy's fell to 6.3%. With commendably comic timing, however, Standards and Poor intervened to put major European economies on watch. Only the best will do for the markets, you see. They won't be pacified until they have total immunity set in stone.
It won't fix the problem in the short-term, because it will kill demand and force European economies into a death-spiral. It won't fix the problem in the long term, because fiscal fetishism, while bafflingly politically popular, does little against what is, at heart, a balance of payments crisis made particularly acute by currency union. Actually, fiscal austerity makes us particularly vulnerable to cyclical downturns.
And what has David Cameron's response been to this dramatic turn of events? He has shown even more contempt for democracy than his counterparts on the continent. The left – a political designation Cameron spoke of as if it was contemptible during last week's PMQs – wants the public to be protected from the tyranny of the markets. The right wants some recognition of national sovereignty in Europe, some guarantee that their worst dreams of an ever-expanded, monstrous technocratic super-state are not being realised.
Both left and right are correct. There is plenty of scope for cooperation in preventing this disaster from unfolding. The idea that investors should be protected from the ramifications of their gamble is not a capitalist one – quite the opposite. The idea that the public should swallow losses and be denied profits is not capitalist either. Similarly, there is nothing right-wing about believing countries are entitled to make their own laws and their own budgets, without the arrogant intervention of other, more powerful, states.
Cameron has shown himself deaf to both concerns. He has ignored eurosceptic pleas to extract Britain from the situation and his only demand in exchange is that the City of London be protected from further regulation.
Paris and Berlin's desire for a financial transaction tax is self-interested, but that does not make it wrong. It is at least one small commendable action against the tyranny of the financial markets.
Opposing it is not, as Cameron says, in the national interest. The national interest would see Britain take action against a financial sector which has ruined its economy and now demands public austerity for its own mistakes.
The modest proposals for a financial transaction tax constitute one small ray of hope in utter darkness. It is one the British prime minister is intent on defeating. Not only will he support the dismantling of European democracy, he will do so on the basis that he can promote the market's dominance even further than the puppets of Europe would tolerate.
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