Thursday 18 August 2011

Tobin tax proposal to split Europe further

Very hard to ignore macro events at the moment. They are simply driving everything, looking at individual stocks is a bit of a waste and my own strategy (-40% YTD, gulp) is smashed to pieces as the event driven news that should drive my shares is immaterial in the face of global macro meltdown.

On this topic, I posted yesterday on the disastrous Merkel-Sarkozy 'plans' which have managed once again to set the market off on another set of falls. Along with poor UK numbers on inflation, employment (actually this not so bad, too many immigrants are making the numbers look worse - more on this later today) and Public Sector Borrowing.

The real challenge for the EU though is how is the Franco-German axis going to work? The UK is simply not going to sign up to a Tobin tax that will raise over 80% of its money from activities in the City of London to distribute to Southern Europefor the sake of French and German bond prices. No doubt then the new European State can attack perfidious Albion, but it still does not help the fiscal consolidation. Cameron is going to veto this EU clause and this is going to have the effect of pushing the UK to be even more euro-sceptic as the ire of demagogues in the new Axis falls upon the UK.

The Southern European states are going to tire of the German heckling too - there is real austerity in the PIGS and being told it is not enough and you have to do more by a Germany not undergoing any austerity is not going to wash forever. Only a change of Government in one and a decision to leave the Euro and get out of the fiscal mess and then the EU would have a real problem.

At times of crisis, what is needed is magnanimity by the victors (as after WWII) not bitterness (WWI). It is a shame that we are in this position, because I would have thought that Europe above all would understand these lessons.


Old BE said...

I am worried that the French and Germans seem not to be seeing how hard the situation is in.

I was having a bit of a moan to a friend last night about train fare rises amongst other things and she said basically "it's tough, but at least we have jobs and homes, look at Portugal and Ireland".

Merkozy think things are tough, but they have no inkling of how tough it is in Portugal, Greece, etc..

Sebastian Weetbix said...

The beastly Hun do not really understand markets and have never conducted diplomacy as understood by others. Allied to the fact that they are either at your feet or at your throat, a disaster approaches.

(WV = 'reerih'!)

Anonymous said...

I read this as "the progress to an integrated Europe will be paid for by a tax on the UK should they be stupid enough to pay it". Don't underestimate the vested interests in a united Europe.

No different from the "uniting" of the United Kingdom where a few worthies having lost their shirts in a financial bubble took the bribes and sold off their country.

Nick Drew said...

The beastly Hun do not really understand markets

this is absolutely right SW, they really, really don't: I have written before on how they were completely befuddled by how the EU ETS (carbon market) worked out, just one trivial example

many of the frogs hate markets, but that's different

Mr Eck said...

Are you sure of Cameron?. He is a proven traitor as his dismantling of our armed forces and his many u-turns show.

CityUnslicker said...

Mr Eck - I can't see how the Government would let a Tobin tax through - if only because their financial backers are not going to support it.

remotely perhaps they may agree in return for huge cuts to the Eu contribution - but life is going to move to fast for any of this to matter. FTSE down 3% again today.

andrew said...

The beastly Hun do not really understand markets ...

For people who do not understand markets they seem to have not done too badly over the last 20 years or so - subsidising the EU and paying for re-unification etc.

Perhaps they do not particuarly like ours.
With reference to capital markets you could argue that their systems of moving money from German savers to German businesses is better than ours.

Ignoring all that, along with every other poster, I agree that in peacetime one country - be it the UK or France or Germany will not bail out another country so explicitly without exacting a price that the other country will not pay.
The only solution that keeps the EUR going is to spread the costs and depersonalise the conditions.
The Germans will balk at paying the Greeks, but might go for a EU Wide reconstruction fund. Similarly the Greeks will not put up with German constraints, but might let the EU Wide reconstruction fund apply similar conditions.

This is what the IMF is and does.

Electro-Kevin said...

Victors ?

Pray tell. Where ???

Sean said...

The Fins are getting Collateral from Greece for its cash, I wonder if the rest will want the same?....from each other.

cosmic said...

Unfortunately, I think this article is wishful thinking.

It must have been known when the Euro was hatched that there were faults such as not having a Euro Treasury and that a country like Greece would get into a mess. They were certainly cavalier about accepting Greece. The solution to the mess would be to incorporate the central control lacking and further the ends of full political union. I don't think they realised that the mess would be much bigger than Greece and offering more Europe as a solution would be such a huge gamble, but they really have no option but to back their hand.

The EU/Euro scheme has shown itself to be completely rigid in its ambitions, e.g. the Constitution and the Lisbon Treaty which they were desperate to ram through. The EU was compared to riding a bicycle, it either goes forward or falls over. Note that the national governments did everything they could to push it through.

There's every reason to believe the Tories are signed up to the idea of a Single European State. For all the noises they make on occasion their policy rules out leaving the EU.

So far, they've shown no attempt whatsoever to refuse to go along with the bailouts or wring any concessions. If they refuse to go along with this they'd be accused of widening the cracks and bringing the EU project down.

I think refusing to go along with this would involve facing the prospect of leaving the EU.

It's a mistake to see the UK government,(I don't just mean the party in power, I include the wider UK government, Civil Service, local government etc.) as an independent government being bossed around by Brussels. It has willingly become the regional government of the EU.

Eventually, there will be an assertion of national sovereignty, but it will be a consequence of the EU falling apart and reality having to be faced reluctantly, rather than a realisation at Westminster that being part of the EU is not in the UK's interests and leaving or even refusing to play ball to any serious extent.

I'd be very surprised if the present government didn't go along with the Tobin Tax, (or some equivalent) possibly making complaining noises, but ensuring that we cough up.

Budgie said...

"The UK is simply not going to sign up to a Tobin tax that will raise over 80% of its money from activities in the City of London to distribute to Southern Europe for the sake of French and German bond prices."

Why ever not? It looks like a really good wheeze for Germany and France - get the Brits to pay for Greece.

Your weak spot, CU, is your unaccountable trust that after all the evidence, Cameron will protect UK interests and not bow to the EU.

Cameron will not keep us out of the Tobin tax. We have gone through this cycle many times before: this is the 'it's not very serious, and we sign up to it over my dead body' phase.