Rob's 12th guest post on Saving the Euro.
Germany Kicks Back
The German government is pushing for the UK to contribute financially to saving the Euro zone, and, as I suggested below, are getting fed up with Cameron telling the Euro ministers what to do. They want the coalition government in the UK to accept a tax on all financial transactions to raise cash for a "fighting fund".
This will be heavily opposed from the UK (unless Cameron has totally lost the plot) as the bulk of all international trades are booked through London, and will have very little impact on the likes of Germany or France, but will unfairly penalise the UK where approximately 30% of GDP is generated by the financial services industry, and its ancillary businesses.
Volker Kauder, the parliamentary leader of the Christian Democrat Union in Germany, certainly won't win any older British Euro-sceptics over with comments like "Europe is speaking German" when he argues for more financial assistance from the UK. I think the point he wanted to get across was that more Euro zone members are beginning to support the German stance on the proposed tax, rather than suggesting that Germany was quietly taking over Europe, but this will play straight in to the hands of the likes of UKIP in the UK (and unfortunately the more extreme elements like the EDL).
The rift between the Lib Dems and Conservatives in the UK over the Euro zone issue is beginning to open cracks in the coalition government, and these cracks need to be plugged very quickly before "the market" decides that there is a political crisis on the horizon in the UK and acts accordingly.
Cameron is in Germany today, and it will be interesting to see what he comes home with – the UK in a strong position to renegotiate its position in Europe, or a complete "cave in" to the demands of Germany – from recent experience, if I was a gambling person (very PC) I would put my money on the latter. Cameron is definitely not another Maggie Thatcher when he negotiates on the UK's behalf.
Without a doubt, Germany is running the show at the moment, you never here from any other members of the Euro zone, and even France has gone a little quiet, as the reality sinks in that they also have no cash, and cannot argue from a position of strength, unlike Germany.
The situation in Greece and Italy is still unresolved, and the longer the in-country haggling between the various political factions takes, the less confident are the markets that the problem can be contained.
Euro/$ traded lower again today, down to Euro/$ 1.3450, pulling GBP down with it again to £/$ 1.5775.
The link between GBP and the Euro still remains around £/Euro 1.17.
Stock markets little changed from close of business – opening flat to a little down – FTSE trading around 5,515.
The Bank of England looks set to cut its growth forecast from 2% to 1% in its quarterly inflation report due out today citing fears of a Euro zone melt down.
Further afield, Japan cut its own economic assessment again citing fears of the ongoing debt crisis in Europe.
The longer this issue goes unresolved, the more uncertain the markets will become, and the economic situation in other non-Euro zone nations will worsen.
I suggest once more that if they want the Euro zone to survive as a credible and viable union, then they need to perform "financial triage", and cut away the dead and dying flesh so that the rest of the body can survive.
It will be incredibly painful in the short to medium term, but if they stick with the idea that they want the Euro zone to survive "as is" they run the risk that they will simply run out of time and financial resources, and simply implode.
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The author, Rob (not his real name), works in one of UK's largest charities.
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