Business, Economics and Jobs

British Prime Minister David Cameron is out of the loop on Europe’s growth-versus-austerity debate


Demonstrators burn an EU flag near the EU offices in Athens during a protest against harsh austerity measures.



LONDON, UK — When the leaders of the G8 get together around the dinner table at Camp David this weekend, I hope the protocol chiefs will be seating British Prime Minister David Cameron well away from German Chancellor Angela Merkel. War is brewing between the two nations over the euro-zone crisis, if the British press is to be believed.

"George Osborne: Angela Merkel damaging UK economic interests," read one headline in The Daily Telegraph this week.

"Germans must abolish themselves," said a photo caption accompanying Ambrose Evans-Pritchard's Daily Telegraph blog post detailing the trillions it will cost Germany and France to pay for a Greek euro-zone exit and how that event will ruin the British economy.

This week at Prime Minister's Question Time, Sir Peter Tapsell, the Tory of Tories, asked Cameron, "Does my right hon. Friend suppose that Chancellor Merkel now regrets that she did not take the advice he gave her last October about the big bazooka? If she had fired it then, that would have spared the European Union from its present crisis."

Cameron replied, "I cannot give a direct answer to that, [no, he couldn't, there is this little thing called diplomacy] but I can say that the euro zone has to make a choice. If it wants to continue as it is then it has to build a proper firewall and take steps to secure the weakest members of the euro zone, or it will have to work out that it has to go in a different direction. It either has to make up or it is looking at a potential break-up. That is the choice that has to be made, and it cannot long be put off."

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Much of this heat comes from frustration. The truth is, Britain has no say in what happens over on the other side of the Channel. Not just because it is not part of the euro zone, but because last December at a crisis summit to create a fiscal compact among euro-zone nations that was hoped would calm the markets, Cameron decided to re-open negotiations on a couple of trade issues relating to protecting the City of London's dominance in global finance. These issues were not particularly relevant at a moment when the crisis threatened to destroy not just the euro, but the EU and the entire global economy. Inappropriate would be a polite word to describe Cameron's actions.

In the end 26 of the 27 EU nations signed up to the compact which commits them to reducing their budget deficits to 3.5 percent of GDP. Britain refused to sign. Since then Britain's overwhelmingly Conservative supporting press has trained its guns on Berlin and Merkel's austerity mantra.

What would be funny, if it weren't sad, is the hypocrisy of it all. Cameron and his Chancellor of the Exchequer, George Osborne, are the English-speaking world's poster boys for austerity policy. They have already set Britain the same 3.5 percent target for deficit reduction as the EU agreed last December. So what's the problem?

Well, as commentators of a Keynesian stripe have been saying for some time now: We can't all be doing austerity at the same time, otherwise who's going to buy from whom? In Britain's case, its largest trading partner is the EU, and if the EU is doing austerity then what happens to British prospects for growth?

No prize for knowing the answer: British growth prospects go in the toilet. Trade with the EU is off by 5 percent. Britain is now experiencing a double-dip recession

And whose fault is it? Since a government always needs to blame someone else, it is stupid politics to say, "My bad, we're going to change policy here." So, it's got to be the Germans who are at fault.

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Here we get to the matter of culture. Blaming the Germans is an easy sell in Britain. In this country World War II is a never-ending story. The war is always present on TV and in popular books and in the columns of newspapers. When it comes to Germans, old jokes about "Whatever you do, don't mention the war" — which were funny when they were first made on Fawlty Towers 40 years ago — still get made, only now they're not so funny.

Germany, led by the conservative Merkel, should be a natural ally of Cameron in the fight for making austerity the orthodoxy for the 21st Century. But the prejudices against the Germans, particularly of the chattering classes, means that cannot and will not happen.

Instead, Britain's chatterers have spent the week hectoring from the sideline as newly-elected French President Francois Hollande flew through thunder and lightning to meet Merkel. Right-wing historian Dominic Sandbrook wrote in the Daily Mail, "This Merkel-Hollande showdown looks set to be the most decisive European meeting since the end of the Cold War."

Whatever happened to British understatement? It wasn't a showdown but a getting to know you meeting, and as for it being the most decisive meeting since the end of the Cold War: What about summits concerning the re-unification of Germany? What about extending EU membership to former Soviet bloc countries in the teeth of Russian disapproval? There may be a summit sometime in June, after the next Greek election, that will merit the description "most decisive" but I think Sandbrook overstates his case, a little.

But there you have it: When you are merely a bystander at an impending car crash and not at the steering wheel basically all you can do is jump up and down and wave your arms.

By contrast, the German and French press ignore Britain altogether when it comes to the euro-zone crisis. A search for "Cameron" in the major German and French papers this week turns up articles about the phone-hacking scandal and the arrest of Cameron's friend, the former editor the News of the World, Rebekah Brooks, but nothing about the British view of the euro-zone crisis.

The British government faces a genuine problem. It has cut itself off from any influence over Germany and France. And what good is Cameron's government to the Obama administration if it doesn't have the ability to have a quiet word with Merkel and co. about changing course, throttling down on austerity, stimulating the euro zone's weakest economies and accepting a little more inflation in Germany — for the good of the world economy?

Right now, Britain's main role in the world economy is to be the place where Wall Street traders can do the stuff they can't do in New York because the City of London has fewer rules. It is no surprise that JP Morgan's recent multi-billion dollar losses were made by a trader called the "London Whale." Even less surprise that informed speculation says the problems began with bets against the euro. 

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Merkel might be just a little peeved with Cameron because for months she has been asking for tighter regulations in the City of London, something Cameron refuses to discuss.

Maybe Barack should take Dave aside just before cocktails on Friday night and tell him to go over and make nice to Angela (they're all on first-name basis, I hope). Actually, now that I think about it, I was wrong at the top of this letter, maybe the protocol chiefs should seat the British prime minister right next to the German chancellor rather than at opposite ends of the table.

Not for Germany's sake, but for Britain's.