Thursday, October 09, 2008

Something smells

That huge stinking elephant is on the rampage again, and I'm not the only one who thinks so. Whichever way you look at it, the UK's bank rescue plan drives not so much a cart and horse through EU law as a fleet of 32-ton trucks with a supertanker in their wake.

The big question is, whether the UK acted unilaterally or whether the deal was stitched up at Ecofin, with probably the germ of the idea hatched at the "pre-meeting" – the so-called "summit" in Paris on Saturday.

My instinct is that Ecofin in Luxembourg was where the final deal was done. Most likely, there would only have been a small group in the know – the "Paris four" ... France, Germany, Italy and UK. Spain might have been brought into the deal, and perhaps a few more (possibly Ireland, Holland, Belgium and Luxembourg). And, of course, Barroso would have been in the loop.

The deal would have been sealed in the couloirs, with no witnesses. Nothing would have been said in plenary but all 27 member states would have agreed the communiqué, written in advance by the [French] presidency, with the text written to cover the backs of the plotters.

Some others think that the UK might have acted unilaterally, with Barroso going along with the plan after the news had broken. But, while he might have been able to keep little Neelie in her box, it is significant that not one other member state protested. Compare and contrast with the howls after the Irish unilateral action.

Either way, as we see from the previous post, the “colleagues” are going along with it, with further confirmation from an AP report, which tells us that:

Both France, acting as the current head of the 27 EU governments, and the European Commission said the plan to partly nationalize banks and guarantee bank loans met EU guidelines agreed Tuesday [Ecofin] on how far nations could go to save their financial systems.
The essence of this is repeated in the IHT and by Reuters. But, no matter how many times the story is repeated, it ain't true that the plan conforms with EU law. It just does not.

Of course, for the commission to have stepped in to condemn the plan, ex post facto would have been suicide. It would have precipitated a bust-up far bigger than the "Beef War" of 1997 and, this time, the EU would have been the loser.

But who is writing the script is not an academic question. If the UK did act unilaterally, then the EU is in trouble. But if this is a conspiracy of silence between the UK and the rest of the "colleagues", then it might suggest that the EU institutions are getting a grip and reasserting their authority. Upon that distinction rests the prospect of the EU emerging from this crisis much weakened, or stronger, more powerful and much more dangerous.

Someone who seems to think that the EU has been weakened by the UK plan is Bruno Waterfield, although his piece has been so heavily "Londonised" that it is hard to divine precisely what his line is.

However, he starts by telling us that a "Europe-wide funding plan" will be discussed at a Brussels summit next week, "despite the continuing failure of European Union leaders and institutions to pull together in the face of the global financial crisis." The "summit", of course, is not a summit. It is the autumn meeting of the European Council and there we expect the next stage of the "plot" to be hatched, if there is one.

But Bruno is writing that Gordon Brown's call for EU unity and funding may fall on deaf ears at the Council "as other national leaders scrabble to save their own political skins."

He makes a case, but it is pretty thin. Even so, he may be right – the EU may be on its uppers. I sense he is not but, frankly, I do not know. What is indisputable, though, is that there is a major drama being played out in the couloirs of Brussels and Luxembourg, the outcome of which could shape our lives for decades to come, and even change history.

The other indisputable point is that, as far as the MSM goes, most of the hacks are blissfully unaware of what is going on, so profoundly ignorant of the nuances that the "elephant" could sit on them and they still would not notice. (The sentence reads better with a "h" inserted in the appropriate place.)

That aside, this is written in the early small hours. Whether the Brown/Darling plan (with or without EU prior assent) is working may become apparent later today. If the market calms down and, more particularly, if we see movement in inter-bank lending – some signs of which may already be apparent – then today could be a turning point.

If it is, then all of us will breathe a sign of relief, and we can go back to our normal hostilities, hunting down that "elephant" - and working out how to pay the bill for the "rescue".

  • Other posts on the financial crisis here.