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Greece pays a heavy price as eurozone strives to protect its reckless banks

Further austerity by the Athens government will only serve to hide the catastrophic consequences of irresponsible lending

Heather Stewart, The Observer, Sunday 12 June 2011

While Germany was locked in an embarrassing public spat with the European Central Bank last week over who should pay the price for a new Greek bailout, fresh evidence was emerging of the impact of the savage cuts Athens has already imposed on its increasingly restive citizens.

The number of people unemployed has shot up by 40% over the past 12 months; the jobless rate now stands above 16%. Among young people it's a devastating 42%, representing extraordinary human and social cost. Yet the government's latest plans envisage another four years of slash and burn, taking the deficit from 7.5% of GDP this year to 1% by 2015. It's extreme fiscal masochism, and it isn't going to work.

Growth is suffering: the economy expanded by a miserable 0.2% in the first quarter of 2011, official figures revealed. Over the past year, it has contracted by a total of 5.5%, and forecasters – including Greece's creditors, the IMF and the ECB – are expecting a further catastrophic decline of more than 3% over the coming 12 months.

Yet while Greece is swallowing its medicine, it's become increasingly clear – as many economists and investors have argued for months – that it's not just caught in a short-term cash crunch, but a solvency crisis. With its economy shrinking, Greece simply cannot afford to pay its debts.

The past year of pain has had very little to do with putting Greece's finances on a sustainable footing, and everything to do with papering over the catastrophic losses of the eurozone banks that indulged in an irresponsible lending spree in the run-up to the credit crunch.

As the venerable Leigh Skene of Lombard Street Research put it last week: "Writing assets down to fair value and then recapitalising banks should be the first priority in restoring economic growth after a banking crisis. Sadly, Europe went in the opposite direction and tried to ensure that no bank, regardless of how insolvent [it was], defaulted on its liabilities."

We've been here before. In the first of Adam Curtis's brilliant series of documentaries, All Watched Over by Machines of Loving Grace, broadcast on BBC2 over the past month, he described how the IMF – with the backing of Washington – wrought havoc on the Asian economies in the late 1990s. After a credit boom, driven by a frenzy of lending from the rich world's banks, turned into a crash, the IMF oversaw a series of bailouts, often insisting on savage budget cuts and "structural reforms" as a quid pro quo, emboldened by the idea that unleashing market forces would, in the end, lead to stability.

In many cases, including Indonesia, the Philippines and Thailand, the result instead was political and social chaos, but the west's banks, which had recklessly poured cash into the "Asian Tigers", didn't lose out. Even the IMF itself has since acknowledged that its prescriptions at the time made the problems worse. "While tough measures are needed to address deep economic problems, the conditions accompanying its programmes need to be more focused on the problems at hand, and it needs to be more conscious of the social impact of those programmes," it now says.

Yet the "rescue" of Greece, Portugal and Ireland – this time administered under the guise of European solidarity – followed precisely the same logic: private sector creditors must be protected; deficits must be tackled at a breakneck pace; no gain without pain.

Last week's intervention by Wolfgang Schäuble, the Germany finance minister, suggested that, in Berlin at least, reality is starting to dawn. Under pressure from domestic politicians, Germany is pressing for Greece's private-sector creditors, including Germany's own banks, to shoulder some of the burden of a fresh bailout through a "voluntary" debt swap, which would extend the lifetime of existing bonds by seven years. At the same time, Greece would step up its privatisation programme to raise short-term cash, and the "troika" of the IMF, the European commission and the ECB would find another €60bn (£53bn) or so.

Details are hazy, but such a "reprofiling" is just a default by another name, and the ratings agencies would be likely to see it as such. That would force banks holding Greek bonds, including the German banks, to write down their face value.

The ECB is vehemently opposed to the idea, partly because it is sitting on a pile of Greek bonds itself, and partly because it fears that a default, even one as widely anticipated as this, would create panic on a scale not seen since the Lehman Brothers bankruptcy in September 2008 – and we all know how that story ended.

The number-crunchers at consultancy Fathom reckon that a debt swap along the lines proposed by the Germans would mean a writedown of anything up to 36% on the value of Greek bonds.

That would probably require eurozone governments, including the French and Germans, to recapitalise their banks, at huge political and economic cost, but Fathom's Erik Britton reckons that even a default on this scale will not be enough to put Greek public finances back on a sustainable footing. "It needs to be twice that," he says. "If they're going to do it, they might as well do it properly."

He suggests a 70% default will eventually become necessary and that Greece will inevitably be followed by Portugal and Ireland. The all-out market panic that could result might well drag in Spain, too.

In other words, by shifting the pain on to the hapless taxpayers of Greece in order to cushion the eurozone's banks from the consequences of their own actions, all that Europe's leaders have succeeded in doing is exposing a political schism at the heart of the eurozone project – and sowing the seeds of an almighty market panic.

Even if Germany and the ECB can somehow patch up their differences and cobble together a short-term rescue deal for Greece, they will rapidly have to turn their attention to Portugal, Ireland, and – perhaps some time next year – back to Greece. And if the economics look grim, the politics of the euro project look even worse. Skene is exactly right to say that Greece is "the canary in the coalmine"

Why Europe is on the brink

The deepening crisis in Greece and the collapse of the Schengen borders agreement are serious threats to the European utopia of political and economic union. Martin Vander Weyer asks how much longer the dream can last

By Martin Vander Weyer Sunday Telegraph, 15 May 2011

The visionaries who dreamed of a peaceful and united Europe after the end of the Second World War — Robert Schuman, Jean Monnet, Paul-Henri Spaak and their ilk — must be looking down in puzzlement and dismay.

Schuman, the Luxembourg-born Frenchman who was the so-called Father of Europe, spoke in 1949 of “a great experiment’’. Six decades on, the complex political and monetary contraption of the European Union is still a work in progress.

The utopian ideal of a European whole that is greater than its parts remains essential to the rhetoric. This bolting-together of half a billion people in 27 nation states, many of which had waged war against each other, half of which are either former components of the communist bloc or former Right-wing dictatorships, and 17 of which now share a currency, is in many ways a triumph of co-operation and political tenacity.

Yet the reality is that the great experiment has developed stresses and pressure-points that must make even the most ardent Europhile wonder how long it can hold together. The financial collapse of Greece and the disintegration of the Schengen Agreement on passport-free borders vividly illuminate that risk.

And it is not a risk which Britons can watch smugly from over the water, telling ourselves how wise we have been to maintain a truculent attitude to everything emanating from Brussels, to have kept our island frontiers intact, and to have shunned the single currency. We would certainly prefer a financially stable Europe as our closest neighbour — a strong competitor perhaps, but also a prosperous customer for our exports. We recognise the value of a coherent European voice in world affairs. We do not want the continent to regress into internal strife and protectionism.

Charlie Bean, the Bank of England deputy governor, spoke this week of the “messy consequence” for Britain if the Greek situation is allowed to descend into chaos. In truth there can be no benefit to us from a European cataclysm, beyond the opportunity it offers to Ukip to say “I told you so.” [DM: What about the opportunity to leave the EU altogether? Huge benefit]

But why has the founders’ dream mutated into this crisis? At the heart of Europe’s problems is a failure of logic. Monetary union was hailed as the locomotive of progress towards a European super-power. Yet monetary union itself can only flourish on the basis of a high degree of political and fiscal integration. Without those elements its destiny is to be torn apart: one interest rate and one exchange rate cannot possibly fit all the members of a group of nations with widely different industrial and financial strengths, tax regimes and political cultures.

That was made startlingly apparent last week by news that the German economy is surging ahead at a growth rate of almost 5 per cent per annum, with France close behind, while Portugal, Italy and Ireland lag in the distance and Greece (despite an unexpected growth rebound) teeters on the brink of the abyss.

Last year’s €110 billion EU-IMF bail-out for Greece always looked temporary – it was clearly inadequate. It was apparent then, and is even more so now, that there is a lack of political will in Athens to drive the fiscal austerity measures that were a condition of the deal. Greek trade unions are whipping up violent opposition to a proposed €50 billion privatisation programme, even though, as an IMF spokesman sighed this week, “that’s probably less than 20 per cent of the assets that Greece could privatise’’.

The Greek public debt position is in fact considerably worse than it was at the time of last year’s bail-out — forecast to reach almost 160 per cent of gross domestic product in 2012. The country’s downgraded debt, shunned by investors, now offers extraordinarily high yields and there is little hope of Greece being able to access international bond markets in the foreseeable future. A recent Bloomberg poll found that 85 per cent of investors believe Greece will eventually default on its sovereign debt — and a majority think Portugal and Ireland will go the same way.

Yet a “haircut” for holders of Greek debt — writing off, say, 40 per cent of it, to bring it back to around 100 per cent of GDP, at a huge cost to the European Central Bank (ECB) which now holds much of the paper — would not greatly improve Greece’s capability to service the remainder. Even if austerity measures are fully enacted, which looks unlikely, there will be a borrowing requirement of some €27 billion next year which only another emergency EU loan package can provide.

And that can only happen if German voters and parliamentarians permit it, because it is Germany that must bear the lion’s share of this and every other eurozone bail-out. Chancellor Angela Merkel declares that: “We can offer solidarity only if Greece’s stability and eagerness to reform is proven.” But she knows it will have to be done anyway if the alternative is to allow the euro to split asunder, and the European ideal to disintegrate with it.

Logic dictates that the option of ejecting from the euro any member that is terminally unable to meet its obligations ought to be on the table for urgent discussion. But there is no exit mechanism available. It is said that Jean-Claude Trichet, the ECB president, will not allow the possibility to be mentioned in his presence. The Italian central banker Tommaso Padoa-Schioppa, the chief architect of the euro in the 1990s, said shortly before his death last December that he could see “nobody with authority who predicts anything like [a break-up of the euro]’’.

This blindness in Brussels and Frankfurt extends to more creative ideas such as the splitting of the euro into two: a hard “northern” currency with Germany and France at its core, and a softer “southern” one which would find its own devalued level, making heavily indebted peripheral economies suddenly more competitive.

For now, however, the euro is sacrosanct, whatever the cost in terms of lost international confidence and respect — but Europe’s leaders are too weak to drive forward the fiscal and political integration that is the only path to securing the euro’s permanency. At a time when the ECB most needs to assert itself, it is riven with arguments over the likely appointment of an Italian, Mario Draghi, to follow Trichet as president. That would give Italy two of the bank’s six executive committee seats; and the vice-president is Portuguese, swinging the balance of power towards southern borrower states, and, in its critics’ eyes, diminishing the ECB’s authority.

More importantly, where are today’s political titans to compare with Schuman and Monnet, or indeed with the second-generation line-up of Kohl of Germany, Mitterand of France and, as president of the Commission, the formidable Jacques Delors? What does Herman Van Rompuy, the grey Belgian who is the first permanent president of the European Council, have to say about the debt crisis or the impact of turmoil in North Africa? What of Baroness Ashton, Gordon Brown’s nominee for the role of the EU’s first “high representative” for foreign affairs? The Van Rompuy-Ashton combination has set a benchmark for non-impact in global affairs that would be hard to match. As the pinnacle of the power structure established by the Treaty of Lisbon to drive through the next stage of Europe unification, they might as well not exist.

That point underlines another internal contradiction. The EU cannot have powerful, charismatic leaders in their own name — it chose not to have Tony Blair, for example — because they would usurp the platform which national leaders such as Angela Merkel and Nicolas Sarkozy reserve for themselves, in the hope of bolstering their standing with national electorates. Merkel, at the head of a fractious coalition, buffeted by voters angered at the prospect of paying for repeated bail-outs, has no coherent strategy for the sovereign debt crisis. Sarkozy is wholly obsessed with his fading prospect of winning a second presidential term.

In effect, today’s Europe has no leaders. But it has strong political forces at work. In France, Denmark and elsewhere, the harsh economic conditions of the past three years have generated an upsurge in the anti-immigrant, anti-Muslim Right-wing fringe. Nationalism, anathema to pan-Europeanism, is on the rise. And that has brought into question the 1985 Schengen Agreement which removed frontier procedures between 25 European states — 22 EU members plus Norway, Iceland and Switzerland.

This absence of passport requirements and customs checks across a vast stretch of the continent was, along with euro notes and coins, the most visible symbol of progress towards the European ideal. But 15 of the “Schengen states” indicated last week that free borders should be suspended to avert a tide of migration from north Africa. Relatively small numbers of Tunisians and Libyans arriving in Italy have already provoked France to tighten up its south-eastern border, and Denmark to reinstate frontier guards.

Realists might say Schengen was always a treaty too far — that while nation states still exist, border checks have a legitimate function; that just as the single currency cannot be fully achieved without political union, neither can the permanent abolition of frontiers. Nevertheless, the arrangement has operated for 25 years, and the idealists are still holding out. EU home affairs commissioner Cecilia Malmström called Schengen “a gift to the citizens” of Europe, while German foreign minister Guido Westerwelle said that “the free movement of people is too valuable to be sacrificed by domestic considerations”.

But the resurgent nationalists are not listening, and neither are the voters who don’t want to pick up bills for other nations’ follies. The European ideal looks more fragile today than at any time since it began to evolve in the 1970s from a “common market” to an enlarged community of states.

And that is no cause for celebration or schadenfreude. Tarnished and flawed though it may be, the EU has made a huge contribution to peace and has supported the democratic aspirations of many millions of people. It urgently needs two things: a strategy to deal with the debt crisis in which no options are ruled out, and a new set of leaders.

[DM: The EU has not made a huge contribution to peace. Peace in Europe is due to the spread of democracy (democracies don't fight one another) and the rise of NATO. The EU is inherently undemocratic - its leaders despise democracy, because they cannot trust the people to come up with the right answer. What the EU needs is political leaders in the major countries, starting with Britain, who will admit that the whole project has been an unqualified disaster and has imposed a huge bureaucratic and cost burden on the European nation states, and give their nations their freedom by leaving the EU]

'Secret, dark debates' fan flames of eurozone turmoil

Political union frays at the edges as tensions and resentments rise ahead of a critical meeting on Monday on the debt crisis in Greece and a bail-out for Portugal.

By Bruno Waterfield, in Brussels and Philip Aldrick, Telegraph, 15 May 2011

An undercurrent of anger, suspicion and mistrust will per-meate on Monday night's critical meeting of eurozone ministers in Brussels as they grapple with a spiralling Greek debt crisis and try to seal a €78bn (£69bn) bail-out for Portugal. As if the euro's problems were not enough, seething resentments will add a new political dimension to the talks.

The inclement mood was set 10 days earlier beside a gently babbling brook and old water mill that speaks of Europe's troubled past. On Friday May 6, Jean-Claude Juncker, Luxembourg's prime minister and the chairman of the eurogroup of single currency members, called a secret meeting of the European Union's most powerful countries at the picturesque Chateau de Senningen on the outskirts of the tiny Duchy state.

Gathered at the 18th century former paper mill, which served as an artists' retreat during the Nazi occupation, were finance ministers from Germany, France, Italy and Spain – the euro's G20 members, Jean-Claude Trichet, president of the European Central Bank (ECB), and Olli Rehn, EU commissioner for monetary affairs. Top of the agenda was the fate of Greece, after the International Monetary Fund (IMF) – on the hook for €30bn of the original €110bn rescue – demanded that the EU come up with a new strategy as the Mediterranean country continued to plunge into debt and recession.

Sparking rumours that Athens was set to leave the euro, George Papaconstantinou, the Greek finance minister, was summoned to Senningen to explain how his country could take further savage austerity measures and speed up privatisation of lucrative state-owned industries.

As news of the meeting leaked out, financial markets went into spasm sending the euro into a nosedive. In a desperate bid to end the turmoil, Mr Juncker, who had not informed other eurozone finance ministers of the meeting, chose to lie. "I totally deny there is a meeting," said his spokesman, as speculation mounted. Mr Juncker had already horrified many of his counterparts by openly bragging last month that he often "had to lie" to suppress public debate over eurozone econo-mic policies which, he claimed, were too important for open contemplation.

"I am for secret, dark debates," he said. "When the going gets tough, you have to lie."

The lies and the elite gathering sparked a furious response from euro members, as MPs in national parliaments demanded an explanation of what was going on. Gunther Krichbaum, the chairman of the Bundestag's powerful European scrutiny committee, said that he had been "shocked and dismayed" at Mr Juncker's deceit.

"That does not create trust on decision-making. That is a very serious mistake because trust is important," he said.

Mr Krichbaum, a senior German MP and member of Angela Merkel's ruling Christian Democrats, warned that conspiracies to deceive the public over publicly funded bail-outs and elite meetings threatened to destroy the euro. "If we don't pay attention to this then Europe will fall apart," he said.

Diplomats from smaller member states, excluded from the talks, accused the big euro countries of playing "ham-fisted cloak-and-dagger games". "Acting like this is almost guaranteed to create crisis and these are the people in charge. There are going to be some very angry people around the table deman-ding what the hell are they playing at," said an official from a non-G20 eurozone country.

The mistrust, disarray and bitterness could not have come at a worse time, as problems multiply for the eurozone. The Senningen meeting was sparked by heated words behind-the-scenes at last month's IMF summit in Washington, where America and Canada demanded assurances that IMF loans for Greece, Ireland and Portugal would not be wasted. With Greece due to be assessed for a fifth €3.3bn tranche of the IMF loan in June, they wanted assurances it would not be throwing good money after bad.

For the IMF, it has been an unusually hands-off process. A typical IMF programme consists of a three-pronged remedy: fiscal consolidation and structural reform, debt restructuring, and a currency depreciation. The principle is to create a more competitive economy, while trimming the debt burden.

A falling currency makes the country more internationally competitive, as seen in the UK, an effect that is augmented by structural reforms such as pay cuts, as happened in Ireland.

However, IMF officials have had their hands tied in Europe. Brussels controls two of the prongs – currency and debt. Tweaking the other alone just kills off demand and risks recession, which in turn makes it more difficult to improve the public finances. Greece is a case in point. It is expected to contract 3.5pc this year – a European Commission estimate – and last week it revealed it had fallen €313m short of its target deficit reduction for the first quarter. Although it cut spending by more than planned, tax receipts suffered a €1.28bn shortfall "mainly due to the larger than projected recession", the ministry of finance said.

Worse still, the IMF, which is carrying out an assessment of Greece with the EU, is said to be deeply concerned that interest rates on Greek borrowing, at around 13pc, are putting the country in an impossible situation. Athens simply cannot afford to refinance its €330bn of sovereign debt at those levels, so it will either become wholly dependent on bail-out money or suffer a massive default. Neither is a viable option.

The IMF-EU report on Greece, due to be completed this week and expected to make grim reading, will be used to decide next month whether Athens can no longer comply with the conditions for IMF funds. The answer is expected to be negative, which is why a second rescue is now being discussed.

So severe are the problems that eurozone ministers – including Wolfgang Schaeuble, Germany's finance minister – are openly contemplating how to restructure Greek debt, fully aware of the risk of financial market turmoil from fears that Ireland and Portugal would also be unable to pay back loans.

According to a Bloomberg global poll of international investors, 85pc believe Greece will fail to pay off its debts. The fear is contagious. Some 59pc believe Portugal will default, 55pc believe Ireland will and 25pc reckon Spain will follow.

A rescue package, which will potentially take weeks to resolve politically, is almost certain to consist of three elements. For Greece to sign in blood the fiscal consolidation it agreed as a condition of the original rescue, including renewed commitments to speed up the €50bn of planned privatisations, improved tax collection and to widen its tax base; to "reprofile" its privately held debt, with longer maturities and possibly lower interest rates; and in return to receive as much as €60bn in new loans.

The most controversial element of the likely package is the "reprofiling", a euphemism for default. So long as creditors volunteer to accept worsened terms, it would not technically qualify as a default – anathema to Brussels. But a "reprofiling" would unarguably be a credit event, as investors would have to reduce the holding value of their debt and absorb losses.

For many in the German camp, a debt restructuring that sees creditors take a hit is considered vital if they are to sell a second Greece bail-out to a sceptical public. Ironically, Germans have much to lose from a default. Some economists rec-kon Greece needs to write off 50pc or more of its €330bn of outstanding debt.

The cost of such a "hard" default would be as much as €15bn for German banks on top of a hit to taxpayers of over €11bn, analysts believe. There is a genuine concern that if creditors are not forced to "take a haircut" now, then by 2013 when new rules come into force, the vast majority of Greek sovereign debt will have been transferred to governments and central banks. If Greece defaults at that point, it would be a straightforward transfer of wealth from foreign taxpayers to Greece, with creditors getting away almost unscathed. Purists talk of the "moral hazard" such a huge creditor rescue would create.

Ferdinand Fichtner, the head of macro-economic policy at the German Institute for Economic Research (DIW) which advises the German finance ministry has suggested that pressure for default is growing. He believes there is no longer the chance of "playing for time" as private creditors flee Greek bonds, usually by selling them to publicly owned central banks. The ECB alone owns about €60bn of Greek sovereign debt, which helps explain why its officials have warned that a restructuring would be "suicide" or spark a greater crisis than the collapse of Lehman Brothers.

"Private creditors are continuing to be replaced by public institutions such as the ECB, so it is becoming more expensive for taxpayers," said Dr Fichtner.

The good news for the UK is that, bar Britain's stake in the IMF, the country will not be part of any second Greek rescue, "Grease 2", as one wag put it in honour of the lacklustre musical sequel. Christine Lagarde, the French finance minister, confirmed as much last week, saying: "The way we went about Greece last time on this bail-out package was on a bilateral basis, where each member of the eurozone – France to Greece, Germany to Greece, Italy to Greece – went to bilateral arrangements because we didn't have any mechanism in place.

"And the consideration at the moment is to extend those, if it was necessary, and clearly the UK was not party to those bilateral arrangements." A €60bn bail-out, if structured as before, could leave the UK on the hook for an extra €700m through its IMF commitment. But crucially, Britain will not be part of any "European" solution. George Osborne will also declare victory on Monday after talks between "eurogroup plus" members, those that have been bailing out the periphery, when he secures an exemption for Britain from the future euro rescue mechanism.

By contrast, Alistair Darling put the UK taxpayer on the hook for €8bn of the current €60bn fund in the dying days of the Labour administration.

In total, Britain is currently on the hook for about €12.5bn for the three European rescues, with the €4bn for Portugal expected to be confirmed as early as Monday, after the eurogroup meeting.

Last week, the final obstacle to the rescue was removed after Finland's prime minister-elect, Jyrki Katainen, secured support for the Portuguese bail-out with majority backing in parliament.It won't be easy for Portugal, which is expected to be charged roughly 5.5pc for the €78bn of loans and forced into a series of structural reforms, such as improving labour market flexibility and recapitalising its banks, alongside fresh austerity measures as a condition of the bail-out. The interest rate will be marginally cheaper than Ireland's, but higher than Greece's reduced rate of just over 4pc.

With two eurozone nations back in traction, the crisis has moved up a gear. Small wonder, then, that the political union is fraying at the edges.

£300 a year: the cost to each taxpayer of funding EU

British taxpayers contributed an average of more than £300 each to the European Union last year, almost twice as much as in 2009, official figures disclosed yesterday. Taxpayers are being forced to contribute more following Tony Blair?s decision to reduce the size of this country's rebate.

The British contribution increased from £5.3billion in 2009 to £9.2 billion last year, according to the Office for National Statistics.

The increase is equivalent to the extra money being raised from the increase in National Insurance for higher-rate taxpayers, or the new 50p top rate of income tax. Taxpayers are being forced to contribute more following Tony Blair’s decision to reduce the size of this country’s rebate.

The pound has also fallen in value compared with the euro, which means Britain has to pay more. The Treasury has also had to support EU bail-outs for Ireland and Greece. Last night, Treasury sources reacted with dismay to the increase in payments and said they were working to restrict further rises.

Stephen Booth, the research director of Open Europe, a think tank, said: “We’re now starting to see the full effect of Tony Blair’s 2005 decision to give up a huge chunk of the British rebate.

“As a consequence, British taxpayers’ contributions to the EU have escalated dramatically and are expected to go on rising. At a time when the Government is trying to cut national spending, it makes no sense to increase our contributions to a bloated EU budget that is in desperate need of reform.”

David Cameron and other ministers have been calling on the European Commission to restrict or cut the size of its budget. This year, the EU budget will rise by 2.9 per cent despite cutbacks to most national government budgets. It is thought that the EU wants to reduce even further the size of the British rebate – a move being rebuffed unless European agriculture subsidies are reformed.

Last year, Janusz Lewandowski, the EU budget commissioner, said the reduction in British contributions had “lost its justification”. The rebate was originally negotiated by Margaret Thatcher in 1984, when she famously asked for “our money back”. The deal reflected the relative efficiency of British agriculture, which relied on little help from the EU’s Common Agricultural Policy. After the accession of newer and poorer eastern European countries to the EU in 2004, the pressure on resources to boost economic development and subsidise farming led to renewed calls on Britain to give up what is officially termed the “abatement”.

This was partly agreed by the Blair government, and is leading to a rapid worsening in the UK’s financial relationship with the EU. The rebate was cut by £2.3billion to £3 billion in 2010. Britain also lost hundreds of millions of pounds in agricultural subsidies and paid £900million more under rules linking payments to tax receipts.

The ONS also disclosed that Britain’s trade deficit with the EU ballooned from £14.3billion to £46.6billion last year.

Britain has already contributed billions of pounds in loans to EU bail-outs for Ireland and Greece. It faces another bill of up to £6billion for an expected bail-out of Portugal.

Matthew Hancock, a Conservative MP and former aide to the Chancellor, said: “The consequences of Labour’s rebate sell-out are becoming clear. These shocking new figures show that Tony Blair and Gordon Brown signed billions of pounds of our money away in return for absolutely nothing.’’

The DM says - this is nothing compared with the full cost of being in the EU - see EU Costs

WEBSITE JAMMED AS THOUSANDS JOIN EU POLL CRUSADE

A YouGov poll of 2,436 voters found 61 per cent of voters would support a referendum

By Macer Hall Political Editor, Daily Express

A CAMPAIGN demanding an “in or out” referendum on Britain’s European Union membership attracted more than 20,000 supporters on its very first day.

Voters signed up in droves yesterday for the cross-party People’s Pledge initiative, which aims to name and shame the MPs who are not prepared to back a referendum on whether Britain should quit the EU.

The huge surge in support came as the Daily Express, which has its own popular crusade for Britain to quit the EU, highlighted the new campaign on our front-page yesterday.

At one point during the first day of the campaign yesterday, the People’s Pledge website was jammed by the sheer volume of voters attempting to sign up.

And on top of the voters backing the pledge, a further 2,000 volunteered to be grassroots activists for the campaign.

Mark Seddon, director of the People’s Pledge campaign, said: “I think the Daily Express’s intervention has been very helpful to us.”

In a stark demonstration of the strength of feeling among Daily Express readers, a phone poll yesterday showed 99 per cent of callers wanted an EU referendum.

The People’s Pledge was officially launched with backing from MPs across the political spectrum.

Voters are being invited to sign a pledge on the website www.peoplespledge.org to promise they will not support MPs at the next election who fail to back an “in or out” referendum on Britain’s EU membership. The pledge says: “I will only vote at the next election for a candidate who publicly promises to support a binding referendum on our EU membership and to vote for it in the House of Commons.”

As support builds, the website will give full details of exactly how many voters in each Parliamentary constituency are backing the campaign.

Labour and Tory backbenchers yesterday joined together to demand an EU poll. And they were joined by trade unionists and senior members of the Green Party.

High-profile Tory MP Zac Goldsmith told the launch meeting: “Over half of our laws are determined by the European Union. And yet we have no mechanism for holding those decision makers to account.” Labour MP John Cryer said: “I think there is enormous popular demand for a referendum on the EU. Nobody under the age of 54 has had a chance to vote on membership of the European Union.” Jenny Jones, a Green Party member of the London Assembly, said: “I think the EU is impossible to reform.”

A YouGov poll of 2,436 voters carried out for the campaign found that 61 per cent of voters would support a referendum, against 25 per cent opposing it.

The Daily Express has been spearheading a crusade for Britain to quit the EU. Earlier this year, we delivered a petition backed by 373,000 readers to 10 Downing Street calling for an exit from Brussels rule.

Prime Minister David Cameron has so far rejected the calls for a referendum. Last night, a Downing Street insider said he was watching the progress of the campaign

You can’t dismiss everyone who rejects the EU

Bad judgments and wasted money are calling the value of the whole European project into question, says Alasdair Palmer.

By Alasdair Palmer, Telegraph, 5 Mar 2011

Is it worth staying in the EU? That used to be a question that very few people asked – and they were usually dismissed as eccentric, if not barking mad. But recently it’s a question that a much wider range of people have started to consider. And it’s not easy to dismiss them all as bonkers.

The European Court of Justice, the body that enforces European law, has helped that process by issuing a series of daft judgments. Last week, the ECJ ruled that insurers are not entitled to take into account the differences between men and women when charging for policies. At present, insurers in most European countries, including Britain, charge young women less for car insurance than young men, on the sensible grounds that young men are about 10 times more likely to be involved in an accident.

Women also usually live several years longer than men. The firms that sell annuities (which convert your pension savings into an income for the rest of your life) therefore charge women more than men, since it will be more expensive to provide them with an annuity. The ECJ has decided that this, too, amounts to sex discrimination and that every member of the EU will have to stop “discriminating” in that way by 2013.

The judges made an elementary mistake about the meaning of the word “discrimination”, confusing the unacceptable practice of manifesting prejudice against groups of people with the perfectly legitimate process of drawing distinctions between them on the basis of well‑attested evidence. Charging people whose main leisure activity is hang-gliding more for their life insurance than people who stay inside playing tiddlywinks is not an example of prejudice. But it is an example of discrimination. And if the ECJ’s rulings were to be made consistent, it would have to be outlawed.

This is, by any standards, simply crazy. No sane person thinks that by charging them more to insure their cars, companies are treating young men in the way Germany treated the Jews in the Thirties. Do we really want decisions on what our laws should be to be taken by officials who cannot distinguish discrimination from prejudice, or actuaries from Nazis?

It is rulings like this that explain why the UK Independence Party came second in last week’s by‑election in Barnsley, easily gaining more votes than the Conservatives and the Lib Dems. It didn’t hurt that on the very day of the by‑election, the European Commission reminded us that Britain will soon have to abandon its restrictions on the entitlement of Eastern European migrants to claim benefits here. Fear of such “benefit tourism” led the Labour government, in 2004, to impose restrictions on what migrants from the poorest states in the EU could claim: no Jobseekers’ Allowance, no housing benefit, no council tax benefit. The EU, however, ruled that the restrictions would have to be lifted after seven years. That time will soon be up, so British taxpayers will have to cough up tens of millions of pounds in additional payments.

A fisheries policy that leads to thousands of tons of fish being thrown away, agricultural subsidies that support property developers, bail-outs for profligate countries – and that’s just a few items from an ever-lengthening list of objectionable EU policies. The response of the Europhiles is to try to close down the discussion. Baroness Ashton, the EU’s foreign minister, has just offered £8.6 million to a PR company to improve her organisation’s image. It’s an initiative that sums up what’s wrong with the EU: don’t address the problems, just spend public money trying to pretend there aren’t any.

So is it worth staying in the EU? Without a full and open debate, how can anyone tell? That debate will only happen if there is a referendum on UK membership. Without it, an increasing number of people will come to the conclusion that the only answer is “no”.

373,000 SAY NO TO THE EU

DAVID Cameron was yesterday given the clearest message yet that the UK should leave the European Union. The Daily Express’s historic crusade for the country to withdraw from the EU marched on Downing Street. Editor Peter Hill led a delegation to hand over the bulging sacks of petition coupons signed by 373,000 of our loyal readers.

In an indication of the growing support at Westminster, five senior MPs from both sides of the House of Commons helped to carry the petition to the Prime Minister’s home.

Tory MP Philip Hollobone said: “Congratulations to the Daily Express for saying so clearly what most of Britain actually feels. At least one national newspaper has the guts to speak out on this issue.

“The message has been delivered straight to the door of Number 10. The Prime Minister will certainly take note of the strength of feeling on this.”

The Daily Express’s petition is among the largest collected by a newspaper in living memory. Coupons from 350,000 readers were sent in and a further 23,000 signed up on our website.

Among the Daily Express delegation which carried the petition to the PM’s door were Labour MP Kate Hoey and Tory backbenchers Peter Bone, Douglas Carswell, Philip Davies and Philip Hollobone. Also present were Daily Express chief political commentator Patrick O’Flynn, political editor Macer Hall and retired bookmaker Alan Bown, 68, of Kent, a representative of the hundreds of thousand of Daily Express readers who have made their voices heard.

The MPs last night praised the Daily Express for highlighting the strength of feeling about an issue almost entirely ignored by the political establishment.

Kate Hoey, a former minister and Labour MP for Vauxhall in south London, said: “The Daily Express should be congratulated. This shows that a huge number of people believe we should leave the EU. Politicians of all parties need to take note.”

Douglas Carswell, MP for Clacton, in Essex said: “From the number of signatures, it is obvious the Conservatives could have won a clear majority at the last election if we had got our act together and had a clear policy on Europe.”

And Peter Bone, MP for Wellingborough, Northants, added: “Congratulations to the Daily Express. This is a huge step forward in the campaign to get the right to have their say on our membership of the European Union.

Daily Express reader Alan Bown said: “The Daily Express crusade has been a massive morale booster to everyone who feels Britain would be better off out of the EU but despaired of ever having a mainstream media voice on their side. Like many of its readers, I would like to salute the courage of the newspaper in taking this stance and leading from the front where others have been content to whine about Brussels but bottled out of doing anything about it.”
Outside the security gates of Downing Street, the delegation gathered around the mountain of petitions, crammed into more than 20 Royal Mail sacks.

They were joined by The Crusader, representing the newspaper’s world-famous masthead motif.

Mr Hill knocked on the famous black door, where an attendant received some of the sacks. There were so many that No 10 could not take every one and most of them were sent to another office.

The huge pile of sacks was also briefly taken to the nearby UK office of the European Commission, where Jonathan Scheele, head of the European Commission’s Representation in the UK, said: “Membership of or withdrawal from the European Union is a decision for an EU country to take itself and has nothing to do with the European Commission.”

Critics of EU waste and bureaucracy last night praised the Daily Express for highlighting the depth of feeling. Jon Gaunt, spokesman for the EU Referendum Campaign, said: “Now that hundreds of thousands of Express readers have spoken, the British public must be allowed to have their say in a straight ‘in or out’ referendum.”

Stephen Booth, of the think-tank Open Europe, said: “The UK needs to take a much more direct approach to fighting for radical reform in Europe, without which frustration with the EU will only grow.”

And Matthew Sinclair, director of the TaxPayers’ Alliance group said: “At a time when we need to find savings it is inexcusable that the EU costs us £20million a day in taxes, with so much waste on bureaucracy and fines that often we pay twice. Stopping the drain of taxpayers’ money into the EU’s coffers should be a top priority.”

Despite the spiralling cost to UK taxpayers, voters have not had a say on whether to remain in the EU since the national referendum under Labour Prime Minister Harold Wilson in 1975.

Euro crisis: The only way to save the euro is the destruction of its members

Since the coronation of Charlemagne as Holy Roman Emperor in 800 AD, there have been numerous attempts to unify Europe. Philip II of Spain, Louis XIV, Napoleon and Hitler all came tantalisingly close to success, but all ultimately failed. Today a fifth attempt is under way through the European Union.

Though not associated with a single great or powerful man, the ultimate objective of the EU is otherwise more or less familiar to students of European empires: no internal boundaries; a single currency; one parliament; one central government; one army; one foreign policy and a single political unit stretching from the Atlantic to the Urals.

The 27 nations that currently comprise the EU would merge into one huge state, accounting for a population of some 500 million, approximately one fifth of global wealth and an even higher percentage of the world’s trade. Such a nation would take its place alongside the United States and China as a superpower.

This project, in its way both noble and visionary, is surprisingly close to realisation. Many people fail to grasp this point because they have been distracted by the headlines on financial pages signalling daily woe and disaster for the eurozone countries.

But these setbacks were long ago foreseen by the architects of the EU. Jacques Delors, the French politician who more than anyone else was the architect of the single currency that is used today, is a highly intelligent man. He was warned many times by critics such as Margaret Thatcher that it was hopelessly premature to set up a monetary union without full political unification. He knew very well there would be problems.

But Mr Delors saw these problems as opportunities – what have been called “beneficial crises”. These economic crises, he believed, could be exploited by the European governing class to expedite with extra urgency and dynamism their over-riding project of integration, and the creation of a single European state.

An understanding of this background is essential for anyone wishing to come to terms with yesterday’s speech in the City of London by the French prime minister, François Fillon. Most of the guests listening to Mr Fillon would surely have expected at the very least a substantial measure of alarm and contrition in the wake of the devastating setbacks for eurozone countries such as Greece and Ireland over recent months.

Yet there was no sign of retreat, or even judicious contemplation. Mr Fillon could hardly have been more bullish, upbeat or confident. “Europe is at a historic turning point,” declared the unchastened French premier. “The real question right now is whether to keep building on this adventure, or whether we leave it at that.”

His answer could not have been clearer: “We are going to move towards greater integration.” That means a deepening of the common social and economic regime which already binds Europe – as well as one potent extra element. Governments are to be stripped of their ability to tax and spend according to the democratic demands of their own voters. Instead (though Mr Fillon did not explain this), their budgets will be set for them by a greatly empowered common European government in Brussels.

It must be acknowledged that, strictly within his own terms, Mr Fillon is right. There is only one way to save the euro, and it is finally to resolve the problem so lucidly analysed by Mrs Thatcher in her conversations with Mr Delors 20 years ago. Europe cannot survive with a single currency but a pluralist and diverse political system. So long as member states enjoy local autonomy, the currency is guaranteed to collapse. The euro will only survive if the power of national governments is destroyed.

It is this basic fact which makes the year 2011 such a critical year in the history of Europe – or “a historic turning point”, to use Mr Fillon’s potent phrase. European leaders have no choice but to act at once. If they leave political and economic structures as they are, the single currency will collapse very quickly and the European project will follow.

So 2011 is the year of the “beneficial crisis”, when the EU will try to exploit short-term economic hardship in order to eliminate the powers of national governments and to create a new pan-European political structure. If it succeeds, it may go on to become a great world power. If it fails, it will start to revert to a collection of nation states.

European leaders are fully aware they face this moment of decision. Two of the most basic ingredients of this new order were first discussed at a meeting between Angela Merkel and Nicolas Sarkozy last October, as the scale of the Irish financial crisis was starting to become apparent.

Mrs Merkel and Mr Sarkozy accepted that it was no longer possible to respond to eurozone crises in the ad hoc way with which they had responded to the Greek meltdown of May 2010. They recognised the need to create a new and more enduring structure. They decided that this meant, first, the creation of a massive fund to bail out failing members of the eurozone (later agreed at a European summit). Second, they discussed (but did not agree) the creation of common eurozone government bonds. These would prevent the markets focusing on the solvency of embattled individual states. Instead, traders would be obliged to focus on the creditworthiness of the eurozone as a whole. As a result, the kind of crisis which afflicted Greece and Ireland last year, and threatens Portugal today, would be prevented.

In theory, these new structures would work easily. But they mark a fundamental and revolutionary change in the structure of the EU. Mr Delors’s Maastricht Treaty envisaged each member state taking responsibility for its debts. The common bail-out fund and eurobond set out by Mrs Merkel and Mr Sarkozy abandon that principle, though Germany has yet to fully acknowledge this killer point.

Once implemented, all member states (and Mrs Merkel in particular is agonisingly aware of this) will take responsibility for each others’ debts. From that moment, Europe will transform once and for all into one country. This is the historic turning point Mr Fillon was discussing yesterday, and he asked for Britain’s assistance. David Cameron pledged that Britain “will be a helpful partner”. But our true interests lie elsewhere. Europe is our greatest trading partner and we have a visceral interest in its prosperity and growth.

Already the dogmatic adherence of the European elite to the single currency has had a devastating impact on many eurozone countries, converting Greece and Ireland (to quote my colleague Ambrose Evans-Pritchard) into economic protectorates of Brussels, a fate likely to befall Portugal and Spain.

The act of a true friend would have been to warn Mr Fillon against digging himself and Europe into a deeper hole. Meanwhile, our Government would be wise to lecture bankers, not about the size of their bonuses, but about the scale of their exposure to European sovereign debt.

EU Demands deeper look at British budget

Britain must submit to “surveillance” of its budget to promote a co-ordinated European Union economic policy, the EU president has said.

James Kirkup, Political Correspondent, Telegraph, 13 Jan 2011

Herman van Rompuy, the president of the European Council, said there must be “more convergence” between the economies of all EU members and not just those using the euro.

Even as Mr van Rompuy spoke in London, David Cameron was insisting that Britain’s position outside the euro meant it was not obliged to take part in any “harmonisation” of economic policies.

Mr van Rompuy last year drew up new plans for “economic governance” in the EU, rules to bring together economic policy amid the financial crisis.

His report set out plans for the European Union to carry out “surveillance” of member-states’ budgets and enforce sanctions on those who run up large deficits.

Mr van Rompuy yesterday said the sanctions regime would apply only to the euro countries. But the surveillance will be applied to all 27 EU members, he said.

“The proposals are proposals for the EU as a whole. Some chapters are not applicable to all countries -- for example sanctions, non-euro members are not concerned,” he said. “But on stronger budgetary surveillance and macroeconomic surveillance, all are concerned. That is the main instrument of economic co-ordination and more convergence inside the union.”

Mr van Rumpoy added that the EU will “deepen” its common market with more reforms later this year.

Some EU leaders have said that all member-states should submit their annual budgets to Brussels before their national parliaments. Britain has refused to take part in such a system.

The Prime Minister also met Francois Fillon, the French premier, who has also spoken of the need for greater co-ordination of EU governments’ economic policies.

In a joint press conference with Mr Fillon, Mr Cameron insisted that Britain’s place outside the euro meant it was not a part of such moves.

“When we talk of harmonisation and these sorts of questions they don't have to apply to Britain because we are not in the euro,” he said, adding that Britain will not join the single currency under his leadership.

However, a strong eurozone is in Britain’s best interests, he said, conceding that some British public money could be used to bail out struggling economies like Portugual.

Britain is liable for up to £7 billion of a £51 billion crisis fund to help countries hit by the financial crisis, which was partly used to rescue Ireland last year. Labour is to blame for that, the Prime Minister said.

Mr Cameron said: “The last government signed up to a European financial mechanism before this government came into office, and it signed up to a mechanism which operates under qualified majority voting,” he said. “That mechanism still exists.”

A separate EU bailout fund, worth up to £365 billion, is funded only by euro countries. It would provide most of the money if, as economists expect, Portugal requires help financing its deficit in the coming weeks.

EU ORDERS UK TRAWLERS TO DUMP 1M TONS OF FISH

By Macer Hall, Daily Express, January 8,2011

FRESH anger over “mad” European Union fishing quotas erupted last night after an investigation showed that British fishermen are being forced to throw back nearly half of every haul into the sea.

New figures revealed that nearly a million tons of edible fish are chucked overboard every year across the whole North Sea trawler fleet.

The shocking extent of the waste caused by the EU’s Common Fisheries Policy will be shown next week in a Channel 4 documentary by TV chef Hugh Fearnley-Whittingstall.

And supporters of the Daily Express’s hugely popular crusade to get Britain out of the EU last night said the fishing quota madness was a stark example of how damaging Brussels regulations are to British interests.

Today, the Daily Express is publishing a compelling 24-page supplement setting out exactly why membership of the EU has been ruinous for the UK. For the programme Hugh’s Fish Fight, Mr Fearnley-Whittingstall joined a trawler crew at sea 80 miles west of the Shetland Islands to witness the farcical dumping of more than 1,300lb of prime fish.

“It’s not just a few undersize or damaged fish. It’s basket after basket of prime cod and coley,” Mr Fearnley-Whittingstall said.

He calculated that around 600 kilos of fish were thrown back after one five-hour trawl of the nets.

“I could have fed 2,000 people with these fish. But EU law says they can’t be landed, they must be thrown back,” the TV chef said. EU fish quotas were introduced to protect dwindling stocks of fish by curbing excessive fishing of certain species. But the regulations mean crews are forced to dump millions of dead fish when over the maximum limit.

English and Welsh fishing vessels have discarded 4.8 million cod, 3.9 million haddock, 4.9 million plaice, 737,000 sole and 17 million whiting in the last 10 years, according to Government statistics.

Tory backbencher Peter Bone, a member of the Better Off Out group of MPs, said: “Nobody in their right mind would think it sensible to chuck millions of perfectly edible fish into the sea. This is purely to support an EU fishing law that has failed.

“Britain must get back its powers over fishing rights. And the best way to do that is to get out of the EU.”

The Channel 4 programme shows how the 600-ton trawler the Seagull fished for monkfish, megrim and ling after using up its quota for cod months ago.

Gary Much, skipper of the Seagull, tells the programme: “I can’t put a sign on the nets saying: ‘No cod today, please.’

“If we could land all the fish we catch, we could go to sea for half as many days using half the fuel and no fish would be wasted. It’s madness.”

Hugh’s Fish Fight is to be broadcast on Channel 4 next Tuesday to Thursday at 9pm.

THE GREAT LIE THAT BRITAIN WOULD SUFFER OUTSIDE EU

Britain could flourish as an international trading nation outside the economic shackles of the European Union

BRITAIN would flourish as an international trading nation outside the economic shackles of the European Union, a leading business expert said last night.

Disputing the key argument of Euro-enthusiasts that quitting the EU would wreck the UK’s trade prospects, economist Ruth Lea said that independence from Brussels meddling would boost the country’s import and export markets.

And she pointed to the success of affluent nations such as Switzerland and Norway that have successfully negotiated free-trade deals with dozens of other countries while staying outside the EU.

“We have to kill the myth that British trade would be damaged by leaving the EU. It is piffle,” said Ms Lea, who is economic adviser at the Arbuthnot Banking Group.

She said a Britain freed from Brussels control could continue to trade with European countries while forging into new markets in Asia, America and beyond.

“If we left the EU, we could negotiate our own special trade deals with countries such as China, India, the US, Canada and New Zealand. We would be able to negotiate our own trade deals, which is something we haven’t been able to do since 1973. At that time, few people understood quite how much we were giving up.”

Ms Lea’s experience as an economist in the City of London told her that much of Britain’s business was already done outside the EU.

“The City of London is a global business,” she said. “And our manufacturers, too, have got to think more in the world outside the European Union.”

And she dismissed the argument put forward by many EU supporters that Britain’s exit would lead to trade with Europe collapsing.

“The idea that if we left Europe, then Mercedes Benz would suddenly stop selling cars to us is absurd.

“Trade will happen. Britain is still an affluent nation with a large population, and Europeans will still want to trade with us.

“Of course, we would need to be able to trade with Europe,” she said. “Even though Europe is an increasingly less important part of the world, Europe is important to us for trade.”

Ms Lea pointed out that Switzerland and Norway had flourished in the European Free Trade Association, a free-market enterprise zone with far less regulation than the EU.

While the Swiss faced higher duty costs as a result of being outside the EU, the overall financial impact was far less than the multi-billion annual cost of EU membership.

Ms Lea said the widespread claim that the EU represented an international free-trade zone was a misunderstanding.

“The single market means heavy regulation,” she said. “People think the single market is a free-trade area, but it isn’t.

Trade figures suggest that EU nations consistently buy more British exports than British consumers buy from the EU. That has led some critics to conclude that EU states “need us more than we need them”.

In 2007, the UK had a £40billion trade deficit with the other 27 member states, including £19billion with Germany.

Critics have also disputed the claim that Britain quitting the EU would lead to millions of job losses in the UK.

The think tank Global Vision has estimated that while three million British jobs are dependent on trade with EU nations, nearly four million jobs in other EU states are dependent on trade with Britain.

It means EU exporters – and Governments – are unlikely to want any cuts in trade with Britain, suggesting the country can leave the union without losing trading partners.

Norway, Iceland and Lichtenstein all benefit from the EU single market despite not being members of the union.

As members of the European Economic Area, they are able to benefit from a lack of trade tariffs without having to sign up to a welter of EU regulation.

Some commentators believe that Britain could negotiate a similar status, remaining in the EEA while quitting the EU.

As an EU outsider Switzerland has negotiated trade deals with EU member states. And evidence is growing that businesses are frustrated with ever-increasing levels of Brussels red tape.

A recent survey of 1,000 company chief executives by the Open Europe think tank found that 54 per cent thought EU regulation “outweighed” the benefits of the single market.

And 60 per cent thought the Government should renegotiate the terms of Britain’s EU membership to include free trade only. Meanwhile, in a show of arrogance towards the British taxpayer, president of the European Council Herman von Rompuy last night failed to respond to telephone calls because he was preparing for a back-slapping event.

The Belgian was being awarded the “Collar of Merit” by the Foundation of European Merit, headed by disgraced former European Commission head Jacques Santer.

In a show of self-congratulation, the Collar was also awarded to Manuel Barroso, European Commission president, Jerzy Buzek, Polish president of the Euro Parliament and Jean-Claude Juncker, Luxembourg’s prime minister.

EURO MADNESS

- £350,000 for a dog fitness and rehabilitation centre that was never built. Plans included developing a hydrotherapy system to “improve dogs’ wellbeing”

- £4.5m for a fleet of limousines for Euro-MPs in Strasbourg. Green Party estimates already show that travelling between and maintaining the European Parliament’s two buildings in Strasbourg and Brussels already costs European taxpayers £170m

- £13,500 to Tyrolean farmers to boost their “emotional connection with the landscape.” They were expected to become “more aware of their emotional reactions to it compared to their prevailing rational economic ones.”

- £4,300 on a “Europe Horse” to promote the EU to German children. A booklet was produced chronicling the cartoon animal’s trip from Germany to Brussels, meeting various EU figures along the way

- £763,000 for a golf course, hotel and spa whose guests include German Chancellor Angela Merkel. The platinum membership fee for the club is 1,100 euros per year

EU BAIL-OUT BOMBSHELL

Express, 30 November 2010. By Macer Hall

TAXPAYERS may be forced to pour even more cash into a rescue deal for failing European nations.

A bail-out agreed by Chancellor George Osborne means Britain could have to find billions of pounds more to help Portugal and other debt-laden countries such as Spain and Belgium if their economies need to be rescued, as some experts are predicting.

Any further deals would come on top of almost £6billion in loans and guarantees already handed to Ireland.

The revelation comes as the Daily Express Get Us Out Of Europe crusade goes from strength to strength. Our offices have been inundated with messages of support and our argument is gaining increased backing at Westminster.

Last night Emma Boon of the TaxPayers’ Alliance campaign group said: “It is tremendously unfair that British taxpayers could end up having to pay more for the mistakes of the eurozone countries.

“Households are struggling as it is and the Government is having to get the public finances in order. We cannot accept an extra burden.”

Senior Tory backbencher Douglas Carswell said last night: “The trouble is the small print of the deal they let through exposes us to euro bail-out liabilities that far exceed the amount we’ve shaved off public spending.

“We’re spun a line that the Chancellor has blocked our permanent participation in this bail-out mechanism. But another way of looking at it is that he’s ensured we face almost open-ended liabilities to bail-out the euro until 2013 – and we’re not even members.”

Treasury officials insisted that the UK had been tied into the fund by the previous Chancellor Alistair Darling in the final hours of the last Labour Government.

But Mr Carswell insisted that Mr Osborne would have been consulted over the measures and said coalition ministers could have scrapped the deal.

“The agreement was never put to Parliament,” he said. “Incoming ministers could have stopped it.

“Seeing as how the deal puts the UK on the spot for billions of pounds under a qualified majority vote in Brussels, it might have been worth at least challenging.”

Details of Britain’s commitment to the rescue fund emerged yesterday amid growing fears that Portugal will follow Ireland into financial crisis.

Economist Nouriel Roubini, nicknamed “Dr Doom” after correctly forecasting the credit crunch, predicted that Portugal would be the next country needing an Irish-style bail-out.

“Like it or not, Portugal is reaching the critical point,” he said. “Perhaps it could be a good idea to ask for a bail-out in a preventative fashion.”

Treasury sources yesterday insisted that the deal agreed in Brussels on Sunday night meant that Britain would be freed from any obligation to financial rescue measures for euro countries after 2013.

“After 2013 there will be no UK involvement in any euro-zone mechanism,” said one source close to Mr Osborne.

Britain could veto any attempt by the EU to extend the country’s involvement in the financial stability mechanism, the source added.

GET BRITAIN OUT OF EUROPE: MASSIVE SUPPORT FOR OUR CRUSADE

Better Off Out: Ordinary voters overwhelmingly backed withdrawal

PEOPLE from across the UK are throwing their support behind the Daily Express’s fast-growing crusade to get Britain out of the European Union.

Ordinary voters overwhelmingly backed withdrawal from the Brussels behemoth in a survey this week.

Graham Anthony, 39, a music studio manager from Glastonbury in Somerset, said: “We’ve got our own pound, our own currency. We’re pretty stable. We don’t need to be in it. Half of Europe is falling apart at the moment.”

Engineer Nick Sands, 40, from Guildford, Surrey, has just been made redundant. “We should look after ourselves and worry about our own people rather than other countries,” he said.

Secretary Carol Reed, 47, of Prudhoe, Northumberland, said: “I think the Daily Express is absolutely right. We should get out of the EU. It costs us too much money and it’s just a big gravy train at the end of the day.”

NOW MPS JOIN OUR BATTLE TO FREE BRITAIN FROM BRUSSELS

Daily Express, November 27,2010
By Macer Hall

SUPPORT for the Daily Express’s crusade to free Britain from the manacles of EU membership is rapidly growing right at the heart of the Government, it emerged last night.

Senior Tory ministers and MPs are privately delighted that the newspaper has thrust the issue of winning freedom from Brussels interference to the forefront of national debate. And they acknowledge that public opinion throughout the country is shifting decisively towards withdrawal.

One Cabinet source told the Daily Express yesterday: “This newspaper campaign strengthens the hands of those of us in Government arguing that it is time to go.

“The Daily Express’s crusade is an extremely welcome development. This raises the game to a new level. Many of us believe that the issue of whether we stay in the EU or get out must be put to the voters and resolved beyond doubt.”

Another senior MP close to the Government said: “There is a lot of support for leaving the EU among the parliamentary party.

“It is vital that strong supporters of withdrawal such as the Daily Express keep up the pressure on the Government.

“Even many of those MPs who want to see the EU radically reformed but stop short of supporting outright withdrawal welcome the contribution this crusade can make to stimulating a national debate on our role in Europe.”

One MP with close links to David Cameron said: “This crusade is pushing the boundaries of the debate on Europe and that is an extremely good thing.”

Many Tory MPs have been frustrated by what appear to be a series of concessions to Brussels in the opening months of the new administration.

Mr Cameron’s retreat from demanding a freeze in the EU’s budget next year provoked widespread anger. And MPs are particularly annoyed by the Prime Minister’s broken promise to replace European Human Rights legislation with a new British Bill of Rights.

Tory backbencher Douglas Carswell said: “There is a lot of support for withdrawal among my colleagues. The Daily Express’s crusade is helping to increase the momentum.”

Support is understood to be spreading among MPs who entered Parliament at the last election.

Mark Reckless, the new Tory MP for Rochester and Strood, said: “The Daily Express has a proud record on Europe and was an outspoken opponent in the run-up to Britain joining the Common Market. I believe we should be an independent country trading with Europe but governing ourselves.”

Support for the Daily Express crusade was reaching across the party divide, with growing backing among Labour MPs. Kate Hoey, Labour MP for Vauxhall in south London, said: “There are thousands of Labour Party supporters across the UK who are fed up with the increasing control the European bureaucrats have over their lives.

“We need a referendum and the Daily Express campaign helps bring that day nearer.”

GET BRITAIN OUT OF EUROPE

Those on board the European gravy train have mounted one power grab after another

By The Daily Express, November 25,2010

THE Daily Express today becomes the first national newspaper to call for Britain to leave the European Union. From this day forth our energies will be directed to furthering the cause of those who believe Britain is Better Off Out.

The famous and symbolic Crusader who adorns our masthead will become the figurehead of the struggle to repatriate British sovereignty from a political project that has comprehensively failed.

After far too many years as the victims of Brussels larceny, bullying, over-regulation and all-round interference, the time has come for the British people to win back their country and restore legitimacy and accountability to their political process.

Following the debacle of the Lisbon Treaty – disgracefully imposed upon the public without the referendum they were promised by the three main political parties – many had expected matters European to take a lower profile in British politics. But the opposite has been true as those on board the European gravy train have mounted one power grab after another. At a time of austerity throughout Europe they have expanded their bloated budgets, pushing Britain’s disproportionate contributions even higher.

And despite not being part of the failing eurozone, British taxpayers have learned that under Brussels rules agreed to by Labour after it had lost the election they are liable to help bail out economies wrecked by the single currency.

A payment of up to £10billion for Ireland is apparently just the start, with speculators now starting to target the embattled economy of Portugal.

Despite unemployment across Europe averaging more than 10 per cent, Brussels continues to propose new job-destroying regulations and conspire to turn the whole EU into a zone of high taxation.

It is also seeking to take an ever more dominant role in border control issues, leaving its member states powerless to control migrant flows not only from other EU countries but from Asia and Africa too.

The European Court of Human Rights has continued to trample on British justice, preventing the deportation of terror suspects and demanding that convicted prisoners are given the vote.

Withdrawal from the EU should be accompanied by a withdrawal from the jurisdiction of this alien, pan-European tribunal so that matters of British justice are decided once again in British courts.

Ever since the British people were bounced into ratifying membership of the Common Market in 1975, after the political class had taken us in with no direct mandate, that institution has been stealing our rights to self-determination, remodelling itself in turn as the European Economic Community, the European Community and lately as the European Union.

Upon a wafer-thin permission for economic cooperation has been built a blueprint for the United States of Europe.

Almost nothing the EU has proposed or enacted has benefited Britain – our trawler fleet has been devastated by the Common Fisheries Policy while our taxpayers have found themselves massively subsidising inefficient French and Polish farmers under the Common Agricultural Policy.

The European Exchange Rate Mechanism – the forerunner to the single currency – caused a deep recession in Britain that was only ended by the removal of Sterling from its deadening grip.

This newspaper has always been hostile to the dilution of national sovereignty that EU membership entailed, but it has also always acknowledged that economic arguments were key. So long as there was a case to be made that leaving the EU would risk jobs and investment in Britain there was a powerful brake on thoughts of leaving altogether.

But since the ERM disaster 20 years ago that economic case has utterly collapsed.

We were told that staying out of the eurozone would be a financial disaster yet it is now clear beyond doubt that the opposite was true.

Joining it would have been catastrophic, removing Britain’s ability to vary its interest and exchange rates to suit economic circumstances and plunging us into a depression. The past two decades of European integration have turned mainland Europe’s economies from some of the world’s industrial powerhouses into also-rans, stuck in the global slow lane.

DEBATE: SHOULD BRITAIN WITHDRAW FROM THE EU?

Only Germany has prospered in the euro – thanks to the single currency locking its neighbours into exchange rates at which they are unable to compete.

And now the price of belonging to the EU, in terms of surrendered sovereignty, is to be further raised with countries like Ireland effectively having their public spending and borrowing decisions made by the European Central Bank in Frankfurt rather than by their electorates.

While the EU has spread economic sclerosis through its member states the two richest countries in Europe have remained outside: Norway and Switzerland have stayed as the lynch-pins of the European Free Trade Area – able to import from and export to the EU freely without being subjected to its federalist ambitions.

Were Britain to break free of Brussels there is no doubt that such a happy status would be open to us.

A s a heavy net importer from the EU we are simply too important a market for the EU nations to risk cutting their ties with us.

Taking Britain out of the EU should not be seen as a move to “Little Englandism”. On the contrary, ours is a great trading nation with markets all over the world.

The time has come to develop our neglected trading links with the new global powerhouses such as China and India.

The creation of the EU is explained by the perfectly understandable desire to avoid further conflict on a continent that had been the scene of two world wars.

But Britain is a land apart: A precious stone set in the silver sea, as Shakespeare so evocatively put it; a realm with a glorious island story stretching back a thousand years, with links to every continent and a language taken up throughout the world.

Our political class bought into the European experiment after losing confidence in our nation and accepting the inevitability of decline.

They viewed Europe as a life raft and clambered on board. The British people never took that view.

Now it is Europe that is in decline and Britain that is being held back. It is time to break free.

JOIN OUR CRUSADE TO PULL BRITAIN OUT OF THE EU

Daily Express, November 25,2010
By Macer Hall, Political Editor

A HUGE groundswell of support was last night gathering behind the Daily Express crusade for Britain to quit the European Union.

Senior MPs, peers and campaign groups acclaimed this newspaper’s stand against the sprawling Brussels super-state as a turning point in the battle to win back Britain’s independence.

And Eurosceptic critics of UK membership said the growing financial crisis among the euro nations this week – threatening to cost British taxpayers billions of pounds – has overwhelmingly confirmed the case for British withdrawal.

Philip Davies, Conservative MP for Shipley and a founding member of the Better Off Out group of MPs and peers, led the praise for our crusade last night.

He said: “I think it’s fantastic that the Daily Express sees such a positive future for our country. Britain should be developing trade with China, India, South American and emerging countries in Africa rather than being part of an inward-looking, backward-looking protection racket designed to prop up inefficient European businesses and French farmers.

“As a nation built on trade, we should be ashamed to be members of the EU. It is a major breakthrough for a national newspaper to support the case for British withdrawal.

“The Daily Express and the rest of public opinion are way ahead of a lot of politicians.”

The spiralling cost of Britain’s EU membership – expected to exceed £6billion in net contributions alone next year – was last night being cited as a clear-cut reason for Britain to walk away from the discredited European club.

And the warning earlier this week that UK taxpayers may have to pour billions of pounds more into saving failing euro economies like Greece and Portugal after the Government’s decision to lend £7billion to debt-laden Ireland was understood to be hardening public opinion in favour of withdrawal.

DEBATE: SHOULD BRITAIN WITHDRAW FROM THE EU?

But opponents of European Union are also angry about the threat to Britain’s democracy by meddling Brussels bureaucracy.

Critics claim Britain’s Government has lost control of immigration due to freedom of movement laws for EU citizens.

And the country’s law and order – and basic common sense – are being undermined by the European Convention on Human Rights, which all EU states are obliged to sign up to.

Nigel Farage, Euro-MP and leader of the UK Independence Party, said: “I am delighted to support the Daily Express in its new crusade to liberate our country from the clutches of the European Union. It follows in a fine tradition in which your newspaper has fought for Britain’s liberty.

“I am convinced that the vast majority of ordinary men and women of this country will support your crusade. It will no doubt make the political establishment very uncomfortable. Good, so it should.”

Douglas Carswell, Tory MP for Clacton and a leading critic of the EU at Westminster, said: “There are millions of people across the country who will be right behind this crusade.

“This is a watershed. For the first time, a popular, mainstream newspaper has said we should get out of the EU. It is a significant moment.

“It shows that supporting British withdrawal from the EU is not the preserve of a minority sect but has become part of mainstream opinion. When my grandparents’ generation was locked into the EU, they were told it was about the economy.

“But our priority today should be trade with the world, not just the member states of the EU.”

Lord Stoddart of Swindon, an Independent Labour peer who began campaigning against the Common Market in 1962, also welcomed the Daily Express crusade.

“We should never have joined in the first place. It is extremely expensive, and becoming more expensive all the time,” he said.

“What we should be doing is rebuilding the Commonwealth and going out to build trade with emerging economies like China, India and Brazil. That is where the future for a good, independent country lies. We are, ratchet by ratchet, losing our sovereignty.

“Our Parliament loses power every time an agreement is made. The EU is an undemocratic and dangerous construct.”

Leading Eurosceptic campaign groups were last night swinging behind the Daily Express crusade.

James Pryor, chief executive of the EU Referendum Campaign, said: “When Britain is broke, can we really afford to send £48million a day to Brussels? Around 70 per cent of our laws are now made in Brussels and that is just not democratic.

“The financial crisis over the last 10 days has really woken people up to the scandal of the EU.”

EUROPEAN UNION: COSTS ARE FIVE TIMES THE BENEFITS

Express: November 25,2010
By Daniel Hannan, Conservative Euro MP for South-East England

HERE’S a nasty coincidence. All the welfare cuts put together will save £7billion: precisely Britain’s share of the Irish bail-out.

In other words, every penny we save from these painful benefits reductions will go to prop up the euro.

That £7billion is in addition to the £14billion which we pay into the EU budget every year: a budget that keeps rising.

Britain’s share of the increase for next year – not our share of the budget, our share of the increase – will be £435million: enough to pay for 12,000 nurses, 15,000 police officers or 22,000 Army privates.

But our direct contributions are only part, and not the most important part, of the overall costs of the EU.

The Common Agricultural Policy hurts our farmers and costs every household an extra £1,200 a year in higher taxes and higher food bills. The Common Fisheries Policy has wiped out what ought to have been a great renewable resource off our coasts.

Worst of all is the cost of red tape. Here, I can do no better than to quote a survey by the most recent internal market commissioner, Gunter Verheugen. He found that the cost of regulation in the EU was 600billion euros a year. On the European Commission’s own figures, the advantages of the single market are worth only 120billion euros a year.

In other words, Eurocrats themselves admit that the costs of the EU outweigh the benefits by five to one.

What about commerce? We are often told that half of Britain’s trade is with the EU. True, but look at the balance of that trade. For most of the period of our membership, we have run a healthy surplus with the rest of the world but a deficit with Europe.

Since the financial crisis hit, we have run a small overall deficit on the non-EU share of our trade, too. Even so, our deficit with the EU last year was £14.4billion, as against just £1.1billion for the rest of the world.

Those figures are the answer to those who say that, if we left, our exports would suffer.

The other members benefit far more from cross-Channel commerce than we do. In any negotiation, the customer generally has the last word over the salesman.

In any case, we don’t need to be part of the EU’s political structures to be part of the single market.

Norway and Switzerland both sell around twice as much per head to the EU as we do.

They participate fully in the freedoms of the European market but are outside the CAP and CFP, police their own borders, settle their own human rights issues, trade freely with non-EU countries, and make only token contributions to the EU budget.

Aid will force Ireland to raise corporation tax

Telegraph November 20, 2010

Ireland is being forced to increase its corporation tax in return for an 90-billion euro bailout as European Union and IMF officials began work on Friday on rewriting the Irish budget for the next four years.

EU countries have moved to force Ireland to abandon its low corporate tax rate as a condition for aid to solve its debt crisis.

Low taxes, both personal and corporate, are seen by the Irish government as vital to drive the economic growth needed to lift the country out of a deep recession.

Corporate taxation in Ireland is 12.5 per cent, compared to 34 per cent in France, 30 per cent in Germany and 28 per cent in Britain. The cornerstone of Irish economic policy, it is credited with attracting foreign investment and multinational companies.

French and German officials want any EU rescue deal to end the policy, which they see as disadvantaging their own higher-taxation economies.

The DM says: EU leaders again focusing ruthlessly on self-interest. A low corporation tax is vital to help Ireland out of its ecomonic mess, but what do they care? A band of brothers they are not. These people are not our friends.

Was it for this?

IT MAY seem strange to some that The Irish Times would ask whether this is what the men of 1916 died for: a bailout from the German chancellor with a few shillings of sympathy from the British chancellor on the side. There is the shame of it all. Having obtained our political independence from Britain to be the masters of our own affairs, we have now surrendered our sovereignty to the European Commission, the European Central Bank, and the International Monetary Fund. Their representatives ride into Merrion Street today.

Fianna Fáil has sometimes served Ireland very well, sometimes very badly. Even in its worst times, however, it retained some respect for its underlying commitment that the Irish should control their own destinies. It lists among its primary aims the commitment “to maintain the status of Ireland as a sovereign State”. Its founder, Eamon de Valera, in his inaugural address to his new party in 1926, spoke of “the inalienability of national sovereignty” as being fundamental to its beliefs. The Republican Party’s ideals are in tatters now.

The Irish people do not need to be told that, especially for small nations, there is no such thing as absolute sovereignty. We know very well that we have made our independence more meaningful by sharing it with our European neighbours. We are not naive enough to think that this State ever can, or ever could, take large decisions in isolation from the rest of the world. What we do expect, however, is that those decisions will still be our own. A nation’s independence is defined by the choices it can make for itself.

Irish history makes the loss of that sense of choice all the more shameful. The desire to be a sovereign people runs like a seam through all the struggles of the last 200 years. “Self-determination” is a phrase that echoes from the United Irishmen to the Belfast Agreement. It continues to have a genuine resonance for most Irish people today.

The true ignominy of our current situation is not that our sovereignty has been taken away from us, it is that we ourselves have squandered it. Let us not seek to assuage our sense of shame in the comforting illusion that powerful nations in Europe are conspiring to become our masters. We are, after all, no great prize for any would-be overlord now. No rational European would willingly take on the task of cleaning up the mess we have made. It is the incompetence of the governments we ourselves elected that has so deeply compromised our capacity to make our own decisions.

They did so, let us recall, from a period when Irish sovereignty had never been stronger. Our national debt was negligible. The mass emigration that had mocked our claims to be a people in control of our own destiny was reversed. A genuine act of national self-determination had occurred in 1998 when both parts of the island voted to accept the Belfast Agreement. The sense of failure and inferiority had been banished, we thought, for good.

To drag this State down from those heights and make it again subject to the decisions of others is an achievement that will not soon be forgiven. It must mark, surely, the ignominious end of a failed administration.

The DM says: no member of the EU is a sovereign, independent nation. Ireland's tragedy is that its leaders did not recognise this when they joined first the EU then the Euro. Now the chickens are coming home to roost. Yet ireland, like Britain, is still sovereign enough to leave both, and become "a Nation once again".

Irish independence is the euro's latest victim

Ireland must now choose between leaving the euro and deeper integration into a eurozone hostile to its low-tax experiments.

The governor of Ireland's central bank, Patrick Honohan, said yesterday that he expected the country to accept a bail-out worth tens of billions of euros from the EU and the IMF. This "large loan", as he accurately described it, would enable Ireland to show the world that it had "sufficient firepower to deal with any concerns of the market". Actually, what the proposed loan demonstrates is that Ireland is losing its sovereignty, a painful prospect indeed for such a proud nation. Hence an extraordinary editorial in yesterday's Irish Times, asking whether "this is what the men of 1916 died for", and bewailing Ireland's "shameful" loss of independence.

Although no final decision has been reached, the republic is clearly moving towards accepting funds that will stabilise the Irish banking system, now inextricably connected to the state. "Substantial" was another adjective used by Mr Honohan to describe the sum of money yesterday – and who can disagree? The loans will be equal to 80 per cent of Irish GDP.

Whether this situation is "shameful" is a matter of opinion; but it was certainly predictable. Twenty years ago, Eurosceptics argued that Britain would lose its sovereignty in just this fashion if it was foolhardy enough to join a single currency. We kept out, which meant that, when the time came to administer nasty medicine to our economy, at least the prescription was written in Westminster rather than Brussels – and at a time of our choosing. Ireland, in contrast, is being pushed by the EU into a rescue deal earlier than is strictly necessary, in order to stop the contagion of bad debt spreading to Portugal and Spain. Greece, meanwhile, has had its economic powers confiscated and is now an EU protectorate.

Herman van Rompuy: The man who wants to control your finances

The European president Herman van Rompuy offers a tempting target for jokers. But his call for for the imposition of a common economic policy, backed up with surveillance and punishments, has a decidedly sinister ring .

By Andrew Gilligan, Sunday telegraph, 14 Nov 2010

Herman van Rompuy, the president of Europe, hasn’t enjoyed the kindest press. In Britain at least, the “richly comic” “blustering Belgian”, a “garden gnome” and “dwarf” “straight out of Gilbert and Sullivan” has been treated as a sort of joke created largely for the benefit of tabloid headline writers.

Mr van Rompuy may never come to match, say, Vince Cable in the glamour stakes – but people who knew him in his previous job always warned that the “Mr Nobody” gibes were misplaced. As Belgian prime minister, Mr van Rompuy helped to bring together his notoriously divided country, and sharply reduced its budget deficit. Now, he has similar steely ambitions to unite and discipline Europe.

Last week, in Berlin, Mr van Rompuy proclaimed an EU leader’s strongest message of federalism yet. He said that after the financial crisis, “the national and the European interest can no longer be separated: they coincide… today, we have to act on [that] fact… in every [EU] member state, there are people who believe their country can survive alone in the globalised world. It is more than an illusion – it is a lie.”

Mr van Rompuy’s “action on that fact” is something he and his supporters call “European economic governance” – essentially, a political semi-union giving the EU sweeping new powers to impose economic policy on its members. As he put it bluntly in Berlin, “one cannot maintain a monetary unity without a political union…”

Three weeks ago, almost unnoticed in Britain, a taskforce chaired by Mr van Rompuy called for a “fundamental shift” in this direction, with a “wider range” of sanctions, fines and other punishments for countries that do not follow economic prescriptions laid down by Brussels. Ultimately, some suggest, economic governance could mean the harmonisation of tax and benefit levels, and forced redistribution of funds from rich to poor EU countries on a scale far greater than now.

Fully fledged economic governance would apply only to members of the euro. But the van Rompuy taskforce also recommended that “all EU member states”, Britain included, should be subject to “deeper macro-economic surveillance”, including an “enforcement framework” of “corrective” measures “designed to enforce the implementation of remedies” for countries that stepped out of line. One of the members of the taskforce was George Osborne, Britain’s Chancellor of the Exchequer.

In his first six months as Prime Minister, David Cameron has largely managed to keep Europe out of the headlines. But now, with a series of Euro-issues lining up to face him, the E-word is back.

Two weeks ago, Mr Cameron suffered his biggest back-bench revolt as Prime Minister – by 37 of his MPs – after he agreed to increase the EU budget by 2.9 per cent next year (he’d promised to freeze it). And last week, it seemed that Britain could not even guarantee to hold the increase to 2.9 per cent after talks with the European Parliament, which has the power of co-decision on the budget, broke down (the MEPs had wanted a 6 per cent rise).

The wrangle over the 2011 budget, though the most publicised of the Euro-problems facing Mr Cameron, is easily the least important. For Britain, a 2.9 per cent rise is only about £400 million – annoying, given shrinking national spending, but still relatively small change. On the budget, the real battle will come over the next seven-year settlement, due to start in 2014.

MEPs are already limbering up for that fight – the main reason talks with them collapsed last week is that in exchange for their agreement on next year’s spending, they want national governments to start thinking about a whole new EU tax to finance future massive budget rises. In EU-land, economic downturns never bite.

Last week, too, the financial crisis facing Ireland dramatically worsened. The cost of the country’s huge borrowing soared as the markets bet that it (and Portugal) will be the next Greece. Ireland could well be heading for an EU or IMF bailout, with the real prospect that Britain could be drawn in.

Ireland is our nearest neighbour, with an economy closely linked to ours. And Britain is part of the new “European stabilisation mechanism” for the euro, agreed during the currency’s most recent meltdown in May while British attention was on the Lib-Con coalition talks. Under the mechanism, British taxpayers do not have to hand over any money up front – but we do have a liability of up to £6.8 billion if Ireland, Greece, or any other troubled euro member should default on an EU loan that is made to them.

The dreadful crisis of the euro – which has been happening, sticking-plastered but not cured, for most of the last year – is what lies behind the drive for “economic governance”. The idea of the new rules is to stop countries like Greece and Ireland getting themselves into such a mess in future. A few weeks ago, Mr van Rompuy’s plan got a massive boost. Angela Merkel, the chancellor of Germany, said she wanted a treaty revision to make “economic governance” and supervision permanent features of the Union’s make-up. And France’s Nicolas Sarkozy agreed.

But for all the fears of British Eurosceptics, this may be more of an opportunity than a danger for those Britons who oppose the relentless growth of EU power. Economic governance will affect Britain far less than most other countries. Yet if there is to be a treaty revision, it will need Britain’s consent – giving Mr Cameron significant leverage.

Mats Persson, director of the Open Europe think-tank, says that Britain should use that leverage to get back some powers from the EU in return for agreeing to allow economic governance for the eurozone countries. “In this fluid situation, Cameron should play politics,” he says. “He should say to the French and Germans: we will give you what you want if you give us back some things. There are real opportunities for reform here. We don’t think it’s inevitable that powers will always go in one direction.”

The Government last week published proposals for a “referendum lock”, which ministers say will give the British people a veto on all future transfers of power to the EU. But many Eurosceptics are still suspicious of the small print of this promise, worried that not everything will be covered. And as well as preventing future moves of power, they want ministers to “repatriate” some of the powers that have been given away already.

New EU powers over the financial services industry, openly touted by France as a way of attacking the City of London, are one thing that Mr Cameron could try to take back, Persson says. The role of national parliaments, or just the British Parliament, could be strengthened – to give MPs more scope to object to EU law. Regional funds could be brought back from the EU budget to national budgets.

The trouble is, the British Government doesn’t seem particularly interested. Even since the election, to the anger of many Tories, the Coalition has given away more powers. It agreed to the European Investigation Order, under which courts and prosecutors in other EU countries can order British police to carry out investigations, house- and body- searches and surveillance in this country on their behalf. And in 2014, before the next general election, ministers will have to make a big decision about whether to accept or reject the entire suite of European justice and immigration “harmonisation” measures, which will horrify civil libertarians and the Right.

“I think the Government just wants to ignore Europe as an issue,” Persson says. “They’ve decided not to talk about it, and they find it difficult to recognise the opportunity they’ve got in front of them.” Mr Cameron used the trivial issue of the 2011 budget to divert attention from the real issue of repatriating powers, some say.

There are understandable reasons why the Prime Minister is reluctant to follow his Eurosceptics. Europe has always been toxic in British politics – one of those issues that strongly excite a small number of voters, but confuse and bore the majority. Attempts by the Tories to play the “Europe card” in elections have always backfired.

Since coming to power, Cameron has been mending fences with Merkel and Sarkozy, after his provocative decision in opposition to stop sitting with their parties in the European Parliament. Adopting Persson’s advice to “play politics” with economic governance, an issue that affects the eurozone more than Britain, would “antagonise” our partners all over again, says Katinka Barysch, deputy director of the Centre for European Reform think-tank. It would also, she says, “damage Britain’s own interests. The eurozone is Britain’s biggest export market – and as Europe’s biggest financial centre, the City stands to lose if turmoil returns to debt markets.”

Above all, perhaps, there is the delicate balance of the Coalition itself. A now almost totally Eurosceptic party – the Conservatives – is in government with the most pro-European people in British politics, the Liberal Democrats. Nick Clegg, the Deputy Prime Minister, has set his face against repatriation of powers. “We are not going to reopen this issue,” he said last month, on the Government’s behalf.

But Mr Clegg’s own Euro-friendliness, and his Eurocrat background, could in fact make him the ideal, non-threatening negotiator to get some powers back for Britain. And whether Mr Cameron likes it or not, Tory Eurosceptics, who have seldom been more powerful than now, are determined to press the issue. The E-word still has plenty of scope to make life difficult for a Tory prime minister.

Europe stumbles blindly towards its 1931 moment

It is the European Central Bank that should be printing money on a mass scale to purchase government debt, not the US Federal Reserve.

Unless the ECB takes fast and dramatic action, it risks destroying the currency it is paid to manage, and allowing a political catastrophe to unfold in Europe.

If mishandled, Ireland could all too easily become a sovereign version of Credit Anstalt - the Austrian bank that brought down the central European financial system in 1931, sent tremors through London and New York, and set off the second deeper phase of the Great Depression, the phase when politics turned ugly.

“Does the ECB understand the concept of contagion?” asked Jacques Cailloux, chief Europe economist at RBS. Three EMU countries have already been shut out of the capital markets, and footloose foreign creditors hold €2 trillion of debt securities issued by Spain, Portugal, Ireland and Greece.

“If that is not enough to worry about financial contagion, what is? The ECB's lack of action begs the question as to whether it is fulfilling its financial stability mandate,” he said. That is a polite way of putting it.

The eurozone’s fiscal fund (European Financial Stability Facility) is fatally flawed. Like Alpinistas roped together, an ever-reduced core of solvent states are supposed to carry the weight on an ever-widening group of insolvent states dangling beneath them. This lacks political credibility and may be tested to destruction if – as seems likely – Ireland is forced to ask for help. At which moment the chain-reaction begins in earnest, starting with Iberia.

It was a grave error for Germany’s Angela Merkel and France’s Nicolas Sarkozy to invoke the spectre of sovereign defaults and bondholder “haircuts” at this delicate juncture, ignoring warnings from ECB chief Jean-Claude Trichet that such talk would set off investor flight from high-debt states.

EU leaders have since made a clumsy attempt to undo the damage, insisting that the policy shift would have “no impact whatsoever” on existing bonds. It would come into force only after mid-2013 under the new bail-out mechanism. Nobody is fooled by such a distinction.

“This is a breath-taking mixture of suicidal irresponsibility and farcical incoherence,” said Marco Annunziata from Unicredit.

“If by 2013 countries like Greece, Ireland and Portugal are still in a shaky position, any new debt issued will carry exorbitant yields. The EU would then have to choose between a full-fledged, open-ended bail-out, and reneging on the promise that existing debt would not be restructured. Will German voters then accept higher taxes to save their profligate neighbours?” he said.

In May it was enough for the EU to announce a €750bn safety-net with the IMF for eurozone debtors. Bond spreads narrowed. A spike in economic output - led by Germany’s rogue growth of 9pc (annualised) in the second quarter – beguiled EU elites into believing that monetary union had survived its ordeal by fire. It had not, and this time they will have to put up real money.

Sadly for Ireland, events have snowballed out of control. Confidence has collapsed before Irish export industries – pharma, medical devices, IT, and backroom services – have had time to pull the country out of its tailspin.

Premier Brian Cowen – who presides over a budget deficit of 32pc of GDP this year - still insists that no rescue is needed. “We have adequate funding right up until July,” he said. Mr Cowan must know this is not enough. Funding for Irish banks has evaporated, and with it funding for Irish firms.

As we learn from leaks that “technical” talks are under way on the terms of any EU bail-out, it can only be a matter of weeks, or days, before Ireland has to tap EFSF – for €80bn to €85bn, says Barclays Capital.

Portugal is in worse shape than Ireland. Total debt is 330pc of GDP. The current account deficit is near 12pc of GDP (while Ireland is moving into surplus). Portuguese banks rely on foreign wholesale funding to cover 40pc of assets.

The country has been trapped in perma-slump with an over-valued currency for almost a decade. Successive waves of austerity have failed to make a lasting dent on the fiscal deficit, yet have been enough to sap the authority of the ruling socialists and revive the far-Left.

Former ministers are already talking openly of the need for an EU-IMF rescue. It is hard to see how Portugal could avoid being sucked into the vortex alongside Ireland. Europe and the IMF would then face a cumulative bail-out bill of €200bn or so. That stretches the EFSF to its credible limits.

The focus would shift instantly to Spain, where economic growth stalled to zero in the third quarter, car sales fell 38pc in October, a 5pc cut in public wages has yet to bite, and roughly 1m unsold homes are still hanging over the property market. The problem is not the Spanish state as such: the Achilles Heel is corporate debt of 137pc of GDP, and the sums owed to foreign creditors that must be rolled over each quarter.

The risks are obvious. Unless core EMU countries raise fresh funds to boost the collateral of the rescue fund, markets will not believe that the EFSF has the firepower to stand behind Spain. Will Germany’s Bundestag vote more funds? Will the Dutch? Tweede Kamer, where right-wing populist Geert Wilders now holds the political balance, adamantly opposes such help, and might well use such a crisis to launch a bid for power.

It is far from clear what would happen if Italy was forced to provide its share of a triple bail-out for Ireland, Portugal and Spain. Italy’s public debt is already near danger point at 115pc of GDP. It is also the third-largest debt in the world after that of Japan and the US. French banks alone have $476bn of exposure to Italian debt (BIS data).

While Italy has kept a tight rein on spending, it is not in good health. Growth has stalled; industrial output fell 2.1pc in September; and the Berlusconi government is disintegrating. Four ministers are expected to resign on Monday.

It is clear by now that IMF-style austerity and debt-deflation is not a workable policy for the high-debt states of peripheral Europe, since it cannot be offset by the IMF cure of devaluation. The collapse of tax revenues has caused fiscal deficits to remain stubbornly high. The real debt burden has risen further.

The ECB is the last line of defence. It can halt the immediate Irish crisis whenever it wishes by buying Irish bonds. Yet instead of pulling out all the stops to save monetary union, the bank is winding down its emergency operations and draining liquidity. It is repeating the policy error it made by raising rates into the teeth of the crisis in July 2008.

Yes, the ECB is already propping up Ireland and Club Med by unlimited lending to local banks that then rotate into their own government debt in an internal “carry trade”. And yes, the ECB is understandably wary of crossing the fateful line from monetary to fiscal policy by funding treasury debt.

Bundesbank chief Axel Weber might fairly conclude that it is impossible at this stage to reconcile the needs of Germany and the big debtors. If the ECB prints money on the scale required to underpin the South, it would set off German inflation, destroy German faith in monetary union, and perhaps run afoul of Germany’s constitutional court. If EMU must split in two, it might as well be done on Teutonic terms.

All this is understandable, but is Chancellor Merkel really going to let subordinate officials at the ECB destroy Germany’s half-century investment in the post-war order of Europe, and risk Götterdämmerung?

British payments to EU set to rise £900m next year

The European Parliament voted through a budget rise yesterday that will cost Britain an extra £900 million next year – on the day George Osborne announced deep cuts to public spending.

By Bruno Waterfield in Brussels, Telegraph, 20 Oct 2010

The proposals will extend maternity leave to 20 weeks on full pay Photo: AP A £6.5 billion EU budget rise that would increase EU spending by six per cent to £114.5 billion – of which £9.2 billion would be the British contribution – was voted through by MEPs in Strasbourg.

The increase, which Britain has so far failed to block, will cost the British taxpayer an extra £884 million and is a sum equivalent to the costs of employing an additional 14,000 NHS doctors, 29,000 nurses, 34,000 police constables or 52,000 Army privates.

David Cameron was questioned over the "obscene" Strasbourg vote by back-bench Conservative MPs during Prime Minister's Questions and pledged to oppose the increase during negotiations in Brussels next month.

"We need to make sure that Europe starts to live within its means," he said. "We've called for a cash freeze in the size of the EU budget for 2011 and we're working hard to make this case across Europe."

Included in the EU assembly's budget demands is a staffing increase of 388 posts to swell the ranks of the 6,166 civil servants who assist the work of 736 MEPs.

On top of that, cash is also set aside for an additional £32,000 a year towards new MEP assistants or pay rises for existing researchers who can earn up to £80,000 a year. More than 50 assistants or researchers are already paid between £68,000 and £80,000 a year – more than the salary paid to Westminster MPs.

Despite the creation of a new EU diplomatic service, at a cost of £399 million next year, the parliament is also planning to open new offices in New York, Beijing and Moscow, replicating existing European representations and missions.

As MEPs agreed to increase their staff and to open new offices around the world, Mr Osborne's announcement is expected to lead to the cutting of 500,000 public sector jobs.

Daniel Hannan, the Conservative MEP for South-east England, attacked his colleagues for voting through budget increases that would undermine attempts by national governments to cut public spending.

"This vote shows how utterly divorced MEPs are from reality and how far the European parliament is from a representative body," he said. "There is not a country in Europe that is not going through cuts but we have a situation where the EU is sucking up the savings."

MEPs also voted to double the parliament's budget for champagne receptions, increased spending on their courtesy limousines and maintained £8 million in funding for Europarl television, despite refusing to release the channel's viewing figures, thought to be in the hundreds.

Marta Andreassen, a Ukip MEP and member of the parliament's budget committee, said: "European taxpayers will rightly feel that they have been mugged by their own elected representatives."

But Sidonia Jedrzejewska, a Polish centre-Right MEP, who drew up the parliament's budget demand, insisted that she had shown restraint by not asking for even more.

"The European Parliament has demonstrated much self discipline," she said. "The budget of the EU is not similar to a national budget. It is oriented towards investment and is a tool for fighting the crisis."

Jerzy Buzek, the parliament's president, said: "Cuts cannot be simply populist measures limiting many possibilities, for example for education, training or research."

Britain to lose EU rebate as Coalition faces split on treaty changes

Britain would lose a £3 billion annual rebate on payments to Brussels and faces new European taxes under proposals tabled on Tuesday alongside a Franco-German plan for EU treaty change that raises the prospect of a British referendum on Europe.

The proposals are a serious setback for David Cameron who opposed any fresh EU institutional changes and recently renewed his "referendum lock" pledge to hold a popular vote on any future treaty that involves any loss of British sovereignty.

The European Commission plan to overhaul the way the EU is financed, including the end of the rebate by 2013, has coincided with a French and German call for new treaty within two years, developments that risk ending the coalition's political truce on Europe.

Manuel Barroso, the Commission President, yesterday published new proposals to review how the EU's growing budget is financed. In a bid to bring Brussels spending "closer to EU citizens", he has tabled plans to move away from complicated national contributions paid by Treasuries, a system include the British rebate or "correction", towards a more "transparent" system of new European taxes.

"We need to take another look at the byzantine set of corrections and trade-offs. I believe it is high time to promote a system that is understood by citizens," he said. "We encourage everybody to engage in an open debate without taboos."

Nicolas Sarkozy and Angela Merkel's demand on Monday night for a new EU treaty to prevent future Greek-style euro zone crises will put the government under intense pressure to hold a vote on the EU from many Tories, who were angry at Labour's refusal to hold a referendum on the Lisbon Treaty.

The demand for "revision" to the Lisbon Treaty by 2013 from President Sarkozy and Chancellor Merkel will put the Prime Minister on a collision course with them at an EU summit on "economic governance" to be held in Brussels on Oct 28.

Bill Cash, the Conservative chairman of House of Commons European scrutiny committee, signalled that there will be backbench Tory demands for a referendum on a new EU treaty and opposition to any question of touching the "non-negotiable" rebate.

"This must not only be refused on the basis of not giving new powers to the EU but we have to have a referendum," he said. "With the rebate and tax proposals, the EU is making demands that are completely unacceptable to the British people."

Douglas Carswell, the Eurosceptic Tory MP for Clacton, warned that a Conservative-Lib Dem peace pact over Europe was in danger of unravelling because of the new EU demands. "The coalition managers have said they do not want to do Europe. Whether we like it or not Europe is going to be an issue," he said.

The rebate, first secured by Margaret Thatcher in 1984, is worth £3 billion a year. Its loss would deeply undermine George Osborne's spending review which runs up until 2015, potentially meaning that Britain could have to pay over £6 billion in extra payments to the EU in the two years after 2013.

Also deeply controversial for Britain, and other countries including Germany and France, is the idea that Brussels budgets can be funded by EU taxation via "a separate EU VAT rate, a share of an EU energy tax or of an EU corporate income tax".

British households pay £440 a year to be an EU member ... but don't get it back

The average British household paid £440 to be a member of the European Union last year but received only £312 back in direct benefits, according to newly published Brussels accounts.

Bruno Waterfield in Brussels, Telegraph, 28 Sep 2010

Spain is the only one of the top five contributors where the return is greater than the contribution Photo: Corbis The £128 loss for every household is because Britain’s share of the costs for running the EU are not matched by returned cash, which comes in the form of farm subsidies or social funds.

The lion’s share of spending goes to continental farmers and poorer countries such as Poland, the figures show.

Britain is the fifth highest contributor to the EU budget, with £6.7 billion, beaten by France, Germany, Italy and Spain. Poland contributes £2.4 billion. Each Briton pays £110 in contributions to the EU but loses out by £32 in benefits in return. Spain is the only one of the top five contributors where the return is greater than the contribution. In Poland, every person contributes £63 and gains £166 in return subsidies.

The EU’s cost to Britons in 2009 was up by £266 million, or £17.44 per household, as bills for running the Union continued to increase due to the rising costs of the new powers and institutions created by the Lisbon Treaty.

Britain has also been hit by a deal negotiated in 2005 by Tony Blair that has seen the value of an annual rebate from the EU, won by Margaret Thatcher in 1984, fall significantly over the past two years.

Nigel Farage, Ukip’s European leader, argued that the EU “club” was not worth belonging to when the cost of Brussels regulation was pushing up “membership fees”.

“If you were paying a £440-a-year subscription to a health club, you would expect to get fitter or you would leave,” he said.

Because of Mr Blair’s agreement to cut the rebate, in order to help new Eastern European EU members, British payments are set to rise still further, reaching £8.3 billion late this year.

The bill could go even higher if the European Commission wins a battle over its proposal to scrap Britain’s annual rebate, which was first granted to offset high British payments towards farm subsidies that are mostly paid to French farmers.

Five reasons why the EU is more unpopular than ever

By Daniel Hannan, Politics, September 2nd, 2010

According to Eurobarometer, the EU is at a record low in approval ratings. Fewer than half of its citizens regard it as “a good thing” and only 42 per cent have confidence in its institutions. The President of the European Commission, José Manuel Durrão Barroso, is in no doubt as to whose fault this is:

We won’t solve the problems unless each nation sees the European project as its own. This is not the case now. When things go well it’s their credit and when they go wrong it’s Brussels’ fault

Eurocrats – in common, I suppose, with most of the human race – rarely blame themselves for their unpopularity. Still, it seems contrived to insist the reason the EU is disliked is because of the behaviour of its member governments. Here are five more plausible explanations for the findings.

1.The euro. We sceptics argued all along that EMU was not an optimal currency area: that the interest rates and exchange rates that were right for one country would be wrong for another, and that the first serious downturn would prove it. Well – there is no way of putting this modestly – we were right, weren’t we?
2.The bail-outs. Just imagine how the Irish must be feeling. Their economic crisis was, if not caused by the euro, much exacerbated by it: during the boom years EMU forced them to pursue a pro-cyclical monetary policy, thereby worsening the eventual crash. The Irish government has since done all the right things, imposing cuts of between 5 and 20 per cent on the entire state sector, from the Taoiseach to benefits claimants. Yet, glancing at Greece, the Irish must wish they had rioted instead, and so qualified for a bail-out of their own. To make matters worse, they are being forced to contribute to the bail-out. In other words, despite their deficit, they must borrow hundreds of millions of euros to send to Greece.
3.The sense of iniquity. You don’t have to be Irish to resent such unfairness. Slovakia recently voted to withdraw from the bail-out fund, arguing that a) it is poorer than Greece and b) it should not be punished for its thrift in order to reward others for their incontinence. Until recently, the EU could rely on the support of countries which were net beneficiaries from the budget. Not any more.
4.The spiralling costs. At a time when every national government is struggling to spend less, the EU wants to spend more. This means that, while finding painful cuts elsewhere, the member states must raise more money to give to Brussels.
5.The lack of democracy. This is not a new phenomenon, of course, but the flagrancy with which referendum results were tossed aside, and the extraordinary lengths pursued to prevent further votes on the Lisbon Treaty, shocked many moderate pro-Europeans.
The Brussels bureaucracy is starting to look exhausted, expensive and irrelevant: a hangover from the 1950s. While its functionaries spool out their regulations, the EU’s share of global wealth continues to plummet. Europe’s leaders may be trapped in the Matrix; but their voters have escaped.

Why Europe rose, and why it is now declining

By Daniel Hannan, Politics, July 1st, 2010

Hagar, one of my long-established commenters, asks why I haven’t written up the Open Europe debate in which I took part last week. Well, Mary Ellen Synon of The Daily Mail has written an embarrassingly generous précis, and Mats Persson has now produced a slightly more thorough report.

Mats “summarises” my case rather better than I remember putting it at the time. The argument against European integration comes down to systems competition. Five hundred years ago, the Oriental empires—Ming, Mogul and Ottoman—were technologically far ahead of the scattered tribes at the western tip of the Eurasian landmass. They had gunpowder and canals, ocean-going ships and paper money, advanced mathematics and astronomy. Mediaeval Europeans, by comparison, were primitive and poor.

So why did their children come to dominate the planet? Why didn’t the Chinese, as one might have expected, sail around Africa to discover Portugal? Because, to cut a long story short, the Oriental monarchies became centralised, bureaucratised and over-taxed. Europe, by contrast, never became a single state, but remained a nexus of competing states, each striving to outperform its neighbours, each able to copy what worked elsewhere.

I don’t pretend that this is an original thesis. I lifted it from Paul Kennedy, who had in turn lifted it from the Australian historian E L Jones. Mats provides a rather more comprehensive supporting bibliography. But the argument is a remarkably simple one. External competition is an important check on state power. A government can raise taxes only up to a certain point before wealth-creators move to more friendly jurisdictions, and start paying their revenue to other exchequers. It can regulate social policy and employment law only up to a certain point before businesses and jobs relocate. Diversity, in short, stimulates competition and innovation.

The EU is, in a sense, a reaction to this process: a powerful, if ultimately futile, attempt to regulate international markets. At the moment that the Asian powers are discovering the benefits of decentralisation, the EU is going in the opposite direction. In consequence, the 15 nations of “Old Europe” (that is, the EU as it stood prior to the 2004 enlargement round) have seen their share of world GDP decline from 36 per cent in 1980 to 24 per cent today, with a forecast drop to 15 per cent in 2020. The USA, over the same period, has kept its share of world GDP steady.

The absence of political unity brings political as well as economic advantages. Many European advances were driven by the phenomenon of the refugee. As long as there was somewhere to flee to, the power of the autocrat was checked. As long as there were competing states, no dictatorship would be secure. Edward Gibbon put it like this:

“The division of Europe into a number of independent states, connected, however, with each other by the general resemblance of religion, language, and manners, is productive of the most beneficial consequences to the liberty of mankind. A modern tyrant, who should find no resistance either in his own breast, or in his people, would soon experience a gentle restrain form the example of his equals, the dread of present censure, the advice of his allies, and the apprehension of his enemies. The object of his displeasure, escaping from the narrow limits of his dominions, would easily obtain, in a happier climate, a secure refuge, a new fortune adequate to his merit, the freedom of complaint, and perhaps the means of revenge.”

Although Gibbons’ arguments were echoed on the panel by a Brit (me) a Swede (Mats) and a Belgian (Pieter Cleppe), the pro-Brussels speakers still attacked us as “Europhobes”. Which goes to demonstrate one of this blog’s long-standing contentions, viz that a certain kind of Euro-enthusiast will dismiss any criticism of the EU, whether it is based on history, economics or democracy, as intrinsically xenophobic.

EU Referendum: Now for the most important vote of all

Daniel Hannan and Ruth Lea launch a cross-party campaign for a ballot on whether Britain should stay in the EU.

By Daniel Hannan, Telegraph, 7 Sep 2010

No one under the age of 54 has been asked about Britain's relationship with the EU. The decision to hold a referendum on the voting system has surely killed off, once and for all, any notion that plebiscites are alien to the British constitution. Referendums, once rare events, have become an unexceptional part of our democratic procedures. Before the election of Tony Blair, we had had only four such votes: one each in Wales, Scotland and Northern Ireland, and one across the UK on continued membership of the Common Market. Since 1997, however, there have been a further 39 local and regional ballots – not counting the hundreds of parish-wide polls called in 2007 to demand a national vote on Europe.

The question, these days, is not whether referendums are compatible with representative democracy, but what the next one will be about. If we are allowed a vote on how to elect our MPs, why not a vote on whether those MPs run the country? If we can have a referendum on whether to have a mayor in Hartlepool, what about one on whether the majority of our laws should be handed down from Brussels?

Today sees the launch of a cross-party initiative for precisely such a ballot. The EU Referendum Campaign brings together businesses, trade unions and members of all parties who want a vote on whether Britain should continue to be a member of the EU. We hope people will visit our website – www.EUReferendumCampaign.com – and sign our pledge.

European integration is precisely the kind of question that our great constitutionalists, Walter Bagehot, Thomas Erskine-May and, above all, A V Dicey, would have regarded as a proper subject for a popular ballot. It is an issue that divides all the main parties; an issue that cannot easily be settled at general elections; an issue of major constitutional significance; and an issue that sets Parliament against people. Opinion polls consistently show that between 40 and 55 per cent of voters want to withdraw from the EU, yet this position is shared by just one per cent of MPs. Here, in short, is a textbook case of where a referendum should serve as what Dicey called "the people's veto": a guarantee that politicians elected under one set of rules should not be able to change those rules without a further and explicit mandate.

No one under the age of 54 has been asked about Britain's relationship with the EU. Yet there have been gargantuan transfers of power to Brussels since 1975. Then, the EEC was a trading association. Today, it is a proto-state, with a foreign minister and diplomatic corps, a police agency and criminal justice system, a parliament and government, a currency, driving licence, passport and flag. If ever there was a proper subject for a plebiscite, this is it.

Against all these arguments is levelled, if we are honest, only one: fear of the outcome. It is a rotten argument. As Vernon Bogdanor, the closest thing to a contemporary Dicey, puts it, "in the final analysis, the arguments against referendums are arguments against democracy".

We see once again how, as well as being undemocratic in itself, the EU can require its member states to sacrifice a measure of their internal democracy. Seven governments had promised referendums on the European Constitution in 2005; six of them, fearing the result, went back on their words. Britain was one of those six.

This is as much about the integrity of our democratic institutions as about Europe. All three of our most recent prime ministers have promised us a vote on European integration. Here is Tony Blair in 2004: "There is no question of any constitutional treaty going through without the express consent of the British people…. Regardless of how other members vote, we will have a referendum on the subject." Here is Gordon Brown's 2005 election manifesto: "We will put it to the British people in a referendum." And here is David Cameron in 2007: "Today, I will give you a cast-iron guarantee: If I become Prime Minister a Conservative government will hold a referendum on any EU treaty that emerges from these negotiations".

Trusting the electorate would be the best way to answer the criticism that politicians, as a class, are out-of-touch. Far from detracting from the sovereignty of Parliament, a referendum would restore a measure of that institution's legitimacy. MPs should recognise that they are not the owners of our liberty, but its temporary and contingent custodians. If they want to carry on handing away our independence, they should have the decency to ask our permission.

Britain's EU rebate under threat

Britain's annual £3 billion rebate from the EU budget is facing a fresh threat after the European Commission said that the concession could no longer be justified.

By James Kirkup, Political Correspondent, Telegraph, 6 Sep 2010

The government vowed to defend the rebate after Janusz Lewandowski, the EU budget commissioner, said the reduction in British contributions has "lost its justification".

The rebate, sometimes known as the Cheque Britannique, was first negotiated in 1984 by Baroness Thatcher.
She argued that British payments to the EU should be reduced because Britain receives much less from the Common Agricultural Policy system of subsidies than comparably-sized countries like France.

Since then, it has taken on totemic significance and is resented by many other European politicians.

Figures published in the Budget in June show that Britain's net contribution to the EU is to rise from £8.3 billion this year to £10.3 billion in 2014/15. Without the rebate, the payment would be more than £10 billion this year, Treasury figures show.

However, the British payment is set to rise because of a deal negotiated in 2005 by Tony Blair that will see the value of the rebate fall over time.

Formal talks on the EU's next seven-year budget will begin next year, but ministers and Brussels officials have already started staking out positions in advance.

In an interview with a German newspaper, Mr Lewandowski signalled that the rebate will be on the agenda in the budget talks.

"The British rebate has lost its original justification," Mr Lewandowski told Handelsblatt.

"The structure of the EU budget has changed substantially. Farm subsidies – the main reason for the rebate – have decreased, while the per-capita income of the UK has increased substantially since the 1980s."

The commissioner accepted that any move to cut the rebate would be controversial.

He added: "There will be very difficult negotiations. We will need the acceptance of London in order to come to a result. My role in this business is that of an honest broker."

The Treasury insisted the rebate remains "fully justified" on grounds of fairness.

A spokesman said: "Without the rebate, the UK's net contribution as a percentage of national income would be twice as big as France's, and one and a half times bigger than Germany's. This is because of expenditure distortions from policies such as the CAP, which still accounts for more than 40 per cent of the EU budget."

Privately, some British officials say the UK could negotiate reductions in the rebate next year, but only in exchange for clear and immediate cuts in the CAP's €50 billion (£42 billion) budget.

Mats Persson of Open Europe, a think-tank, said the UK will come under "massive pressure" to give up the rebate in the coming budget talks.

He said: "This government must not repeat the mistakes of its predecessor and hand over billions of pounds of taxpayers' cash in return for vague promises which lead to nothing. The EU budget is out of date, inefficient, irrational and extremely wasteful. Until it's cut in size and fundamentally reformed, the UK's rebate remains wholly justified."

A European Commission spokesman later insisted that Mr Lewandowski was not calling for the British rebate to be eliminated outright. The commissioner was "stating a personal opinion," he said.

New EU ambassador in Washington claims transatlantic authority

The new European Union ambassador to Washington has suggested that he will speak for Britain on foreign and security policy in America.

Telegraph; James Kirkup and Robert Winnett in Washington, 12 Aug 2010

The prospect of an EU official speaking for the UK to its most important ally has angered eurosceptics, who said it shows Britain's waning influence Joao Vale de Almeida was this week formally installed as the EU's ambassador to the US, and suggested that American officials should regard him as their first point of contact for transatlantic discussions.

He is the first EU ambassador to be appointed after the controversial Lisbon Treaty gave the EU sweeping new powers.

The new ambassador claimed to now be "leading the show" among European representatives in Washington.

The prospect of an EU official speaking for the UK to its most important ally has angered eurosceptics, who said it shows Britain's waning influence.

Mr Vale de Almeida's comments are also likely to alarm Sir Nigel Sheinwald, the British ambassador in Washington. Sir Nigel is thought to have struggled to build strong relations with the White House after a memorandum he wrote for Gordon Brown questioning Barack Obama's experience was leaked in 2008.

Earlier this week, The Daily Telegraph disclosed that the Ministry of Defence had hired Washington-based lobbyists to supplement British Embassy staff.

Mr Vale de Almeida has stressed to Washington officials and politicians that under the EU's' Lisbon Treaty, he has more power than his predecessors. "I'm the first new type of ambassador for the European Union anywhere in the world," he said. "I'm supposed to have a wider mandate than my predecessors." Mr Vale de Almeida said: "Our delegations now cover a wide spectrum of issues well beyond the economic dimension, trade dimension and regulatory dimension, to cover all policies in the union, including foreign policy and security policy."

The Lisbon Treaty took force last year, taking the EU another step closer towards acting as a single entity in international affairs. The treaty created a European president and foreign minister and gave EU diplomats new powers to speak for all 27 union members on many issues.

In a comment that has come to symbolise the American view of the EU, Henry Kissinger, the former US secretary of state, is once said to asked: "When I want to talk to Europe, who do I call?"

In a response to that question, Mr Vale de Almeida declared: "In this area code, you call me." The ambassador insisted that he did not wish to "impose myself" on member states' ambassadors, who will continue to oversee "bilateral matters." But he declared: "Where we have a common position, I am the one leading the show."

The Lisbon treaty has led some politicians to suggest that the EU should take the place of countries like Britain and France at international bodies including the United Nations and the International Monetary Fund.

Mr Vale de Almeida, who is Portuguese, is one of the European Commission's longest serving officials. He was previously chief of staff to José Manuel Barroso, the Commission's president. Before leaving for Washington, the new ambassador was the most senior official under Baroness Ashton, the foreign-affairs commissioner.

The Earl of Dartmouth, a UK Independence Party MEP, said the ambassador's comments where proof that the EU diplomatic service is usurping the powers of nation states.

He said: "All the other parties have supported or accept the domination of the EU through the Lisbon Treaty. And this is the result. The British Government will be left discussing how British actors are portrayed in Hollywood at best." He added: "Of course Britain will continue to pay for the privilege.

This is only the start, as the existence of Britain's permanent seat on the UN Security Council is already in the EU sights".

Germany and France examine 'two-tier' euro

Germany and France are examining ways of creating a "two-tier" euro system to separate stronger northern European countries from weaker southern states.

By Alex Spillius in Washington and Bruno Waterfield in Brussels
Telegraph, 19 Jun 2010

The creation of a "super-euro" zone would initially include France, Germany, Holland, Austria, Denmark and Finland A European official has told The Daily Telegraph the dramatic option was being examined at cabinet level.

Senior politicians believe their economies need to be better protected as they could not cope with another crisis on a par the one in Greece.

The creation of a "super-euro" zone would initially include France, Germany, Holland, Austria, Denmark and Finland.

The likes of Greece, Spain, Italy, Portugal and even Ireland would be left in a larger rump mostly Mediterranean grouping.

The official said French and German officials had first spent months examining how to exclude poor-performing states from the euro but decided it was not feasible.

A two-tier monetary system in the 16-member euro zone is being examined as a "plan B".

"The philosophy is the stronger countries might need to move away from countries they can't afford to bail-out," said the official. "As a way of containing the damage, they may have to do something dramatic, though obviously in the short term implementation is difficult.

"It's an act of desperation. They are not talking about ideal solutions but the lesser of evils. Helping Greece could be done relatively cheaply but Spain they can't afford to let fail or bail-out.

"And putting more pressure on the people of France and Germany to save other countries is politically unfeasible."

One option, to protect the wealthier northern European countries and to help indebted southern Europeans, would be for Germany to lead a group of countries out of the existing euro into a new single currency alongside the old.

The old euro would decline sharply against the new German and French dominated currency but both north and southern Europeans would be protected.

Northern economies would be protected from debt contagion and southern countries would be spared the horrors of being thrown out and forced to go it alone.

Angela Merkel, the German Chancellor, has already paid a political price for forcing the rescue plan on a reluctant public, losing her majority in the upper house of parliament in a recent election.

The official pointed out that France held lent £500 billion to Spain and the Germans had lent £335 billion.

Nicolas Sarkozy, the French president, is understood to have been initially cool on the idea but has grown so frustrated with Greece and now Spain that he has allowed officials to explore proposals.

"He would prefer to keep the euro in place but if Spain, Italy and Greece are dragging him down he accepts he may have to cut them loose," said the official. "They are trying to contain the contagious effect but they don't have a solution yet."

The crunch time will come in September, when Spain has to refinance £67 billion of its foreign debt.

"If the markets don't buy that will trigger a response by Germany and France," said the official.

Expelling a country from the euro could push the whole region into a slump because European banks are so exposed to debt in southern Europe. The consequences for the exiting country would be even more catastrophic.

"The euro zone debt crisis has a long way to run," said one senior EU negotiator. "No one knows where it is going to end up. Only one thing is sure, the euro zone will change."

Spain could test the euro to its limit

As the euro has continued to plunge on foreign exchanges, Spain has become the main focus of fears that economic and debt imbalances between southern and northern Europe will tear the single currency apart.

By Bruno Waterfield in Brussels
Telegraph, 19 Jun 2010

The euro is facing its worst crisis since it was founded News that the head of the International Monetary Fund was in the country fuelled swirling rumours that Madrid is about ask for help.

Spain has been hammered by collapse of its construction sector and the bursting of a property bubble built on cheap credit that has contaminated financial institutions. One in five workers is unemployed burdening already strained state expenditure further.

Markets have not been reassured by a savage package of Spanish spending cuts and there are growing rumours that Spain needs an urgent EU-IMF cash injection, £200 billion is one rumoured figure. Panicky German officials too have been accused of destabilising Spain amid concerns in Berlin that Madrid is not cutting enough, leaving banks in Germany exposed to market contagion because they own hundreds of billions in Spanish debt.

It now has to pay record interest rates to service its debts and Spanish officials this week admitted that financial institutions are struggling to get funding at any price on international markets.

To prove that fears of banking failure are unfounded, Spain has promised to publish the results of "stress tests" on its banks, along with other EU countries. But the stress testing will not count how much public debt, in the form of government bonds, is held by banks, dodging the main concern that has sent markets tumbling.

Last week, Herman Van Rompuy, the EU president, admitted that a £626 billion euro zone bail-out fund might need to expanded if the debt crisis deepened.

"If the plan were to prove insufficient, my answer is simple: in this case, we'll do more," he said.

But throwing billions more at Spain will be deeply unpopular in countries such Germany, where Angela's Merkel's government is teetering on the brink of collapse after pushing through deeply unpopular loans to Greece and the wider euro zone fund at the same time as savage domestic austerity measures.

Signs of the first cracks are emerging this week after a newly elected government in Slovakia threatened not to pay its share of euro member contributions, totalling £370 billion, into the bail-out fund. The Slovakian position has left the European Commission worried that one country's refusal to help Spain, or others, could start a stampede that would destroy the euro.

ECB must buy 'hundred of billions' of bonds to tame Europe's debt crisis

Fitch Ratings has warned that it may take massive asset purchases by the European Central Bank to prevent Europe's sovereign debt crisis escalating out of control.

By Ambrose Evans-Pritchard
Telegraph 17 Jun 2010

Brian Coulton, the agency's head of sovereign ratings, said German members of the ECB appeared to be blocking the sort of muscular intervention in southern European bond markets needed to restore the shattered confidence of investors.

"There has been an unwillingness to follow through, and markets are going to want to see the ECB's money. It will require hundreds of billions in my opinion," he told a global banking conference.

The ECB agreed to start buying Greek, Portuguese, and Irish bonds in April to help buttress the EU's `shock and awe' package, known as the European Financial Stability Facility. Total purchases so far have been €47bn (£39bn).

It has focused its firepower on Greece, mopping up some €25bn of government bonds. This has prevented a collapse of the Greek debt market but at the high political price of letting banks and funds dump their holdings onto the EU taxpayer.

ECB council member Jose Manuel Gonzalez-Paramo said it was "not entirely correct" to assume that the ECB was the sole buyer of the debt. "We will continue buying bonds until the situation has stabilized," he said.

The Bundesbank is reportedly irked that French banks have led the rush to the exits while German banks have stuck by a gentleman's agreement to keep their Greek assets. The ECB's council insists that it has "sterilized" all purchases, offering no net stimulus. In effect, the ECB has done little to offset severe fiscal tightening by some eurozone states, and as the M3 money supply contracts.

"The ECB commitment seems half-hearted," said Andrew Balls, head of PIMCO's team in Europe. "The European sovereign problem has started to contaminate the European banking sector and the global economy."

Experts attending a seminar by the Central Banking Journal said the ECB had been behind the curve for months. "They were always one day and one euro too late," said Paul Mortimer-Lee, market chief at BNP Paribas.

A smooth auction of €3.5bn of Spanish bonds offered some respite yesterday after a week of stress on the EMU periphery, but Spain had to pay punitive rates. The average yield on 10-year bonds was 4.86pc, a near record spread of 220 basis points over German Bunds.

Silvio Peruzzo from RBS said the auction does little to help Spanish banks and firms that have been frozen out the debt markets and face a funding crunch.

"The ECB needs to act before contagion becomes endemic. Spain's banking system in at the heart of an ice-storm and there is a risk of 'sudden stop' if they can't roll over debt. We expect intervention, probably in covered bonds," he said.

Spain's premier Jose Luis Zapatero said the banks remain well capitalized, and has led the way in pushing for release of stress tests on each lender. "There is nothing better than transparency to show solvency, and leave behind baseless rumours," he said.

Santander has emerged from the probe as the strongest of the EU's large banks, according to leaks in the Spanish press. Madrid said weaker lenders would need just a third of the country's €99bn bank-rescue fund.

Marco Annunziata from UniCredit said the release of the stress tests is a gamble. "Spain has raised the stakes, and market expectations: now it will need to show it is up to the challenge. Spain is the eurozone's lynchpin. If it fails, the eurozone's wheels will come off," he said.

European president Herman van Rompuy said the EU-wide results would be published in July, helping to clear the air and restore trust to the inter-bank lending market. The Bundesbank insists that "back-stop" facilities should be in place, a tacit admission that some lenders are in dire shape.

Fitch said European banks must refinance nearly €2 trillion of long-term debt by the end of 2012 in an unfriendly market. "There's an awful lot of debt coming due in 2011 and 2012, and that is becoming a concern," said Bridget Gandy, the agency's banking expert.

Smaller banks have put off refinancing in the hope that spreads would fall and are now caught in a vice. Mrs Gandy said the situation could turn serious if global growth falters, tipping Europe into a double-dip recession.

David Owen from Jefferies Fixed Income said the eurozone may start contracting again in the second half of the year. He said the "core problem" haunting the European debt markets is that investors have little faith in the EU strategy of forcing states to carry out draconian cuts in the middle of a recession.

Mr Owen said these countries need sustained growth to claw their way out of debt-deflation traps, and that will require fully-fledged quantitiatve easing by the ECB, and drastic currency depreciation. "If the euro falls to parity or down to 80 cents against the dollar, we would start to see a solution," he said.

The euro mutiny begins

The rebellion against the 1930s fiscal and monetary policies of the Euro-complex is gathering pace.

Il Sole has published a letter by 100 Italian economists warning that the austerity strategy imposed by Brussels/Frankfurt risks tipping Europe into a self-feeding downward spiral. Far from holding the eurozone together, it will cause weaker countries to be catapulted out of EMU. Others will leave in order to restore sovereign control over their central banks and unemployment policies.

At worst it will blow the EU apart, leading to the very acrimony that the European Project was supposed to prevent.

While I don’t share the big-state Left-Keynesian perspective of these professors — nor their implicit hostility to the free market — I do agree with much of their overall analysis.

“The grave economic global crisis, and its links to the eurozone crisis, will not be resolved by cutting salaries, pensions, the welfare state, education, research …….. More likely, the `politics of sacrifice’ in Italy and in Europe runs the risk of accentuating the crisis in the end, causing a faster rise in unemployment, of insolvencies and company failures, and could at a certain point compel some countries to leave monetary union.

“The fundamental point to understand is that the current instability of monetary union is not just the result of accounting fraud and over-spending. In reality, it stems from a profound interweaving of the global economic crisis and imbalances within the eurozone …..

It blames the crisis on the “deflationary economic policies” of the richer states. “Especially Germany, geared for a long time to holding down salaries in relation to productivity, and to the penetration of foreign markets, gaining European market share for German companies…

They say the policy has led to growing surpluses in Germany, offset by growing debts in Southern Europe. The adjustment mechanism has not only failed. Matters have got worse, and worse.

“This is the deeper reason why market traders are betting on a collapse of the eurozone. They can see that as the crisis drags on this will cause tax revenues to fall, making it ever harder to repay debts, whether public or private. Some countries will progressively be pushed out of the eurozone, others will decide to break away to free themselves from a deflationary spiral… It is the risk of widespread defaults and the reconversion of debts into national currencies that is really motivating bets by speculators.

The economists denounced the “obstinacy” with which the EU authorities and governments are pursuing “depressionary policies”, and called on the European Central Bank to abandon its policy of “sterilizing” purchases of Greek, Portuguese, and Spanish bonds, and move to fully-fledged quantitative easing to boost the money supply.

“We must have an immediate debate on the extremely grave errors in economic policies now being committed..

Just to be clear, I do not share their Krugmanite view that huge fiscal deficits are benign. In my view, it is imperative that the whole western world reduces debt in a orderly fashion over 10 to 15 years. Pacing is crucial. Too fast can be self-defeating. Too slow is not an option.

My objection with the EU’s mix of policies is that extreme fiscal austerity is being imposed on a string of countries without offsetting monetary stimulus. (Yes, I know, some will say that I am mixing apples and oranges).

Ireland, Spain, and Portugal have already tipped into outright deflation. Ireland’s nominal GDP has contracted 18.6pc since the peak. They are falling deeper into an Irving Fisher debt-deflation trap.

This is reactionary folly. The College of European Commission should be taken out and horse-whipped outside the Breydel Building for demanding yet further cuts from Spain — which is already cutting wages 5pc this year, in an economy where total public /private debt is 280pc of GDP or more. Can nobody think of a more coherent way out of this?

As for Germany, frankly it is hard to know what to say. It is astonishing that Chancellor Merkel should unveil an €80bn package of fiscal retrenchment without consulting with the rest of Europe. This has raised the bar for everybody else, forcing them into yet further contractionary policies to keep up. Mrs Merkel does not begin to understand the nature of commitment made by Germany when it launched monetary union.

EMU has become an infernal machine. This will not be the last letter by angry economists

Beware the Blair who seeks to rule all Europe

Matthew D'Ancona, Evening Standard,19.10.09

What is the French for "Things Can Only Get Better"? Something, I suppose, along the lines of: "Les Choses Ne Peuvent Que S'améliorer."

Well, we will find out soon enough, when Tony Blair makes official his private campaign to be the first President of Europe and the New Labour soundbite machine goes into continental overdrive.

Brace yourself for a pan-European festival of Nineties Blairite retro: we shall doubtless hear a lot about "la main de l'histoire" settling on the former Prime Minister's shoulder and his conviction that he would indeed be "le President du Peuple".

If the very thought makes you shudder - didn't we get rid of him more than two years ago? - then blame Vaclav Klaus.

Over the weekend, the Czech President removed the last obstacle to the ratification of the Lisbon Treaty, conceding that, for all his doubts about the repackaged EU constitution, "the train has already travelled so fast and so far that I guess it will not be possible to stop it or turn it around, however much we would wish to".

And thus, with a Bohemian whimper, does it become inevitable that Lisbon will come into force across the EU's 27 member states, and with it the new European presidency that Blair covets.

The discussion of candidates is expected to begin at a Brussels summit in two weeks' time.

The former Prime Minister is by no means a shoo-in, and Angela Merkel is only the most powerful head of government to have equivocal feelings about his candidacy.

That said, he is still the runaway favourite in a relatively undistinguished field - ahead of Jan Peter Balkenende, the Dutch prime minister, and Jean-Claude Juncker, the prime minister of Luxembourg.

Unlike his successor in Number Ten, Blair is reasonably impervious to criticism. But he will have been stung by the opinion of his former chief adviser on the EU, Sir Stephen Wall, that having someone like him as Europe's President was "not necessarily a very good idea."

Better, added Sir Stephen, that the first occupant of the new office should be from a smaller member state: "I think that it would help a lot as a signal. As a unifying signal, it should be thought about."

Certainly, Blair's election would be intrinsically divisive. The co-author of the liberation of Iraq has not been forgiven by Old Europe, and is still widely scorned on the Continent as a neo-con poodle and ally of the despised George W Bush.

The structure of the electoral college - 27 states with weighted votes - is such that the winning candidate will be the product of compromise rather than enthusiasm.

As the gulf between political elites and electorates grows wider across recession-torn Europe, it is a very strange way to choose the most senior political representative of the EU.

As the peasant woman played by Terry Jones says to King Arthur in Monty Python and the Holy Grail: "Well, I didn't vote for you."

In Blair's home country, of course, the hostility to his return to grand public office, less then three years after he left Number Ten, would be much compounded by the fact that the British electorate was unforgivably denied the referendum he himself promised on the EU constitution in April 2004.

As William Hague has argued cogently, the British people's sense that the EU is all about diktats and unaccountable power will only be aggravated by the imposition upon them, without referendum or election, of President Blair.

Oddly enough, I think Blair himself is partly in agreement with the public on this score: he always wanted to dramatise his vision of Britain's role in Europe in a single great undertaking - the euro, the EU constitution - and to secure the endorsement of the British people for that vision.

I recall him looking distinctly rueful towards the end of his years in Number Ten as he reflected upon the fact that there was no "moment of reckoning" on Britain's European destiny while he was in office.

"Let the issue be put and let the battle be joined!" he told the Commons when he announced the referendum on the original EU Constitutional Treaty. But that moment never came. Blair waged many wars, but this was the war that got away.

So there is much unfinished business for Blair in all this - which helps explain why he would swap his lucrative and diverse portfolio of pursuits for the bureaucratic cemetery of Brussels.

I keep reading that President Blair, if elected, would have no powers and no authority. As if that would stop him trotting the globe, taking the lead at summits, shaking hands with his fellow President Obama as often as possible, and posturing as the political leader of 500 million Europeans.

Those who imagine that Blair would confine himself humbly to the role of spokesman for the 27 heads of government have forgotten what he is really like.

If we must have an EU President - and I don't see why we do - then the former PM is certainly the best candidate available. But be in no doubt about the consequences.

And just imagine, for a moment, what it might be like for the newly-elected Prime Minister Cameron to find himself working with and often pitted against President Blair.

It is one thing to acknowledge your respect for a past Prime Minister, as the Tory leader often does; quite another to find him storming back greedily for seconds, and generally making a nuisance of himself. Does anyone know the French for "backseat driver"?

Ireland votes Yes as Czech Republic makes final stand against Lisbon Treaty

Open Europe bulletin

On 2 October, Ireland voted in favour of ratifying the Lisbon Treaty by 67 percent to 33 percent, with turnout at 58 percent. A poll conducted a week later for the European Commission found that the most important reason cited by 51 percent of Yes voters for backing the Lisbon Treaty was that the "EU has been good for Ireland and Ireland has got a lot of benefit from the EU."

Only a small fraction of Yes voters cited specific improvements the Treaty would make to the Union - such as making it more democratic (2 percent) or ensuring the rights of citizens are better protected (3 percent) - as a factor. Only 17 percent said that the Treaty was good for the EU. It is therefore clear that the second Irish referendum was not focussed on the actual content of the Treaty. (Irish Times, 13 October)

Following that, Polish President Lech Kaczynski signed and ratified the Treaty on 10 October, and Irish President Mary McAleese signed the Irish Bill of the Treaty, formalising the Yes vote and ratifying the Treaty. (EUobserver, 10 October; PA, 16 October)

This now leaves the Czech Republic as the only member state left to ratify the Treaty, where there is a pending Constitutional Court challenge to the Treaty from a group of 17 Senators, and the Czech Constitutional Court has set a date of 27 October to hear the challenge. (EUobserver, 13 October)

Czech President Vaclav Klaus is also refusing to sign the Treaty unless the Czech Republic can secure some sort of 'opt-out' from the Charter of Fundamental Rights, fearing that the Charter could be used to make legal challenges by Sudeten Germans forced out of the region after World War II. During a walkabout last Sunday when asked not to put his name to the Treaty by a supporter, Klaus replied: "Don't worry, I won't." (Times, 13 October)

President Klaus' top aide Ladislav Jakl, has said that Klaus would not be satisfied with the type of 'guarantees' offered to Ireland before its second referendum: "This [Irish way] seems to me as an absolutely impossible way forward. The president will not be satisfied by any declaration, but only guarantees for every citizen. For him, this condition is fundamental, necessary, unbreachable." Jakl also said, "If the Czech Republic does not get the opt-out, the President will not ratify." (Times Irish Times, 12 October)

The Czech government has backed away from a confrontation with Klaus, and agreed to negotiate some sort of 'opt-out' from the Treaty, although the Czech PM Jan Fischer and other EU leaders made it clear that re-opening the ratification process in all EU member states would not be acceptable. (FT, 14 October)

The EU has sought to increase the pressure on President Klaus to sign, and it has been reported that German and French diplomats, in talks with their Czech counterparts, have explored two ways of removing the 'Klaus obstacle'. French President Nicolas Sarkozy also told Le Figaro, "Decision time is coming for him [Klaus] and it will not be without consequence...And whatever happens, this issue will be resolved by the end of the year." Commission President Barroso has also threatened the Czech Republic with the loss of their EU Commissioner, saying "If there is no Lisbon Treaty, there is no guarantee for the Czech Republic to have a commissioner." (Sunday Times, 11 October; Telegraph, 14 October; PragueMonitor, 15 October)

Conservatives refuse to elaborate on details of a referendum at Party Conference

Open Europe Bulletin

The day after the vote in Ireland, Conservative leader David Cameron sent a memo to party members saying there would be no change in policy on Europe as a result of the Irish referendum and no new announcements at the Conservative Party Conference. He said: "I have said repeatedly that I want us to have a referendum. If the Treaty is not ratified in all Member States and not in force when the election is held, and if we are elected, then we will hold a referendum on it, we will name the date of the referendum in the election campaign, we will lead the campaign for a 'No' vote. If the Treaty is ratified and in force in all Member States, we have repeatedly said we would not let matters rest there. But we have one policy at a time, and we will set out how we would proceed in those circumstances if, and only if, they happen."

There was some disagreement within the Conservative Party about the prospects for a UK referendum on the Lisbon Treaty leading up to the Conference, with London Mayor Boris Johnson calling for a referendum, saying "If we are faced with the prospect of Tony Blair suddenly emerging, suddenly pupating into an intergalactic spokesman for Europe, then I think the British people deserve a say on it." Shadow Home Affairs Minister Andrew Rosindell also called for a referendum "whatever the circumstances". (Sunday Times, 4 October)

At Open Europe's event at the Conference, entitled "What priorities for a Conservative Government in Europe", Shadow Europe Minister Mark Francois said he was "very serious" about pursuing a reform agenda even if the Treaty had come into force, for example by bringing back powers over social and employment policy. (Open Europe events, 7 October)

During his closing speech at the Conservative Party Conference, David Cameron also pledged to claw back powers, saying: "Let's work together on the things where the EU can really help, like combating climate change, fighting global poverty and spreading free and fair trade...But let's return to democratic and accountable politics [the British Parliament], the powers the EU shouldn't have." (Telegraph, 9 October)

'President' Blair waits on voters of Ireland

Philip Webster, David Charter, Roger Boyes and Charles Bremner, Times Online 2.10.09

Tony Blair is in line to be proclaimed Europe’s first president within weeks if the Irish vote “yes” in today’s referendum.

Senior British sources have told The Times that President Sarkozy has decided that Mr Blair is the best candidate and that Angela Merkel has softened her opposition.

The former Prime Minister could be ushered into the European Union’s top post at a summit on October 29.

Ms Merkel, the German Chancellor, was opposed to Mr Blair because she believed that the post should go to a country that had adopted the euro but British sources said that she may now be “biddable” if Germany and France get plum posts in the new European Commission.

German sources insisted that it was far from clear that Ms Merkel had changed her mind and there were suggestions in Paris that Mr Sarkozy was happy to be seen to be backing Mr Blair because he knew that Ms Merkel would scupper the appointment.

Mr Blair, whose claims are being advanced by ministers in London, will not enter the race unless he is certain of winning. He is wary of giving up his many other commitments, spanning business, the Middle East, climate change and his Faith Foundation.

If the Irish ratify the Lisbon treaty — the result will be declared tomorrow — only the signatures of the Polish and Czech presidents will be needed for full ratification. Warsaw is expected to come on board swiftly. President Klaus is harder to predict but diplomatic sources expect him to agree quickly, possibly after receiving a sweetener from Germany.

The decision presents a dilemma for the Conservatives, whose conference takes place next week. David Cameron remains committed to a referendum on the treaty. He has declined to say what he would do if the treaty were ratified before the general election.

Despite pressure from Eurosceptics, he would be unlikely to hold a referendum if he came to power after ratification, which would mean renegotiating Britain’s relationship with the EU, but a Europe with Mr Blair at its head would worry Tories even more.

Ms Merkel has touted Jean-Claude Juncker, of Luxembourg, for the role, but the backroom dealer would hardly set European pulses racing. It is understood that President Sarkozy proposed Felipe González, of Spain, privately to Ms Merkel, but that she was suspicious of endorsing the Socialist.

Ireland's EU referendum is the last stand against the 'project'

Brussels has pulled out all the stops to get a Yes from the Irish, says Christopher Booker.

By Christopher Booker, Sunday Telegraph, 26 Sep 2009

This week, when the Irish have a second chance to vote "Yes" to the Lisbon treaty, might just mark the beginning of the end for one of the more degrading and long-drawn-out farces of recent times – the eight-year-long battle to unite "Europe" under a single political constitution.

Short of Karzai-style stuffing of the ballot boxes, the European and Irish political establishments could scarcely have done more to push this second Irish referendum in the way they want. To ensure a "Yes" vote, all the normal rules governing balanced media coverage were suspended. The European Commission has poured €1.5 million into an unprecedented advertising blitz. EU commissioners, led by President Jose-Manuel Barroso, MEPs and officials have been flooding in to promote the cause. However, when one or two British outsiders – including Nigel Farage, leader of a group in the European Parliament, and Lorraine Mullally, director of the think-tank Open Europe, and of good Irish stock – came over to campaign for a "No" vote, their "foreign intervention" was greeted by orchestrated howls of abuse.

The question inevitably aroused by such startling behaviour is why has the political class of "Europe" been so desperate to get its way over this treaty? It was back in December 2001 that the EU's leaders met at Laeken in Belgium to agree that, to "bring Europe closer to its peoples" and to make it more "democratic", the EU should, like any aspiring state, be given a constitution. This was to be the consummation of the central driving force of the "European project" – the drive to place the nation states of Europe under an entirely new form of supra-national government. As long ago as 1957, the original Treaty of Rome put together what was always intended to be the embryo of a "government for Europe", as Jean Monnet put it.

Treaty by treaty, without most people recognising its true underlying agenda – and leaving the nation states and their institutions in place as if nothing too dramatic was happening – this new government gradually took over the powers of national parliaments. It already decides far more of our laws and how we are governed than any mainstream politician ever dares admit.

In 2001, however, the EU's leaders decided the moment had at last arrived for their project to come out in the open. It was ready to take its place on the world stage as a sovereign power in its own right, complete with president, foreign minister, currency, armed forces and all the attributes of a fully-fledged state. What was needed above all to mark this historic step was a constitution.

A puppet convention spent two years drafting the constitution they wanted, and in 2004, after a further year of bickering about details, it was unveiled – on the assumption that its acceptance by the peoples of Europe would be little more than a formality. But in 2005 the French and Dutch had the audacity to say "No". Faced with the most serious reverse the project had ever suffered, the EU's leaders went into catatonic shock.

Their eventual solution, of course, was simply to repackage the constitution as if it were just another of those treaties, ensuring that they would not repeat the mistake of allowing mere voters to turn it down. The only country under whose own constitution a referendum was unavoidable – because it would lose so much more of its power to govern itself – was little Ireland. And of course, in June last year, to the horror of the "European" political class, the Irish again said "No", pushing the constitution back into limbo.

This was simply not in the script. Inevitably the EU's leaders pulled out all the stops to ensure that the Irish were whipped into line. The stakes were too high to contemplate anything else. So next Thursday, those who now rule over us are trusting that, after eight tortuous years, they will at last be on the verge of getting the new state and form of government they have wanted all along.

Curiously, all this was foreshadowed nearly 70 years ago by one of the two men who, more than any others, were responsible for creating the government we now live under. Altiero Spinelli, an Italian Communist sitting in a Fascist jail, sketched out how, in order to build a new United States of Europe after the Second World War, it would be necessary to piece together the new form of government gradually over many years without explaining its ultimate aim.The day would come, however, when enough of it had been assembled and a convention could be summoned to draft, as its "crowning glory", a constitution. At last, said Spinelli, the peoples of Europe would see what had been done in their name and would greet it with "acclamation".

Many years later, as Richard North and I described in our book The Great Deception, Spinelli would in effect be the posthumous father of the Maastricht Treaty on European Union, giving his name to the vast office block in Brussels which houses the European Parliament. Other than Jean Monnet, no visionary did more to shape the way the "project" was to develop through the 50 years after the war.

The only lacuna in Spinelli's vision was that, when the peoples of Europe were presented with that constitution, they failed to acclaim it as the "crowning glory" he predicted. As they were by now at least dimly aware, what was offered them was no more than a hugely cumbersome, inefficient, corrupt and remote form of government, riddled with dishonesty and wholly undemocratic, which they could never again call to account.

On Thursday the voters of Ireland will be the last in Europe with a chance to say "No" to the political class which now rules over us – thanks to what has amounted to the most extraordinary slow-motion coup d'état in history

EU president's palace will cost us millions

The new folly in Brussels will cost UK taxpayers millions of pounds, says Christopher Booker.

Sunday Telegraph, 26 Sep 2009

The EU, we learn. is to spend £280 million building a vast new presidential palace in Brussels for Tony Blair, or whoever becomes the EU's first permanent president, if and when its constitution is ratified. Nearly £40 million of the money needed to erect this bizarre avant-garde creation, looking like a gigantic skittle in a glass box, will come from UK taxpayers.

Curiously, this almost equates to the £40 million we are told the Queen needs for urgent repairs on several of her increasingly dilapidated Royal palaces here in Britain. Her Majesty is so desperate to raise the money that she is having to sell off chunks of the Royal estate, starting with the Hampton Court stables, for which she hopes to get £2 million.

As it happens, £40 million is also the sum of our money the Government happily pays to Brussels every day of the year for the privilege of belonging to the EU. So chipping in another £40 million for the EU's presidential palace will scarcely be noticed. But at least it shows clearly where the priorities of those who govern us now lie.

Our opinions on Europe have been ignored for too long

Telegraph View: the EU has become a vast, bureaucratic, unaccountable empire whose remit runs way beyond policing the common market.

25 Sep 2009

For the past fortnight, we have carried a landmark series of articles under the title "The State of Europe". This was a deliberately ambiguous term. Europe, after all, is not a state, even if it is gradually acquiring the trappings of one: a single currency, a central bank, no internal frontiers, a supreme court, a parliament, an executive in the form of the Council of Ministers and a bureaucracy in the shape of the European Commission. Britain remains half in and half out of the EU to which other member states subscribe, largely because our political leaders, over the years, have recognised that the country does not want to go further.

Next Friday, Ireland will hold a referendum, its second, on whether or not to ratify the Treaty of Lisbon, which marks another step on the road to the "ever closer union" envisaged in the Treaty of Rome. If the Irish vote yes, as it is predicted they will, only Poland and the Czech Republic will be left. It is likely, though by no means certain, that the treaty will be in force by the time British voters go to the polls next year in a general election.

Where will this leave the United Kingdom? Our Parliament has ratified Lisbon, but our people haven't. Yes, we live in a parliamentary democracy and rely upon our elected representatives to make important decisions for us. But that is because they have usually been put to the country in a party manifesto. At the last election, however, this matter was hardly discussed by the main parties, for one very good reason: they were each promising a referendum on what was then the EU constitution. Since the country was going to have that debate separately, there was no need to raise the issue in the campaign.

In the event, we were not given a say about this crucial moment in the EU's development: the constitution was rejected by popular votes in France and the Netherlands, only to be recast into the Lisbon Treaty, on which only Ireland among the 27 member states held a referendum. When it said no, it was prevailed upon to think again. Europe's grand designers are happy with any answer, so long as it is yes.

The way this has been done is, in itself, part of the central problem many of us have with the EU: its democratic deficit. This has, in turn, contributed to a disenchantment with politics and politicians that is unhealthy, playing into the hands of extremists here and elsewhere. It has turned the institution, to which we have belonged for almost 40 years now, into something to be endured. How many of those who would call themselves Europhiles routinely make a positive case for membership?

Our series has confirmed that we remain, as a nation, largely sceptical about Europe. We resent its intrusions and regulations and its cost. A YouGov poll we commissioned suggested that more than half of us either want a less integrated Europe, with the EU becoming little more than a free trade area, or would like to get out altogether. Nearly 60 per cent want the referendum on the Lisbon Treaty promised by Labour and the Conservatives, even if ratification has been completed before the next election. Labour has made its position clear and will not offer one; but what of the Tories? As William Hague tells Benedict Brogan elsewhere in today's paper, if the treaty has not been ratified by the time they take office, there will be a referendum "within months". And if it has been? They will deal with the eventuality when it arises.

This is not a satisfactory position, though it is one from which the Tories will not be budged. But while this is clearly a difficult decision, it should be straightforward: a referendum has been promised and one should be held, whether or not Lisbon has been ratified. It need not be, and in our view should not be, an "in or out" decision, though no doubt it will be portrayed as such by those who wish to deny the people a say. But why are they so unwilling to engage in a debate, and so pessimistic about their prospects of winning it? If our future lies within the EU, it is surely right that, for the first time since 1975, we as a nation have the debate long denied to us – whether through a referendum or in another national forum – about how we want it to look and what our role should be within it.

Indeed, one of the reasons for running this series has been to do what our political parties hardly ever do themselves: consider the workings of the EU machine and the problems that confront it. We have been reminded that the EU's origins lay in the rubble of the Second World War and in a laudable desire to develop an association in which free people could trade and thrive together after centuries of political tensions and catastrophic warfare.

But the EU has become a vast, bureaucratic, unaccountable empire whose remit runs way beyond policing the common market. Its policies are made in secret, then insufficiently scrutinised in Brussels or national capitals. Yet its directives and regulations affect the lives of half a billion people. It is time we were asked what we think about it.

William Hague on the Lisbon Treaty: the EU question that goes unanswered

In the final part of our series, William Hague tells Benedict Brogan exactly where the Tories stand on the Lisbon Treaty

By Benedict Brogan, Telegraph, 26 Sep 2009

For the next hour at least, I am to the right of William Hague. Or rather, he is specific about where I should sit. He likes to face right for interviews, as he does for most things. At the close of the Telegraph's landmark series on Europe – he says he can't remember one like it – the shadow foreign secretary is in table-thumping, "read my lips" mood about Conservative policy on the Lisbon Treaty: there will be a referendum.

Hang on. That should read: there will be a referendum, but only if the treaty is not ratified by all 26 other European countries before the general election. If, however, the treaty has been approved before polling day, then… you will just have to wait and see what happens.

That, in a paragraph, is the Tory line on this particular European issue. And if you find it confusing, you are not alone. It is a holding policy. Neither Mr Hague nor David Cameron will say what they will do if, as so many expect, ratification of the treaty is completed before we go to the polls next spring. This uncertainty hangs heavy over the party as it gathers in Manchester next week. He denies ever saying it, but the idea that Lisbon is a "ticking timebomb" under the Tories is a view shared privately by many of his colleagues.

All Mr Hague will say when we meet is that we should make no mistake about the leadership's resolve. They promised a referendum, and democracy must be respected. If the treaty is ratified before the election, he and the Tory leader will issue an immediate statement setting out the way forward. It is being drafted even now.

When it comes, we will be left in no doubt that they mean business, he says. Anyone who assumes otherwise "is making a serious error". To underscore the point, he reminds us that he and Mr Cameron defied the sceptics and delivered their pledge to create a new group in the European parliament.

To those who question his resolve, or Mr Cameron's, he says: "People often say 'do you really mean it?'. Well, yes, we do really mean it. We have shown we do mean what we say. We choose our words carefully and we do mean what we say." He points to the decision to withdraw British MEPs from the dominant EPP block in the European parliament as proof that "we will do what we say we are going to do, despite scepticism that we can do things or that we mean things".

Pulling out of the EPP to form a new group was a promise to the Tory Right that helped secure Mr Cameron the leadership in 2005. Far from marginalising the Tories in Strasbourg, they now have more influence, including a coordinator seat on the Economic and Monetary Affairs Committee, and the chairmanship of the Internal Market Committee.

Mr Hague wants proponents of the treaty to accept that ratification before Britain votes is no longer the certainty it once was. The Czech Republic has just launched a constitutional review of the treaty that may take six months at least; Poland has yet to ratify; and while a "yes" vote in next week's Irish referendum seems likely, it is not guaranteed. It is for the promoters of the European constitution to say what they would do if at the 11th hour it is killed stone dead by a resounding "no".

In a few months' time, Mr Hague may find himself in charge of British diplomacy. British diplomats told the Telegraph last week that Conservative policy on Europe risked diminishing our influence on the world stage.

His reply is polite but terse: "Our policy won't ever be made for the convenience of diplomats, let's be clear about that, good hard-working public servants though they are." But is the Foreign Office, as some suggest, culturally wedded to Europe? To a degree, yes.

"I wouldn't want to exaggerate it because when you say the Foreign Office, you are talking about thousands of people. I have a very high opinion of the Foreign Office and of the Civil Service, because they are very responsive to ministers who know what they want." Without direction, though, they can choose the path of "least resistance", as happened with the Lisbon Treaty.

For the moment Mr Hague has no direction to offer on the questions that remain unanswered: will there be a referendum come what may? And if there is, will it boil down to a choice between staying in the EU or pulling out altogether? His opponents insist it would, and argue that the 26 other members would refuse to renegotiate a treaty in order to keep Britain happy, leaving a Conservative government with few options.

Mr Hague will not answer the question. Until we know the fate of the treaty, it is all too hypothetical. Such talk, he says, smacks of the kind of bullying that has forced Ireland to hold a second vote after rejecting the treaty last year.

"Clearly, there are quite a few uncertainties remaining. We hope we will come to a general election with the treaty unratified, of course we do. We think it is bad for Britain in the long term and we want to give the British people their say. The assumption that it's all over now on the treaty is a rash one," he says.

"We can only have one policy at a time, you know. This is our policy in this situation. The treaty has not been ratified by all 27 nations and in that situation a Conservative government elected at the next general election will hold as an immediate priority a referendum. I have asked the Foreign Office to have a referendum bill ready immediately after the election." A referendum would be held "within a few months".

Ireland votes next Friday, days before the Tory conference opens in Manchester. Mr Hague has a message for any colleagues planning trouble. "It is important to be clear. As we can only have one policy at a time, there will be no new announcement, no departure from that in Manchester, whatever the result of the Irish referendum."

But if in the coming months all other obstacles are cleared and the treaty comes into force, Mr Cameron will not wait any longer. "We would set out what we would do in that contingency and it would be in our manifesto to seek a mandate for it. And those people who say, 'Oh, well, let's pack the whole thing in now', would be making a serious error."

What is evident is that he is unable to give a clear commitment that we will get a referendum, come what may. Whichever way you package the question, he bats it away. All he has is "a policy for the current circumstances", adding: "I won't concede defeat ahead of any subsequent events."

But is he really prepared to see Europe dominate the first year of a Cameron administration, at a time when all energies should be focused on the economy and the public finances? "True, the prime focus of Conservative government must be a return to economic health. But that does not mean we do not have time for democracy. This is a democratic country whose people were promised a referendum. We will always make time for the people to have their say."

Mr Hague has been giving thought to Europe's wider predicament. Advocates say its value is as an economic block to rival the United States and China. But he points out that its share of global GDP is, by the Commission's own admission, going to shrink over time. In a world increasingly made up of overlapping networks, the premium is on nations that encourage enterprise and educate their citizens.

But there is no safety in numbers. "We should never be bullied by this idea that because the world is going into powerful blocks, which it isn't, that we have to give up more and more control of our own affairs. This is going to be an age of a networked world, of nations showing flexibility to adapt to changing trends, where democracy is highly valued by countries that have enjoyed it, and taking powers to remote institutions will only be resented by people."

Take the European ruling that employers could have to compensate workers for sick time on holidays: "It might be a good idea or a bad idea but it should be decided here in Britain. That is the sort of freedom that we need to have back for the future."

As Tory leader, Mr Hague championed resistance to further European integration and the single currency. Have his views evolved since then? Some whisper that in private he is far more hardline, an "outer" who would happily see the UK withdraw from the EU.

"No, that's not the case, no, no, no, no, no. I'm a very straightforward person. I believe it is in our national interest to be in the EU but it's not in our national interest to lose ever more of our democratic rights to run our own affairs to the EU. And there's no contradiction between those things. In 1999 my slogan was 'In Europe not run by Europe' and that, in six words, is what I really do believe in."

What is so awful about asking the people of a country how they wish to be ruled and by whom, asks Nigel Farage.

José Barroso, president of the European Commission, has told us that the reason for the European Union is to stop Germany invading France. Again. Now Berlin has realised that Paris is not worth the bones of a single Pomeranian Grenadier, that's dealt with, so what reason for the EU's continuation can there be?

Quite, there isn't one, but as ever with bureaucracies and political structures, the expiry of their reason for existence never means the expiry of their existence.

The unanswered EU question What we thought, what we were told, we were joining all those years ago – a Common Market to open up the markets and riches of Europe to us and our trade – has become an over-arching government. One that has taken to itself the powers to determine how we may light our living rooms, how many hours we may legally work and even where we may put our rubbish. Our own Parliament at Westminster has become a mere county council, enacting by rote decisions made elsewhere.

Tony Benn's questions about power have uncomfortable answers when we ask them of the EU. "What power do you have? How? For whom? With what limits and how do we get rid of you?" To which the answers are: "Too much, they took it, themselves, very few and we can't".

That isn't the set of answers that we want to have in a democracy or a free and pleasant land. At the very minimum, we need to be able to take powers back, exercise them for ourselves and, most importantly, we have to be able to get rid of those in power in some manner, all of which are extremely difficult at present.

The passage of the Lisbon Treaty will make them impossible in theory, let alone in practice. For the treaty becomes self-amending: never again will it be necessary to put the collation of ever more power into Brussels to the popular vote. Not that the results of such previous queries have been listened to; no one listened to the rejection by the French, by the Dutch and no one is listening now to the Irish rejection. Every time the people have insisted on a halt to integration, they have been force-fed yet more, as if they are silly geese who really ought to want to be foie gras.

This is just one of the reasons why we in the UK should have a referendum, a proper one. No one under the age of 52 has been able to vote on the great issue: should we be part of this system or not? If we don't have one now, while Lisbon remains under discussion, we never will be asked such a question.

David Cameron's attitude is terribly confusing: if everyone else signs up then he'll do some things, though he knows not what they'll be. Why doesn't he just halt the whole process in its tracks? Say that whatever happens elsewhere, the British people will be given a referendum? Or would he really prefer to run that county council than be prime minister of a free, independent country?

Let's be serious about this, sensible: what is so awful about asking the people of a country how they wish to be ruled and by whom? It shouldn't have to be us in Ukip alone arguing this, it should be something demanded by every Briton as of right. It's our country and we'll decide what happens to it, thank you very much, and woe betide the politician who denies us that.

Nigel Farage is leader of the UK Independence Party and an MEP for the South East

US-China relationship marginalises Europe

A disunited continent carries little economic or political clout in the Chinese corridors of power, writes Peter Foster in Beijing.

Telegraph, 23 Sep 2009

When the Chinese premier Wen Jiabao travelled to Prague last May to address the EU-China trade summit, he spoke of the need for China and Europe to “strengthen confidence, deepen co-operation and continue to forge ahead hand in hand”.

Unfortunately Mr Wen’s diplomatic niceties could not mask the reality that Europe’s relations with China have deteriorated markedly over the past five years, with worrying consequences for Europe’s ability to project and defend its collective interests on the world stage.

Already strained by a mounting trade deficit, by the 2005 “bra wars”, in which millions of Chinese textile products were blocked at EU ports, and by human rights issues, the relationship reached its nadir last December when China cancelled the previous EU-China summit in protest at the French president Nicolas Sarkozy’s decision to meet the Dalai Lama.

The Chinese action, as a recent European Council for Foreign Affairs paper on relations with China observed, displayed the “diplomatic contempt” with which China now treats the EU, notwithstanding its status as China’s single largest trading partner.

As recently as 2003, when China released its first policy paper on Europe, the Chinese state media was talking of a “honeymoon” period with Europe, but over the past six years the hoped-for marriage of mutual interests has soured into destructive rounds of squabbling and recrimination.

Analysts point to several key events in the fraying of relations, starting in 2005 when Europe looked set to lift an arms embargo imposed after the 1989 Tiananmen Square massacre and then back-tracked at the 11th hour under pressure from the US.

The incident rankled deeply with Beijing and damaged Europe’s credibility with China, says Professor Feng Zhongping, head of the European section of the China Institute of Contemporary International Relations and a highly influential Chinese analyst on European affairs.

The row over the arms embargo also coincided with rising anti-China sentiment among Europe’s public and parliaments, fuelled by the flood of cheap imports and Chinese protectionism which created a trade deficit with China that Peter Mandelson, then trade commissioner, famously calculated was rising at “15 million euros an hour”.

In October 2006 discontent with China took on official form when the European Commission published an official “Communication” that included 21 demands for China to open its markets, improve human rights and become a responsible actor in world affairs.

“The Communication deeply antagonised Beijing,” says Professor David Shambaugh, director of the China Policy Programme at George Washington University, “and since then it’s fair to say that the atmosphere between China and Europe has not been good.”

The result, from a Chinese perspective, has been to view Europe as an increasingly divided and enfeebled entity, unable to negotiate with one voice and rapidly being overshadowed by a burgeoning US-China relationship. “Europe is obviously the original model of co-operation and has played a very important role since World War Two in world affairs, but Europe is in comparative decline now and on many key issues you can’t hear Europeans really contributing,” says Professor Feng.

“On many issues Europe only talks, but does not take much action. It’s not the EU’s fault because European soft power only goes so far. Europe is not its own country. It doesn’t have a military, a foreign policy or a president, and even if it did, it would not be the same as an American president. To say 'let’s work with Europe’ is really an empty slogan.’”

Faced with a divided Europe, China has in recent years focused its dealings on country-to-country negotiations, setting up a strategic economic dialogue with the UK, a status that France and Germany are also now seeking.

“Brussels is losing importance: we must go back to the capitals, who make the decisions, speak to member states, even on trade,” says Professor Feng.

Unfortunately, argue supporters of a more coherent engagement of China by Europe, the effect has been to weaken Europe’s collective ability to win concessions, whether on human rights or the perennial irritant of Chinese protectionism.

“Weakness at the European level allows the Chinese to pick off member states one by one,” says Professor Shambaugh, “To borrow the Chinese phrase 'yi yi zhi yi’, it’s a case of 'let the barbarians rule the barbarians’, or as the British say, 'divide and rule’.”

Division has also weakened attempts to get China to conform on human rights, an issue that provokes irritation and cynicism in Beijing, which sees European countries using the issue as a stick with which, selectively, to beat China. “Why was human rights not an issue for Chirac or Schroeder, but now for Merkel and Sarkozy it is?” asks Professor Feng, “One day Europe will realise that the Chinese human rights issue is improving every day and only China can improve the issue. The EU can’t help much in this.”

Despite all the official-level engagement – some 450 delegations visit China every year – the failure to win significant concessions is provoking an intense debate in the think tanks and chancelleries of Europe on how to revitalise the relationship. Supporters of the Lisbon Treaty argue that the creation of a European president and “High Representative” for foreign affairs are essential if Europe is to avoid being further marginalised by the US-China relationship.

The hope is to replace talk of a “G2” – America and China – with a “G3” in which Europe becomes a vital third-party in the shaping of a new, multi-polar world.

More hardline voices, who also support ratifying Lisbon, are calling for Europe to get tougher with the Chinese, adopting a policy of reciprocal – as opposed to unconditional – engagement, which would see Europe withholding access to markets and officials until China gave ground on fundamental issues.

Other suggestions include the creation of a European bond market to spur Chinese investment in Europe and the creation of a strategic policy framework to help Europe decide on how to manage the political implications of much-needed investment in Europe by the Chinese state and state-run enterprises.

Equally as important, say many analysts, will be massive Europe-wide investment in Chinese studies to make up for the EU’s comparative dearth of China expertise and language skills, which is seriously hampering the Commission’s ability to deal effectively with China.

But none of these suggestions can overcome the fundamental weakness in the EU-China relationship which was characterised by one think tank as a game of chess, with China on one side and 27 opponents on the other, all crowding the board and squabbling about which piece to move.

Sweeping new powers could see Brussels seize control of City

The European Commission has unveiled sweeping proposals for a trio of EU financial regulators that shift ultimate control over the City of London from the British authorities to Brussels for the first time, and may allow policy on bank bail-outs may be decided by EU vote.

By Ambrose Evans-Pritchard, YTelegraph Business, 23 Sep 2009

The plans disregard findings by the Lord's European Union Committee that a fresh treaty amendment may be required for such an increase in EU power. Both the Lords and German legal scholars say the EU may have over-stepped the mark by trying to push through the proposals under single market law (Article 95) by qualified majority vote, which strips states of their veto.

The three authorities are to cover banking; insurance and pensions; securities and markets. They will have "binding powers" to impose rulings on Britain's Financial Services Authority and fellow regulators, and will be backed by full-time staff with a budget of €68m.

The European Central Bank will head a new European Systemic Risk Board (ESRB) to provide early warning of financial crises. It will operate through "moral pressure", requiring states to "explain" reckless policies.

Charlie McCreevy, the single market commissioner, said the package of measures was rushed through at the "speed of light" in order to remedy serious flaws in Europe's banking system and to "prevent future financial crises".

The proposals require the assent of EU governments, by majority vote. City Minister Lord Myners said the UK would "study the proposals carefully" to ensure that they conform with the deal struck at the EU summit in June. Germany also has concerns about the creation of bodies with "binding powers".

Mr McCreevy, an Irish Thatcherite who has tried to rein in the more extreme demands from the French government, said there was likely to be "heavy discussion" by ministers and Euro MPs before the plans ever become law.

The think-tank Open Europe said the proposals give Brussels the final say on delicate issues such as the need to recapitalise banks or ban short-selling. The EU would have wide powers to take action in "emergency cases".

The voting structure would make it hard for any future government to defend the City against policies deemed harmful. "Key decisions will be taken on a "one-state, one-vote basis', meaning that the UK will have the same influence as countries which have barely any financial sector at all," said Mats Persson, Open Europe's director.

Britain's member on each body will be "under a legal obligation to consider only EU interests, not national or any other interests". While there is a "safeguard" clause allowing states to appeal if decisions "impinge on fiscal sovereignty" (budgets), rulings would be made by a vote of EU finance ministers. This raises the voting bar slightly, but Britain would struggle to find enough allies to stop proposals that might threaten the lifeblood of the UK economy.

Open Europe said the separate EU directive on hedge funds and private equity would cost up to €1.9bn for compliance in the first year, followed by about €700m each year thereafter. The UK would bear the brunt since it hosts 80pc of Europe's hedge funds. The UK has not conducted its own impact assessment, in breach of Treasury guidelines.

The EU is hardly value for money

Telegraph View: The increase in our contribution to the EU's coffers comes at the worst possible time, when tax receipts are falling and Government spending is increasing.

Telegraph, 22 Aug 2009

Thanks to some feeble negotiation by Tony Blair in 2005, Britain's net contribution to the EU – the amount we contribute minus the amount we receive in terms of grants and rebates – is going to increase by more than £2 billion next year. Having sworn that he would "not negotiate [the UK's rebate] away", Mr Blair proceeded to precisely that. His action was endorsed by the then chancellor, Gordon Brown. The justification for the deal was the one trotted out so often when Britain makes concessions to the EU: our partners would resent it if we did not give in, and if we did, they would reciprocate with concessions of comparable generosity.

In this case, the quid pro quo was supposed to be that the French would reform the hideously wasteful system of agricultural subsidies. Has that happened? No. Is there any evidence that it will happen? No. Britain, once again, appears to have been suckered into making unilateral concessions without any reciprocal gestures from other EU members.

Irish punters start to bet on "No" for Lisbon

Bookmaker Paddy Power has cut the odds on a "No" vote in a second Irish referendum on the European Union's Lisbon treaty after a flow of punters gambled on another defeat, a spokeswoman said on Friday.

Irish voters, representing less than 1 percent of the 27-nation bloc's population, will once again decide the fate of the charter on October 2 after their shock rejection last year delayed its reforms, which are designed to streamline the EU's decision-making and give it a stronger voice in world affairs.

The most recent opinion poll, published in early June, showed 54 percent of respondents backed the treaty but last year surveys also showed a majority in favour until a few weeks before the referendum.

"We have seen a shift towards the 'No' side in the last couple of weeks and it appears our punters think things could be just as tight second time around," Sharon McHugh, a spokeswoman for Paddy Power, said.

Germany is expected to ratify the charter before elections on September 27 but Poland and the Czech Republic have said they will wait until Ireland approves the treaty before they endorse it.

The Irish government is hoping that concessions wrung from Brussels, fears of isolation during a global recession and a vigorous "Yes" campaign will swing them the vote.

So far, much of the impetus for the "Yes" side has come from civil society and business groups with little government campaigning.

Opponents of the treaty, who include disparate groups from the left and right, formally launched their campaign earlier this week, arguing the charter would leave workers worse off.

Germany's rapid recovery might be a mirage

Europe has only delayed the pain, says Jeremy Warner.

By Jeremy Warner, Telegraph,14 Aug 2009

Forget the football pitch – there's nothing quite like quarterly growth statistics to bring out the latent nationalism of Europeans. News this week that the French and German economies grew by 0.3 per cent in the second quarter, against a contraction of 0.8 per cent in the UK, had Christine Lagarde, the French finance minister, positively crowing with delight.

Breaking short her holiday to pre-announce the news on the radio, she declared that "France is distinguishing itself clearly from its neighbours". In cautious, Teutonic manner, the German economics minister, Karl-Theodor zu Guttenberg, was less inclined to uncork the Riesling, yet even he could barely disguise his sense of national pride.

The two core eurozone nations seem to be confounding their critics by leading the developed world out of recession. Is this a final vindication of the European economic and social model, or a short-lived breakaway from the main body of the economic peleton, in which everyone ultimately grinds along at the same miserable pace?

I generalise grotesquely, but the Franco-German view of the economic crisis can be characterised as follows: reckless Anglo-Saxon traders in New York and London caused a breakdown in the financial system, which resulted in a collapse in confidence and a freezing up in world trade. The consequent "export shock" led to a global recession that affected surplus and deficit nations in equal measure. Yet this was always just a temporary aberration, which is why France and Germany put in place extraordinarily costly schemes to support key industries and workforces through the downturn. Eventually, things will stabilise and world trade will return to normal.

The latest GDP statistics seem to provide support for this view. After the extraordinary fall in the first quarter, as firms slashed their inventories, the German economy has come bouncing back, with France, which had a far less pronounced downturn in the first place, hanging on to its coat tails. Many of the problems in financing trade associated with the credit crunch have eased, and industrial production has resumed, helping economies such as Germany, which rely on exports. In contrast, Britain remains stuck in a mire entirely of its own making. Undue exposure to credit-fuelled consumption, financial services and an unsustainable housing boom means that the pain of the downturn necessarily has to be longer and more intense.

I said that this was a grotesque caricature, but there is plainly some truth in the analysis. Attempts by our leaders to paint Britain as somehow better placed to weather the storm, and their policy response as innately superior, always did look ridiculous. Yet the downturn has also exposed a weakness in the German model: its undue reliance on overseas markets.

It may be true that the US and UK economies have been grossly mismanaged. Unfortunately for Germany, it has been as badly affected by these mistakes as the countries that made them. It might be up at the moment, but the scale of the downturn in the first quarter was much deeper than in the UK and US. When all is said and done, the long-term impact of the recession on the major developed economies is likely to be broadly similar.

Furthermore, in attempting to revive growth, Germany relied just as heavily on the "crass Keynsianism" it mocked in others, with a fiscal stimulus which was actually bigger than Britain's. Fiscal constraints mean that many of Germany's measures – such as car scrappage and wage subsidy – must soon come to an end. And just as the "cash for clunkers" scheme may only have brought forward demand, rather than permanently boosting it, wage subsidy may only have delayed inevitable closures and job losses.

At least some of Germany's "recovery" may have been achieved at the expense of peripheral eurozone nations such as Italy, Ireland and Spain. In characteristically disciplined manner, Germany has used the downturn to make its industries more competitive, with real reductions in wages. Prior to the introduction of the euro, this enhanced competitiveness would have been countered by a stronger currency, but today there is no such relief mechanism. Germany has been free-riding on the back of a system of fixed exchange rates, which makes its own economy ever more competitive against its enfeebled, debt-fuelled neighbours. These tensions are by no means specific to the eurozone – they are symbolic of a wider divide between surplus and deficit nations underpinned by currency pegs. The trade and capital imbalances this generates are a root cause of the present crisis, yet little attempt is being made to correct them.

I don't want to over-egg the case against the surplus nations and make it sound as if it is all their fault. Germany's demographics perhaps demand a higher level of savings to finance an ageing population, as do Japan's and China's. Yet the process has gone too far. Just as the deficit nations need radically to reshape their economies to mitigate these imbalances, so too do the big surplus nations.

The interesting thing is that, despite its sins, Britain, with its more flexible labour markets and floating exchange rate, may stand a better chance of achieving the necessary adjustment.

Iceland's krona proves the magic wand as Europe ails

Iceland's krona is working its magic cure. Well-heeled Japanese tourists – once a rarity – can be seen these days sampling halibut at Reykjavik's Siggi Hall, or buying Gymur jackets at the 66°North store on Bankastraeti.

By Ambrose Evans-Pritchard, Telegraph Business, 26 Jul 2009

The krona has fallen by half against the euro since the `New Viking' trio of Landsbanki, Glitnir, and Kaupthing strayed out of their depth and brought down Iceland's financial system.

Nothing is cheap, but prices have come within reach. Reykjavik's cafés are packed with euro-youth, at last able to afford a taste of all-night dancing at this Arctic Ibiza.

Out in Iceland's Eastern fjords, Alcoa has raised aluminium production to record levels – and metal matters as much as fish for exports.

"The smelters are running full speed," said the new-broom finance minister, Steingrimur Sigfusson. So is Mr Sigfusson himself. Last week he launched three new banks on the ruins of the old. Normality is returning. "We are going to get through this better than feared. We're feeling real activity in the economy, and much of this comes from a favourable exchange rate," said Mr Sigfusson.

Iceland's great lurch towards casino capitalism over the last decade has a cultural logic. "We are a fishing culture: when the herring is there, we take it," said Andri Snaer Magnason, author of `Dreamland: A Self-Help Manual for a Frightened Nation'.

In one sense it was a terrifying shock for the 310,000 inhabitants of this Norse-Celtic outpost of lava rock to see their currency, banks, and global image crash in a single week last autumn. Yet nothing has really changed.

"Everything still feels normal. The services of the state are intact. The swimming pool is open. You can still have a decent heart attack in Iceland," said Mr Magnason.

"Friends who lost jobs in banking have already found new work, and you could say the krona has worked as a buffer for us. We all went down together, and that has led to healthier recession without mass unemployment."

The jobless rate has risen to 9.1pc. This is below the eurozone average of 9.5pc, and is stabilising much earlier.

Those who point to Iceland as a scarecrow exhibit of what happens to a small country caught in a financial storm without the shield of euro membership have the matter backwards, as will become ever clearer over the next two years.

The OECD expects Iceland's economy to shrink 7pc this year. This is much better than Ireland at minus 9.8pc, and recovery will come sooner. So next time you hear the Sacra Congregatio of the euro faith incant yet again that EMU saved Ireland from a terrible fate, know that they deceive only themselves.

You take your punishment early with devaluation, as Britain did on leaving Gold in 1931, or ending the D-mark torture in 1992, or now. You look a sorry sight at first, but sweet vindication comes later.

It is those caught in a deflation trap with fixed exchange rates that face slow asphyxiation, and deeper social damage. Youth unemployment is already 34pc in Spain, 28pc in Latvia, 25pc in Italy, 24pc in Greece, and rising.

At Iceland's central bank – mercifully, no longer listed beside al Qaeda as a terrorist body by UK authorities – Governor Svein Harald Oygard says currency therapy is working as it should. "If you lean back and look you can see that fall of the krona accentuated the shock at first, but it is also now working as a turbocharger for recovery.

"We've seen a strong hit on wealth and asset values, but the story for real economy is very different."

Devaluation is always double-edged. Some 13pc of households in Iceland hold mortgages in euros, Swiss francs, or God forbid, yen. Their debt levels doubled overnight.

Some 70pc of corporate loans are in foreign currencies. Exporters are hedged. Those that earn in krona are not, and a "large number" are now in dire straits.

The Governor is a Norwegian who cut his teeth in the Oslo banking crisis of the early 1990s. He was brought in as a troubleshooter after the last crew was literally banged out of the Sedlabanki by the Saucepan Revolution in February.

With justifiable pride, he showed me the latest trade figures. Iceland has defied the global shipping crash to eke out an 11pc rise in exports over the last year. Even China has seen a fall of 21pc.

Iceland will be back in surplus by next year, from a peak deficit of 25pc of GDP. You could say the same about Latvia, which has stuck to its euro peg under orders from Brussels. But there is a big difference.

Latvia is balancing its books by crushing demand. Exports are down 28pc, but imports are down even more. The result of this Stone Age policy is economic contraction of 18pc this year, and 4pc in 2010 (state data).

Icelanders have taken a hit, of course. Unions have accepted 'real' wage cuts of 10pc. Health care and welfare is being cut 5pc, education 7pc, and the rest 10pc. This is comparable to what is happening in Ireland, but again there is a difference. Dublin faces a Sysphean task as collapsing tax revenues force ever deeper austerity: Reykjavik is over the worst.

It baffles me why rating agencies still talk of downgrading Iceland's debt to junk. The country should emerge with public debt of 80pc to 100pc of GDP – much like Britain. Yet Iceland also has the world's best-funded pension system at 120pc of GDP. It is the two together that counts.

In their angst, Icelanders look wistfully at the apparent safe port of EU membership. The Althingi has voted to start entry talks. But the storm will have blown over well before an EU referendum is held in two or three years. By then the delayed cluster bomb of Europe's unemployment will have detonated. Try selling EU protection then.

Freeze Eurosceptics out of decisions, Hans-Gert Pöttering tells MEPs

Accompanied by a militaristic flag-raising ceremony and the strains of Beethoven’s Ode to Joy — the European anthem — the new members of the most Eurosceptic European Parliament gathered in Strasbourg yesterday to begin work.

Hans-Gert Pöttering, the outgoing President of the Parliament, urged MEPs to unite to freeze “anti-Europeans” out of the decision-making process for the next five years.

About a fifth of the 736 MEPs will be in groups that favour either less EU integration or withdrawal — including the 25 Conservatives, 13 UK Independence Party and two BNP members from Britain.

“I think it is very important that the pro-European MEPs co-operate well so the anti-Europeans cannot make their voices heard so strongly,” Mr Pöttering, said.

The former President, who is furious at David Cameron’s decision to leave the main centre-right group and form an anti-federalist bloc, told The Times: “[The Parliament] depends on those who are willing to unite Europe.”

References to the flag and anthem were removed from the EU
constitution to tone down its trappings of statehood when it was redrafted as the Lisbon treaty after it was rejected in referendums in France and the Netherlands.

That did not stop troops from the 1,000-strong Eurocorps garrison — consisting of soldiers from France, Germany, Belgium, Spain and Luxembourg — raising the gold-starred blue EU flag yesterday.

“Soldiers are part of the defence of our values of human rights, democracy and the law, and this is part of our value system of the European Union,” Mr Pöttering said.

“We do not want a European superstate — we want a European Union that is strong because no country alone can defend its interests.

“We respect the identity of our regions and our villages and counties and this makes Europe rich.”

Eurosceptics were unimpressed and members of UKIP sang the British national anthem during Ode to Joy.

Senior Conservative MEPs were dismayed at the prospect of the main centre-right group, the European People’s Party (EPP), co-ordinating with the main centre-left bloc to exclude Eurosceptics from key decisions.

Nirj Deva, a Conservative MEP, said: “What has distressed me is that the EPP is doing deals with the Socialists and the Alliance of Liberals and Democrats, rather than doing deals with us. On policy areas we should work together.”

In a ceremony last night to give medals to the 400 retiring MEPs Mr Pöttering said: “You were responsible for uniting the European people.”

The DM says: Note that Mr Pottering made no mention of respecting the countries of Europe - they are obviously old hat.

Europe digs its economic grave while the ECB answers to no one

The European Central Bank preens as the last guardian of virtue in a sinful world, yet its actions are devastating the public finances of almost every country under its care.

Without a radical change of strategy, the ECB risks pushing the weakest states into a debt-compound spiral that can only end in bond crises and/or the disintegration of Europe's monetary union – whichever comes first.

The International Monetary Fund says the eurozone will contract by 4.8pc this year, worse than the UK (-4.2pc) or the US (-2.6pc). The deepest damage will occur next year as Europe remains mired in slump, even as the rest of the world recovers. It is the length of recession that matters most for jobs, social stability, and public finances. I am not easily shocked any longer but I did sit up when Spain's budget chief Luis Espadas said the economic collapse could "easily" push Spanish public debt to 90pc of GDP by 2011. This is up from 36pc in 2007.

Nobody knows where the tipping point lies on public debt, though anything above 100pc of GDP in a currency union is courting fate. Some are already there. The European Commission says Italian debt will jump to 116pc in 2010. Greece is vaulting back to 109pc, Belgium to 101pc, France to 86pc.

Even German finances are falling apart. After screwing down spending to balance the books, discipline has broken down. Berlin says the deficit is heading for 6pc next year, taking debt to 82pc. This is happening all over the world, of course. But the ECB is compounding the effect, whether for reasons of politics, Bundesbank fetishism, or misjudgment. By refusing to join the US, Japan, Canada, Britain, and Switzerland in quantitative easing (QE) the ECB has allowed a contraction of private credit this summer. The M3 "broad" money supply has shrunk since February.

Ignore M3 at your peril. It flashed awarning signal in the US months before the collapse of Lehman Brothers last September; it is flashing the similar warning signals in Europe now.

Professor Tim Congdon from International Monetary Research said the eurozone money figures are "horrifying" and portend a serious crunch ahead. "My verdict is that the senior people in the ECB [and the Fed] have little organised understanding of the debt-deflationary processes initiated in late 2008," he said.

Ireland's M3 contracted at a 30pc annual rate last month, a death sentence for a hyper-indebted economy. The wreckage will be evident just in time for the Irish to vote again – under extreme duress – on the EU's Enabling Act in October. This should make for interesting political chemistry.

In Germany, the Mittlestand lobby (BVMW) says half its members are facing a liquidity squeeze, while the strutting finance minister, Peer Steinbrück, has assumed a ghostly pallor. "We must take seriously the threat of a credit crunch in the second half of this year," he said.

Mr Steinbrück has called for a suspension of the Basel II accounting rules in order to rescue banks, and even suggested that the German government undertake direct lending to boost credit. The regulator BaFin has already told us that bad debts are set to "blow like a grenade" this year. A leaked BaFin memo said "problematic" assets have reached €816bn (£700bn), led by Hypo Real with €268bn.

ECB experts think eurozone banks will have to write down a further €203bn by the end of next year. Yet ECB policy-makers seem unwilling to face the implications. Yes, they have injected €442bn in a one-year tender, but the money is not reaching the economy. Simon Ward from Henderson New Star said the ECB is repeating errors made in Japan when it first trifled with QE, relying on banks to pass on credit rather going for massive bond purchases.

Inevitably, Europe's politicians are taking matters into their own hands. They will not sit idly by as millions lose their jobs. If the ECB deflates, budgets must bear the strain, and that is exactly what Europe cannot afford with a birthrate of 1.53 per woman and the onset of demographic decline. The commission says the number of workers per pensioner over 65 will halve from four to two by 2040. Age-related costs will explode by 15pc of GDP in Greece, 9pc in Ireland, Spain and Holland. The populations of Germany and Italy will soon be shrinking.

Viewed strategically, Europe's mix of monetary deflation and rampant deficit spending by the states is nothing short of lunatic.

Needless to say, Britain faces it own colossal mess, but of a different kind. It is the Prime Minister who is taking the country over a cliff, not the Bank of the England. Voters will soon have the joy of sacking him. How do Europe's voters sack the ECB?

The DM says: This has always been the problem with the European Union. What the voters want has no impact at all on what the EU does.

Voters are getting in the EU's way

Telegraph View: Democracy is an idea that Europe's bureaucrats seem unable to understand

Government for the bureaucrats, by the bureaucrats. It is not a very appealing slogan, which may explain why it isn't used by advocates of ever-closer union within the EU. But it appears increasingly to be the fundamental principle that animates the "European project". The Eurocrats think politics is far too important for voters. Bureaucrats know best: only they should be allowed to decide the future of Europe.

Europe's class of permanent officials did everything they could to ensure that the new EU constitution was not submitted to the people for approval. Most of the few electorates given the chance to vote on it rejected it. Only the Irish were allowed to vote on the modified version – whose name had been changed from "a constitution" to "a treaty", in order to make it seem different – and they rejected it. The reaction of the Eurocrats to that defeat was to deny that it mattered. Their view was, and is, that the Irish people needed to be dissolved and replaced by one that would vote "Yes", and they believe they have now engineered that result. The Irish will be given another chance to come to the "right" verdict on the new constitution in October. If they do as the Eurocrats want, the new "treaty" will come into force, binding all members of the EU.

David Cameron has pledged to give the British people the chance to vote on the new constitution – a referendum which Labour promised, then denied to voters. Some members of the Tory party seem determined to prevent Mr Cameron from keeping his promise. We hope that they fail, and that, should he win the election, Mr Cameron has the courage to give the people the opportunity to decide the future of their own country. That, after all, is the essence of democracy. But democracy is an idea that Europe's bureaucrats, and their camp-followers in the Commons, seem simply unable to understand.

We can't have an election until it's too late

European Commissioners are obsessed with the need to keep David Cameron at bay until the Lisbon Treaty is ratified, says Daniel Hannan.

Telegraph, 20 Jun 2009

Lord Mandelson is destroying Labour for the sake of the EU. He is determined to prop up Gordon Brown until after the Irish referendum on the Lisbon Treaty, whatever the cost to his party. See how they operate, these Euro-zealots. They are like Richard Dawkins's selfish genes, not caring what happens to their host organisms once they have served their purpose.

This might strike you as a curious way to talk about the Business Secretary. After all, we keep reading that Mandy is a Labour man to his backbone, that the one fixed point on his whirling moral compass is dedication to the party. But his first allegiance, these days, is to Brussels. There is no other way to explain his behaviour over the past month.

No one can doubt that Mandelson kept Gordon Brown in office. When James Purnell walked out of the Cabinet on the day of the European elections, everything looked lost. Then Mandy hit the telephones, hectoring, threatening, schmoozing, cajoling. Say what you like about him, he hasn't lost his touch: he turned the Cabinet around. Brown was wedged in place, like one of those pickled Soviet leaders.

Why did he do it? You don't have to be a spin doctor to see what Gordon Brown is doing to his party's popularity. He has taken Labour to a share of the popular vote it has not registered since before universal male suffrage, when it was a tiny band of trade-union-sponsored candidates. Anyone – anyone – would make a more electable leader, even Michael Foot, if the old boy could be persuaded to come out of retirement.

True, the new PM would have to call a general election and the chances are that he would lose it. But at least Labour would avoid extirpation. By hanging on, the party is repeating the mistake of John Major's Tories in the mid-1990s, trying the patience of an angry electorate, purchasing each day now at the cost of a week in eventual Opposition.

The best course for Labour MPs would be to despatch their leader with the cold efficiency of so many abattoir workers, replace him with someone presentable, hope for a honeymoon and flatter the electorate with an early poll. Mandy, of all people, knows this perfectly well. So what the devil is he playing at? Viewed from the Westminster lobby, it seems an impenetrable mystery. From the perspective of Brussels, though, the answer is obvious. European Commissioners are obsessed with the need to keep David Cameron at bay until the Lisbon Treaty is ratified.

You see, the Conservative leader has promised a referendum on Lisbon – and, unlike the other two party leaders, he means it. He has even instructed his lawyers to draw up the Bill in advance, so that he could introduce it on his first day in office. Eurocrats are understandably determined to keep the Tory leader out until after the second Irish referendum in October. (There is a universal, if somewhat insulting, assumption in Brussels that the Irish will roll over this time.) Mandelson is their agent, their man in Westminster.

He may be a Minister of the Crown these days, but his heart is plainly in his last job. He likes to boast of his proximity to EU leaders, and recently floated the idea that Britain might join the euro. If keeping Lisbon on track means condemning his grandfather's party, he will do the necessary.

If my theory strikes you as fanciful, recall Mandelson's interview in The Daily Telegraph last week, in which he spoke of the likelihood of a new challenge to Gordon Brown in the autumn. Why, having seen the rebels off a few weeks ago, should he positively invite them to have another go after the recess? Because it won't matter by then. The Euro-constitution will be in force.

Euro-fanatical LibDems have made the same calculation. They want an early election, they say, but not quite yet: October would do nicely, thank you. Shirley Williams justified this piece of sophistry by arguing that a snap poll would inevitably be about parliamentary expenses. Well yes, Shirley, that would be rather its point. The House of Commons has been through the hubris and the nemesis, but the catharsis has been artificially stayed. No serious overhaul is possible until Parliament has a fresh mandate.

The trouble is, this doesn't fit with Brussels' plans. You see how the EU, as well as being undemocratic in its own structures, serves to vitiate democracy within its member states. British voters must be denied their general election so that Eurocrats can have their treaty.

It's an awesome phenomenon, this readiness of national politicians to place the EU's interests before their own. Think of John Major breaking his party over Maastricht. Think of Gordon Brown, who had been determined to present himself as an honest leader after years of Blairite spin, having to start by pretending that Lisbon was different from the European Constitution, the smoke billowing from his pants as he kept woodenly repeating the claim. Think of Nick Clegg, who had so wanted to make a good first impression, taking three opposed positions on the referendum in order to ensure that Lisbon went through.

Think of Bertie Ahern resigning as Ireland's Taoiseach so that the sleaze allegations levelled against him shouldn't prejudice the "Yes" campaign. Think of Belgium, which had been without a government since its election, cobbling together a ministry for a couple of weeks in order to ratify the treaty whereupon, job done, it went back to dissolving.

Herein lies what C S Lewis would have called the EU's hideous strength, its ability to make otherwise good people behave badly. The lack of democracy intrinsic in Brussels – the way it is run by unelected functionaries, the way it swats aside referendum results – has spilt over into its constituent nations. In order to make an undemocratic system work, they too must become less democratic.

The proof is before our eyes. Our system needs, and our electorate demands, an early election. Yet we must be denied one for the sake of a treaty that three other countries have already rejected in referendums. How cheap our Parliament has become. How diminished our nation.

Open Europe research finds that MEPs cost taxpayers five times more than UK MPs

Open Europe has published (June 09) a comparison between the cost of the European Parliament and the cost of the UK Parliament, which finds that the European Parliament costs taxpayers a staggering £1.8 million for each MEP per year. This is in contrast to the House of Commons, which costs taxpayers £364,000 for each member per year, and the House of Lords, which costs £208,000 per member per year.

Open Europe's comparison, based on the respective parliaments' budget allocations, also finds that while national MPs at Westminster on average claim up to £148,297 in allowances each year, their counterparts in Brussels can claim up to £363,000 per year. Furthermore, MEPs do not have to produce receipts to claim their allowances, in contrast with national MPs.

In addition, Open Europe found that 22 UK MEPs retiring this year will receive a share of a £20 million pay-off in pensions and benefits. Each will be paid up to two years' salary to help them to 'adjust' to their new lives and will share a £10 million index-linked pension pot. Of those 22 MEPs, three politicians are accused of misusing public money: Den Dover, Ashley Mote and Tom Wise. All will receive a "transition payment" of over £30,000, up to £55,000 to close their offices and layoff staff, and pensions worth between £175,000 and £235,000. (7 June Andrew Pierce on LBC, South Wales Evening Post, 4 June, Times Times 2 2 June

CBI tells politicians to 'get a grip' for sake of UK economy

Britain's prospects for economic recovery are being hampered by politicians who have become obsessed by their own problems, according to Richard Lambert, the director general of the CBI.

By Louise Armitstead, Telegraph Business, 12.6.09

The boss of the so-called "Voice of Business" speaking on Thursday at an annual CBI dinner, warned that policy-makers are worrying more about their own expenses scandal than "rising government debt to energy security, and fast-rising youth unemployment." He demanded that politicians "get a grip" and get back to tackling "the biggest economic, social and environmental challenges of our lifetime."

His renewed warnings follow a rising concern in the City that the European authorities are going to unleash rafts of regulation in response to the financial crisis. Bosses are worried that London's position as the global financial centre is not being defended properly because politicians are too distracted by domestic problems.

Mr Lambert was scathing of the government's plans to introduce electoral reform as a response to the current crisis engulfing parliament. He said: "Politicians are airily throwing around ideas for constitutional reform - ideas which may be desirable in themselves and will need serious discussion in calmer times - but which are a massive diversion at a time when so many urgent policy decisions have to be agreed and implemented."

The level of distraction in government could result in long-term and drastic damage to economy, he warned. "Britain finds itself at what you might call a burning platform moment," said Mr Lambert. "We can either take the bold steps that will be necessary to take us forward to a prosperous but different kind of future. Or we can pretend to ignore the need for change, and risk going down with the ship."

He added: "But instead of focusing on this big picture, politicians appear wholly preoccupied with what's going on within the Westminster village, and in doing what they can to strengthen their own positions over the short term."

The government denies it is distracted. A spokesman for the department of Business, Innovation and skills said: : "The Government will continue to lead the country out of recession. Many initiatives had been announced and more will follow in the coming weeks."

London's powerful private equity and hedge fund industry are particularly concerned after the recent European Commission directive that proposed radical legislation. Antonio Borges, chairman of the Hedge Fund Standards Board, described the directive as a "blatant attack on the UK and US financial systems by continental countries that neither have a tradition of alternative investments nor a proper understanding of them."

Philip Hammond, Shadow Chief Secretary to the Treasury, told The Daily Telegraph: "Mr Lambert's comments should come as a powerful wake-up call to Ministers who have been more worried about protecting their own jobs than saving other people's, and to a Prime Minister who refuses to acknowledge the extent of the challenges we face. It's clear the only solution is a general election."

Calls for Brown to go nuclear in City battle with EU

As Europe's leaders prepare to strip Britain of ultimate control over finance, insurance, and securities, defenders of the City have begun to talk darkly of the nuclear option – known in EU lore as the "Luxembourg Compromise".

Britain cannot veto the massive shift in regulatory power to Brussels now under way. Internal market laws are decided by qualified majority voting (QMV), and London has few friends in this fight.

What Gordon Brown can do at next week's EU summit it to play the Luxembourg card by invoking "vital national interest", if he is willing to risk a showdown with fellow leaders. This has no legal status. It is the political equivalent of a stamping bull, or a viper's rattle. It means back off, or we strike.

"This is an extremely serious crisis," said David Heathcote-Amory, former Europe Minister and now a key Tory MP on the European Scrutiny Committee.

"Once we lose of control over the City of London we will never get it back, and the consequences could be catastrophic. I think we are in 'Luxembourg terrritory'. If the City was in Paris you could be pretty sure that French would fight like tigers to save it," he said.

"The Continental countries have no interest in the health of the City, and some want to turn the tourniquet tighter. I fear the Commission is going to get its way since we have such a weak government," he said.

Downing Street has given no hint that Mr Brown intends to put up serious resistance. City leaders doubt he will go to the wall for the sake detested bankers. It is easier to claim a cosmetic victory on fiscal sovereignty, letting the killer detail go through.

One British minister admitted privately that UK strategy is to play for time in the hope that "other governments start getting cold feet about giving new powers to the EU". Some might, but our ally Ireland remained silent at a meeting of EU finance ministers this week, unwilling to waste political capital on Dublin's Canary Dwarf. It relies on EU favour to survive its own desperate crisis.

France's Charles de Gaulle was the last EU leader to opt for a showdown in the "empty chair crisis" in 1965, withdrawing his officials from Brussels after the commission pushed its luck too far. It led to the Luxembourg Compromise. No country since has ever pulled the trigger on vital interests. Disputes have always been resolved in time.

Lord Turner, the head of the Financial Services Authority, said in April that the banking crisis would either lead to "more Europe, or less Europe" since the current half-way house is unworkable.

Brussels has seized on events to offer more Europe. "It's now or never: if we cannot reform the financial sector when we have a real crisis, when will we?", said Commission president Jose Manuel Barroso.

While earlier talk of an EU super-regulator has been dropped, the same goal is being achieved by other means. The plan is to create three "authorities" with a permanent staff and powers to impose "binding" decisions on states. Appeals go to the European Court. There is to be a European Banking Authority in London, an Insurance Authority in Frankfurt, and a Securities Authority in Paris.

Lord Turner fired a warning shot on Thursday, questioning plans to bring London's securities houses under EU oversight. "Frankly, this is an area that when it gets Europeanized you sometimes get things that are not actually to do with good regulation. If one was absolutely confident that European supervision was going to be completely politics-free, in a neutral, technocratic fashion, we would be more relaxed," he said.

There is little doubt that Brussels is exploiting the backlash against finance to bring the City under its thumb. Its own Larosiere Report concluded that hedge funds were marginal players in the credit crisis. Yet that has not stopped it drafting draconian rules for hedge funds as well, with chunks copied from French law. What is the purpose, if not to hobble a successful British industry?

Christen Thomson from the Alternative Investment Management Association said 80pc of Europe's hedge funds are in Britain, supporting 40,000 jobs, and are already regulated by the FSA. "A whole galaxy of hedge fund strategies would be impossible under this law and it is not necessary. The FSA tracks the top 40 funds and knows the level of systemic risk, and it keeps the cowboys out," he said.

Britain has long fudged matters in dealings with the EU, hoping that common sense will prevail, as it often does. But the assault on the City may be a line too far. London has been the centre of global finance for three hundred years. Either the British government controls the City, or the EU apparatus controls it. This cannot be fudged.

Britain isolated as EU tightens grip on City

Britain has been unable to block plans for an EU regulatory machinery with binding legal powers, securing only a loose agreement at a key meeting of EU finance ministers that any proposals should not interfere with budget and taxation policy.

Alistair Darling, the Chancellor A joint statement yesterday said that legislation to be drawn up by Brussels this autumn “should ensure that such powers should not impinge in any way on the fiscal responsibility of members of states”.

The Commission aims to create three “authorities” with their own staff, full-time president and independent budget. If there is a dispute between regulators from EU countries over how to proceed, these EU bodies can “settle the matter” by binding mediation. The European Court would have final jurisdiction. The wording would appear to reduce Britain’s Financial Services Authority (FSA) to a subservient arm of the EU apparatus, limited to “daily oversight”. Britain does not have a veto since legislation that affects the “internal market” is decided by qualified majority vote (QMV).

While some East European states share British concerns, Mr Darling is largely isolated in trying to defend the interests of the City of London. EU leaders will grapple with the subject at a Brussels summit later this month.

There is widespread suspicion that Paris and its allies have seized on the financial crisis to rein in Anglo-Saxon capitalism and impose their Colbertiste ideology on the City.

Germany will play a pivotal role in any outcome. While Berlin favours tougher rules than the FSA’s “light touch” model, both the Bundesbank and the regulator BaFin are jealous of their own oversight powers. Finance minister Peer Steinbrück reportedly views the plan as “too ambitious”.

An EU diplomat said it was hard to gauge whether Britain can count on a blocking minority, since most countries kept quiet at the meeting. Finland’s Jyrki Katainen said a number of states may have concerns about the plan: “For instance, can the supranational body take decisions for the national supervisors?”

He backed calls from the International Monetary Fund and the US Treasury for a rigorous health check of Europe’s banks. “In order to restore confidence we need European-wide credible stress tests,” he said.

The idea was shot down by Mr Steinbrück. “European banks are clearly different from those in the US,” he said, adding that there was no need to probe or reveal the capital adequacy of each bank.

Labour slumps to historic defeat

Nick Robinson, BBC News , 8.6.09

Labour has suffered its worst post-war election result after it was beaten into third place by UKIP and saw the BNP gain its first seats at Brussels.

Labour's share of the vote at the European elections was just 15.3% - worse than party bosses had feared.

The Tories won with 28.6%, beating Labour in Wales but failing to increase their total share significantly.

The results have sent shockwaves through UK politics and led to renewed calls for Gordon Brown to quit as PM.

The BNP gained a seat in Yorkshire and Humberside and in the north west of England, where party leader Nick Griffin was elected - the first time the anti-immigration party has won seats at national elections.

Their result was condemned across the political spectrum, with both the Tories and Labour calling it a "sad day" for British politics.

Health Secretary Andy Burnham said: "The BNP is like the ultimate protest vote. It is how to deliver the establishment a two-fingered salute. I think largely it is a comment on Westminster politics."

But in his victory speech, Mr Griffin said he was "absolutely delighted," adding "it will be a huge change in British politics".

He said "The most demonised and lied about party in British politics has made a massive breakthrough. The public have had their say in a democratic election and we should respect that."

With results in Northern Ireland still to come, it is clear that Labour suffered one of its most abject results of all time.

'Dismal' result

Its deputy leader Harriet Harman conceded there had been a "big fall" in the Labour vote and it appeared Labour had been hit "much harder" by anger about MPs' expenses.

"It was a dismal result," she said. "We have to understand the concerns that people are expressing and address them."

But she backed Gordon Brown saying he was "resilient" and would sort out the economy and expenses.

Conservative leader David Cameron said he was "delighted" with the results: "The Conservative party were the clear winners in these elections.

"We topped the poll, we increased our share of the vote, increased our number of MEPs, we won in almost every part of the country and had some staggering results like topping the poll in Wales."

He said taken with last week's local election results it showed "an enormous gap opening up between Labour and Conservative" with the Tories "almost getting twice as many votes as Labour last night".

Other UK-wide Westminster parties effectively trod water on their 2004 European results, with the Lib Dems coming fourth and the Tories increasing their share by just over 1%.

This left the smaller parties to benefit - possibly from public anger over the MP expenses scandal.

UKIP, which campaigns for Britain's withdrawal from the EU, gained 17.4% of the vote and increased its number of MEPs to 13 - beating Labour into third place.

Leader Nigel Farage said his party's performance was a "hell of an achievement" which sent a clear signal to Gordon Brown.

"He has been beaten by a party that he mocked and derided as being on the fringes - so if we have beaten him, he has got to go," Mr Farage said.

In two English regions, the South-East and South-West, the Green Party beat Labour into fifth place.

Nationally, the Greens increased their share of the vote to 8.7% but leader Caroline Lucas blamed the electoral system for her party's failure to gain more than its current two MEPs.

"In the South East we have increased our vote by 50% and we are disappointed it has not translated into a second seat," Ms Lucas said.

William Hague says the results show "people clearly want change"
The Lib Dems saw their share of the vote shrink slightly on 2004, but leader Nick Clegg told the BBC that taken with last week's local election results, his party had a strong platform to make gains against Labour at a general election.

"On the European vote we held our own, we actually added an MEP - would I have liked to have done even better, yes of course but I think given the very volatile nature of the elections it was a solid result." He said Labour's 12-year dominance of British politics was over and the party "finished".

Turnout down

In Scotland, SNP leader Alex Salmond hailed a "historic" victory after the Nationalists hammered Labour.

Across Scotland the SNP secured 29% of the vote to Labour's 21%, comfortably achieving the target the SNP leader had set his party at the start of the campaign.

Welsh Labour also suffered humiliation in the European elections, with the Conservatives topping the poll.

It is the first time since 1918 Labour has failed to come first in a Welsh election, as its vote dropped by 12%.

Labour, Conservatives and Plaid Cymru won a seat each, as did UKIP, which will send its first Welsh MEP to Brussels.

The turnout, with Northern Ireland yet to declare, is around a third of the vote, down 4% from 2004, but that is largely down to the fact that some areas had all-postal ballots last time.

The results are likely to pile further pressure on Gordon Brown, who faces a crunch meeting of Labour MPs on Monday, which may decide his future.

British politics is turning Continental

After four weeks knocking on doors and talking to voters, Daniel Hannan believes the need for political reform is stronger than ever.

European elections: All politicians are now talking about 'returning power to the people'. But it can?t be done without recovering power from the EU.

We’re in the closing days now, and I’m campaigning on autopilot. “Yes, Madam, the Conservatives. No, ha ha, we can’t actually put canvassing on expenses. Oh, how very droll. Yes, I’m pretty cross about the whole business myself. Yup. Yup. Oh, far worse in Brussels. If I told you, you wouldn’t believe me. I know, I know. You will? Gosh: thanks for your support.”

According to the pundits, The Daily Telegraph’s revelations of parliamentary expense claims will bring about a Götterdämmerung for all the established parties. There will be a record abstention rate. Mainstream politicians, regardless of their guilt or innocence, will be swept away. “For He maketh His sun to rise on the evil and the good, and sendeth rain on the just and on the unjust”.

Hmm. That’s not how it feels on the doorsteps. People are talking about MPs’ expenses all right, but they’re voting about the economy. Or, rather, they are conflating the two issues: “I’m having to budget now to make sure I can afford pet food, and I’d love to be able to claim it back.”

My prediction? Tory gains on a higher-than-average turnout. No reason to listen to me, of course, except that, while lobby correspondents necessarily get their evidence second hand, I’ve spent four weeks knocking on doors, leafleting commuter trains, flirting politely with mums at school gates, molesting passers-by in high streets and haranguing people from soap-boxes. I reckon I’ve spoken to 500 voters properly, and come into contact with 10 times as many. And what they’re telling me is not what the pundits are telling each other.

Journalists, quite rightly, are interested in moats and beams. But not everyone has that luxury. Most of the people I’ve canvassed, even in my relatively prosperous Home Counties constituencies, are more concerned about their own mortgages than about MPs’ mortgages.

This is the first election since the economic crisis hit. Our deficit is now the highest in the world, our Treasury has been emptied, our credit exhausted. Yes, people are angry about MPs’ expenses – but what makes them really furious is the idea of subsidising the dolts who got us into this mess.

So what about the European Parliament? Isn’t it now a serious outfit, laying down everything from how long we are allowed to work to how our asylum rules operate? Aren’t I going to talk about what we MEPs get up to? Yes, but you can’t isolate Europe from our domestic discontents. When people complain that elections never seem to change anything, they are reflecting the reality that 84 per cent of our laws come from Brussels.

When they protest that their leaders are not listening, they remember that Gordon Brown cancelled his promised referendum. When they moan about parliamentary corruption, they know that things are worse in the European Parliament. When they complain about tax rises, they wonder whether we couldn’t find a better use for the £40 million we hand to the EU every day.

Let me put it another way. The epithets now being attached to our MPs – “on the gravy train”, “out of touch”, “parasites”, “won’t listen” – are those that, for years, have been hurled at MEPs. Britain’s political culture is being Continentalised. I say this in no jingoistic spirit. Like most Euro-sceptics, I love Europe. I speak French and Spanish, and have lived and worked all over the Continent. It’s precisely because I admire other countries that I value their independence and cheer their patriotism. This isn’t about Europe; it’s about democracy. How can we restore purpose to the ballot box when most of our laws come from foreign officials whom we don’t elect? How can we decentralise power in Britain while centralising it in Brussels?

I’m not sure, even a week on, that the magnitude of David Cameron’s proposals for constitutional reform has sunk in: open primaries; local control of education and housing; elected police commissioners; an end to the patronage powers enjoyed under Crown Prerogative; appointments through open parliamentary hearings; scrapping the Human Rights Act; a recall mechanism; legislation by citizens’ initiative; referendums.

In order to devolve power within the United Kingdom, the Conservative leader first has to get it back from Brussels. This was the central argument of The Plan: Twelve Months to Renew Britain, the book I co-authored with Douglas Carswell, which first suggested the agenda that David Cameron is now advancing. We want to repatriate powers from Brussels, not for the sake of it, but in order to push those powers further down, to local councils or, better yet, to private individuals.

If the EU confined itself to cross-border issues, none of us would have a problem with it. The trouble is that its tendrils curl into every cranny of national life. The closure of rural post offices is an indirect consequence of the EU’s Postal Services Directive. The move to fortnightly bin collection is driven by the EU’s Landfill Directive. The rigmarole involved in opening a bank account is mandated by the EU’s Money Laundering Directive. The centrepiece of the Home Information Pack is the Brussels requirement for an ecological survey of every dwelling. The ban on higher dose vitamin and mineral supplements? Brussels. Car seats for 12-year-olds? Brussels.

All politicians are now talking about “returning power to the people”. But it can’t be done without recovering power from the EU. As a first step, we need to have the referendum that all three parties promised at the last election. Yesterday, the Conservatives published a draft bill to give effect to such a referendum immediately upon taking office.

It is in this context that David Cameron plans to give the European Parliament something it hasn’t had in 50 years: an official opposition. As things are, every major political group in Strasbourg, from the Christian Democrats to the Communists, stands for political amalgamation, an EU constitution, a common foreign policy and so on. This monopoly gives federalists their greatest asset: the sense that, whether or not you support it, deeper integration is inexorable.

The Tory leader will break the cartel, putting together an alliance of respectable, free-market, Atlanticist parties that believe in national democracy. No wonder the federalists are planting risible stories about the Tories sitting with fringe parties. They know that, once Cameron plants his standard, Euro-federalism will cease to be inevitable and will simply become one among a series of competing ideas.

All the more reason to vote on election day. This isn’t simply an unofficial referendum on Gordon Brown: it’s a contest between two competing visions of Europe.

Tories oppose the centralisation of power in Brussels because they want decisions to be taken as closely as possible to the people they affect, and they intend to apply that principle at home, too. To be fair, there is a similar consistency of principle on the Labour side. Just as Brown has aggrandised the state in Britain, so he has swollen the powers of the EU. He plainly believes in more rules and more politicians. The legislative torrent rushing upon us from Brussels has been swollen by rivulets of domestic legislation. There are rules for everything, sapping initiative and turning every nurse, teacher and policeman into a form-filler.

Now the Prime Minister wants to subject Parliament, too, to an external quango. He may have caught the mood: plenty of people seem to be of the view that MPs should be housed in barracks, watched over by warders and made to account for every phone call.

Yet regulation is what caused the current crisis. It replaced a culture of conscience (“is this the right thing to do?”) with a culture of compliance (“is this within the rules?”).

On Sunday, the PM invoked his “Presbyterian conscience”. But a truly conscientious Presbyterian would understand that virtue cannot be compelled. He would no more want to be told what to do by officials than his fathers wanted to be told what to believe by bishops. The idea that the people’s right to choose their representatives should be contracted out to some external bureaucracy would have had the PM’s – and my – Presbyterian forebears hurling footstools and signing Covenants. Parliament already has an external regulator, Prime Minister. It’s called the electorate. When are you going to let it do its job?

If the EU seems intent on a putsch then UKIP should give it a shove

The European Union has slipped the leash of democratic control. It is one thing to advance the Monnet Project by treaty creep and stealth directives. It is another to put questions of sovereignty to a popular vote and then refuse to abide by the outcome.

Europe's elites have crossed a political line by reviving the EU Constitution under the guise of the Lisbon Treaty and ramming it through without referendums, after it had already been rejected by French and Dutch voters.

To continue a second time after rejection by the Irish – alone in voting – amounts to a putsch.

Without rehashing the Lisbon debate, remember that this text transforms the European Court (ECJ) into a fully-fledged supreme court, with jurisdiction over the rights charter and the broad reach of "Union Law" rather than just the narrow (Pillar 1) fiefdom of commercial law it holds today. This is a quantum leap.

Euro-judges will have the last say on areas of social policy, macro-economics, home affairs, justice, and arguably diplomacy.

I might add – apologies to law professors – that the crude difference between core Europe and Britain/Ireland is that Napoleonic law forbids unless specifically allowed, while Common Law allows unless specifically forbidden. This is the legal foundation of Anglo-Saxon scientific and commercial creativity, and perhaps the reason democracy has bedded better in the Anglo-sphere.

It is obvious that a text creating a full-time EU president and an EU justice department, and which gives Euro-MPs power of the purse for the first time, is an attempt to establish a unitary state. This is no longer a treaty club.

Personally, I will register my protest by voting for the UKIP, knowing that the number two on their list in my South East region is Marta Andreasen – sacked as the Commission's chief accountant for calling the EU budget "an open till waiting to be robbed". A strong showing for UKIP should be enough to put her on to the EU's Budget Control Committee, where she can exact revenge for all of us.

We know from an internal memo by the head of the Internal Audit Service what was done to her. "I would for no money have wanted to be in Ms Andreasen's shoes," it said, "recognising the unforgiving inclination of a bureaucracy once one is declared taboo by the powers that be, considering the collective firepower it can marshal to trash an individual singled out."

The Budget Directorate was in "persistent denial of the real nature and depth of problems". It had failed to sort out the "chronically sordid state of quality accounting", and rewarded staff if "they managed not to discover financial malfeasance". As the memo admitted, the EU relies on an intimidation culture where "might makes right".

So Marta has my vote. It is a nice twist that UKIP has enlisted a Catalan-Argentine, albeit one educated at an English girls school in Buenos Aires.

Yes, our own Parliament is mired in squalor too, but the expense scams of MPs have at least been brought to light, and the worst offenders are being driven from the Commons. We have democratic catharsis.

Nothing is ever really exposed in the EU system, where press coverage is tribal, and segmented by languages. MEP expense abuse runs even deeper, and involves greater sums. An Open Europe study found that MEPs garner £363,000 in expenses, including a £261 daily subsistence allowance and £45,648 in office cash (no receipts needed), and £41,641 in "transitional" payments. A quarter employ spouses as aides.

Nordics, Balts, and Club Meds can make a tidy sum booking travel at business rates per mile but flying discount, though this is at last being reformed. Jens Holm, a Swedish Left Party MEP, said that he been receiving €2,000 for each fare from Stockholm to Brussels though it costs €500. He gives away the difference. "The vast majority keep the money for themselves," he said.

There are different kinds of Eurosceptics. Some think the EU has been a Vichy stitch-up from the start. That is not my view. The Project was a triumph of joint US and European statecraft in the early days, bringing Germany back into the fold to help contain Soviet power.

Nor do I think that British membership has been wholly bad. The Single European Act, signed in 1986, owed as much to Margaret Thatcher as any other leader, and the EU's Competition Directorate is the spearhead of free market ideology – which is why France's Nicolas Sarkozy went to such lengths to the gut the competition clause in the Lisbon Treaty.

The risk of leaving in a petulant fit is that Holland, Denmark, Poland and others often on our side in an evenly-balanced power structure will tuck in behind the Franco-German axis, causing Europe to become what we wish to avoid. But geo-strategic sophistry leads to paralysis in the end.

Lisbon is not yet EU law. Irish voters may balk again, but it would take a brave nation to persist in defiance as they succumb to savage (EMU-induced) debt deflation.

Sadly, I think we must start planning to extract ourselves as gracefully as we can from this Project before it has the chance to abolish referendums for ever.

Act now to save the NHS

An EU directive is about to cripple the system

A catastrophe will overtake the National Health Service on August 1, the public was warned yesterday: after that date, patient safety will be on a knife-edge, surgeons will not be properly trained, hospitals will be closed and, soon, patients will die unnecessarily. This apocalyptic prediction was issued by none other than John Black, the president of the Royal College of Surgeons. The cause of the looming disaster? The European working time directive, which will bind all British employees to work no more than an average of 48 hours a week.

Mr Black is not attempting to justify working junior doctors to exhaustion, which no longer happens on anything like the scale that it did a decade ago. On the contrary, junior as well as senior hospital doctors are very worried about the imposition of "legislation dreamed up in Brussels… designed to protect Spanish lorry drivers or labourers working heavy machinery", as Mr Black puts it. Yet the Government declares itself powerless to act.

This crisis was entirely predictable. Indeed, this newspaper predicted it five years ago, arguing that the scheduled imposition of a 48-hour week in 2009 would cost the NHS the equivalent of 9,000 junior doctors. Now we are within weeks of the change, and the Royal College of Surgeons is "in despair" – its president's words – that there will not be time to train surgeons properly, that emergency rooms will be understaffed and that dangerously ill patients will be shunted off to distant hospitals.

It is true that some European countries successfully operate a 48-hour week in hospitals; but they have many more doctors per head of population. Other nations "sensibly ignore the directive", says Mr Black. But the British Government has a passion for implementing European law to the letter. Hence the refusal of Alan Johnson, the Health Secretary, to back the 65-hour week proposed by the Royal College after consultation with junior doctors, despite the provision for groups of European workers to opt out of the

The Government's lack of political will to address a damaging European directive should loom large in the minds of the electorate. Thursday's European elections are not just an occasion to register alarm at the situation at Westminster, but also an opportunity to vote for those candidates from mainstream parties who are prepared to challenge the establishment's supine, fatalistic attitude to bad laws made in Brussels that now endanger our physical as well as our political health.

MEPs are entitled to expenses and allowances of up to £363,000 a year

Open Europe has found that in total, MEPs are entitled to expenses and allowances of £363,000 a year, including a £261 daily subsistence allowance and £45,648 in general office expenses even though they are provided with offices in Brussels and Strasbourg. This equates to £1,816,250 per MEP over a five year term and no receipts are required. (Sun, 26 May; Times, 29 May; Open Europe blog) This comes on top of £83,282 in salary, £29,309 in pensions and £41,641 in transitional payments. In contrast, UK MPs claim up to £144,000 on average in expenses. (Telegraph, 31 March)

Swedish Left Party MEP Jens Holm has provided a candid account of how the current travel expenses system can lead to MEPs pocketing thousands of euros a year because no receipt is required to account for the actual cost of a journey. He said, "I know that until February this year, the European Parliament has paid me about €200,000 in travel allowances and I'd say that I have donated around €150,000 to charities and also to my own party." (Open Europe blog)

Under new rules, from June onwards, the travel allowance system will be reformed so that MEPs need to provide receipts for their tickets. However, for the majority of their expenditure (office expenses, daily subsistence allowance, staff allowances) MEPs will still not be required to produce receipts.

In the wake of the Westminster expenses scandal, Gordon Brown has ordered all Labour candidates for the European election to agree to publish all receipts for claims made under the MEPs' office allowance. Conservative MEP candidates have taken a pledge to disclose details of their expenses online but they will not provide receipts, while the Lib Dems have made a similar commitment to publish an audited breakdown of their MEPs' costs but also will not publish receipts. (FT, FT, 24 May)

However, it should be noted that none of the parties' manifestos mention publishing receipts. (Open Europe blog)

Meanwhile, it has emerged that more than a third of British MEPs are paying one or more relatives. The wives, husbands and children of MEPs are earning up to £40,000 a year to work as secretaries and researchers at a total annual cost to taxpayers of more than £700,000. (Times, 29 May)

Europe tightens regulatory noose on City

The European Commission has seized on the financial crisis to bring the City under closer EU control and clip the wings of Britain's Financial Services Authority, unveiling far-reaching plans for a new EU regulatory machinery with binding powers.

By Ambrose Evans-Pritchard, Telegraph Business: 27 May 2009

"It's now or never," said Commission President Jose Manuel Barroso. "If we cannot reform the financial sector when we have a real crisis, when will we?"

Three new bodies are to be created with a permanent staff and powers to impose decisions on member states: a European Banking Authority in London; a European Insurance Authority in Frankfurt; and a European Securities Authority in Paris. Each will be composed of chief regulators from the 27 member states. While they look much like the EU's existing "talking shop" committees, they are in reality executive agencies able to set binding standards and impose their overall philosophies.

The Commission said the new authorities would have powers to "settle the matter" by imposing a decision – in effect, stripping Britain and other countries of the national veto.

While the proposals fall short of a pan-European regulator, they may have a similar effect. The European Court of Justice is to have the final say over any appeal.

"This is exactly what I feared would happen," said Ruth Lea, director of UK think-tank Global Vision. "The EU is taking advantage of the crisis to extend its control over the British financial system. It is very threatening because it is almost impossible to repeal anything in the EU, however damaging it proves to be."

The Barroso plan will go to EU heads of state in June. Legislation will be drawn up this autumn and submitted to European MPs, already itching to ratchet up the text.

Klause-Heiner Lehne, a German MEP for the Christian Democrats, left no doubt that this is viewed as a chance to punish the City. "It's well-known that Gordon Brown has only the interests of London as a banking centre in mind and not the stability of financial markets. It must be clear to all of us that the role of the financial markets is allocating capital, not as a playground for gamblers making huge bets," he said.

Mr Barroso said the new machinery should be up and running in 2010, adding: "We are not taking away national supervisors' day-to-day role."

The plan includes an "early warning" body modelled on the US Federal Reserve's new system. Charlie McCreevy, the EU's single market commissioner, said national regulators were not aware of problems developing in other countries during last year's banking crisis until they read about it in the newspapers, an untenable situation given that 40 banks controlling the bulk of EU assets operate as cross-border institutions, affecting everybody.

Britain has few friends in this fight other than Luxembourg, which has its own financial centre. It hard for the UK to argue that its "light-touch" regime has been a great success after last year's banking debacles – although Europe's banks have yet to come clean on their own toxic debts.

Antonio Borges, chair of the Hedge Funds Standards Board, said the blizzard of EU proposals had been hijacked by political forces and were "out of control".

"There is little intellectual foundation to what they are doing," he said. "You would have thought that since 80pc of Europe's hedge funds are in Britain, and are already regulated, that the FSA would have a big say [on hedge fund proposals], but the FSA was marginalised. The reality is that a great deal of regulatory power is going to Brussels."

The DM says: Another example of how the European Union takes every opportunity to assume greater powers over nation states.

Lisbon Treaty: 82% want referendum in UK, even if all other countries ratify

A new Populus poll for the Times has found overwhelming support for a referendum on the Lisbon Treaty, even in a situation where it has already been ratified by Ireland and the rest of the EU. 82% of people agreed with the statement, "If Ireland and other countries ratify the Lisbon Treaty on the future of the European Union, Britain should hold its own referendum on the issue", with 52% strongly agreeing and only 14% disagreeing. 92% of Conservative voters, 76% of Labour voters and 85% of Liberal Democrats voters agreed that Britain should have a referendum on the Treaty. (Times, 13 May)

The poll also showed that 58% of voters believe that the balance of powers between Britain and the EU gives too much power to the EU, including a clear majority of supporters of all the main parties. 28% say the balance is about right and 6% say too little power has been given to the EU. In response to the question, "If the Lisbon Treaty goes through and the new post of President of the EU is established, the job should go to Tony Blair", only 34% of people agreed, and 63% disagreed. 51% felt that Britain benefits from its membership of the EU.

Meanwhile, a poll in Germany found that 70% of people want the Lisbon Treaty to be re-negotiated, and a separate poll found that 73% of Germans agree that "the EU takes too many powers from Germany". (Neues Deutschland, 15 May)

Germany is one of four countries that has yet to complete ratification of the Treaty - in addition to Ireland, the Czech Republic and Poland. German President Horst Köhler has said that he will not sign the Treaty into law until after the German Constitutional Court has given its opinion on whether the Treaty is compatible with the German Constitution, which it is expected to do after the European elections in June. (Focus, 5 May; European Voice, 6 May)

In Poland, President Lech Kaczynski is still to sign. Likewise, in the Czech Republic, the Treaty is awaiting the signature of President Vaclav Klaus, following the Senate's approval of the text by 54 votes to 20 on 6 May. (FT, Irish Times, 7 May) President Klaus has said that his signature is "not on the cards" until after Ireland holds a second referendum on the Treaty, expected in the autumn. The leader of the Liberals in the European Parliament, Lib Dem MEP Graham Watson, has attempted to pressure the Czech leader, saying, "Václav Klaus should now sign the document in blood - ahead of the EU summit in June." (WSJ, 7 May; Aktualne, 12 May)

Meanwhile, the Irish government is trying to fast-track work on the so-called 'guarantees' it plans to offer to Ireland in exchange for a second referendum on the Lisbon Treaty, reportedly in an effort to stop Czech President Vaclav Klaus, who is against the Treaty, from 'wrecking' an EU leaders' summit in June. Ireland hopes to persuade the other 26 member states to agree to the wording at a foreign ministers' meeting on 15 June, so that EU leaders meeting later in the same week can merely rubber-stamp the deal, without debate. In order to sideline President Klaus, the Czech government has decided that the EU leaders' summit will be chaired by the Prime Minister instead. (Irish Times, 14 May)

Irish Europe Minister Dick Roche has promised that the second referendum on the Lisbon Treaty in Ireland will not be on the same text, saying "we cannot and will not put the same package to our people later this year." (Irish Times, 5 May) However, in reality, it is extremely unlikely that Ireland will be able to make any actual changes to the Treaty, since any change to the text at all will require re-ratification of the text by every EU member state - including the UK.

Cameron warned over breaking European links

David Cameron is facing his first crisis in Europe after being accused of reaching out to extremists in the European Parliament.

The Tory leader has been told by European Union leaders that his decision to withdraw the 27 Tory MEPs from the federalist European People's Party and form a new eurosceptic group is "naive" and will leave him on the fringes of European politics.

Under fire from the Tory Right at home for moving to the centre ground, Mr Cameron has sought to balance that criticism by establishing impeccably Eurosceptic credentials.

During the leadership race, he courted the votes of the Right by promising to split with the EPP and join a more sceptical alliance in the parliament. But the idea is running into serious difficulty as he struggles to find acceptable partners for the new grouping and centrist EU leaders pile pressure on him to reverse his plans.

Mr Cameron's aides denied reports last night that Nicolas Sarkozy, the French interior minister and presidential hopeful, had told Mr Cameron that he would be seen as "weak" if he refused to reverse the withdrawal from the EPP.

Angela Merkel, the German chancellor has told Mr Cameron that leaving the EPP will weaken his voice on the European stage.

One EPP leader said: "David Cameron has three options. He can stay in the EPP, form a group with extremists or have his MEPs sitting alone in the parliament next to Jean Marie Le Pen and his friends. If he presses ahead he is naive."

This week William Hague, the shadow foreign secretary, travelled to Brussels to try to find partners for the new group that he hopes will devote itself to the defence of the nation state and free trade.

Forming a new group needs at least 19 MEPs from at least five countries. Unless MEPs are members of such an alliance they are deprived of privileges in the parliament, including speaking rights, funds for their groups and committee chairmanships. Mr Hague said there was no going back on Mr Cameron's promise.

City in danger of falling victim to EU wiles and becoming another Antwerp

The City of London is on borrowed time. Great banking centres can prosper for 40 years or so after the host country has lost industrial leadership but then some shock or political upset exposes the fragility of it all.

"There is an extreme stickiness in financial centres," writes Peter Spufford, a Cambridge historian, reviewing the rise and fall of Genoa, Florence, Venice, Bruges, Antwerp, Amsterdam and London over eight centuries.

The fall can be swift. Antwerp's arcaded "Beurs" was Europe's commercial hub in the 1550s. The tremors hit when the Spanish and French monarchies restricted debt payments to interest only, rolling over the principle. Then the Counter-Reformation queered the pitch, stifling free thought. Persecution of Portuguese Jewish financiers caused their flight from Antwerp to Amsterdam. Within half a century Antwerps' population had fallen from 100,000 to 40,000. It was hard to sell a house.

Amsterdam's demise was gentler but, by the late 18th century, Alexander Baring was shifting parts of his empire to London. So too was Abraham Ricardo, father of the economic theorist David. The coup de grace came from France. "The reason why Amsterdam eventually succumbed was political, the fear of what would happen to financiers when revolutionary Frenchmen were in charge," Ricardo said.

There was eerie resonance to last week when the EU unleashed its assault on Britain's hedge funds and private equity. Those behind this drive are well aware that hedge funds were no more than bit players in the credit bubble. The real villains were banks with 30 to 50 times leverage and we know from the IMF that Europe's banks were the worst with their off-books "conduits".

Given that 80pc of Europe's hedge business sits in Mayfair, the latest EU directive is a discriminatory political attack on the City and almost certainly the start of something broader and nastier. Powerful forces in Paris, Berlin, and the EU institutions have long held a repressed urge to break the City's hold on chunks of global finance, from bonds to currencies and metals. Some wish to shut "Le Casino" altogether. They at last have the chance to act on it.

Charlie McCreevy, the Irish Thatcherite in charge of the EU's market machinery, made a valiant effort to defang the hedge code but he will be gone soon. Gone too will be Commission President Jose Manuel Barroso, an Iberian reformer (of sorts), who placed free marketeers in the key posts of economic control in Brussels.As the tide turns against Anglo-Saxon influence, Britain will struggle to maintain its blocking alliance in the voting structures of the EU Council and the European Parliament.

East Europe is no longer in thrall to ultra-market Friedmanites in their 20s, siding eagerly with Britain against the Rheinland corporatists. The violence of economic collapse in parts of the ex-Soviet bloc may tarnish market capitalism for a political generation and it is fair to assume that the centre of ideological gravity will shift in Germany too as the economy contracts at 1931 rates. The Movement for Militant Resistance is already torching Porsches on Berlin's streets.

While it is true that Europe's Left has not been able to capitalise on the window-smashing, boss-napping, backlash against banks, this is chiefly because the Right has beaten them to it.

In short, Britain is about to discover that it cannot easily stop the EU apparatus doing "an Antwerp" to London.

One sympathizes with Poul Rasmussen, Denmark's ex-premier and head of the European Socialists, in raging at the locust raid on his country by the private equity pack of Apax, Blackstone, KKR, Permira and Providence. Their leveraged buyout of Denmark's telecoms group TDC was textbook provocation. They quickly extracted $7.6bn in special dividends, leaving the company and its workforce saddled with debt obligations going into the downturn.

I do not see why funds should be allowed to distort the market to their advantage in this fashion, nor do I see why any democracy should tolerate it. It seems blindlingly obvious that the City should stop this nonsense before it does any more damage to the reputation and interests of this country.

That said, our predators did not cause the global financial crisis. The ultimate villains are the central banks of the US and Europe, which set the price of credit too low for year after year, and Asian governments holding down currencies for export advantage. The banks, buyout funds and assorted miscreants were mere instruments of destruction, not causal agents. If we fail to see that, we have learnt nothing.

We're going to win the election and kill the Lisbon Treaty, says Hague

William Hague yesterday became the first member of the Tory leadership to predict a Conservative victory next year and said that his party was psychologically prepared for government.

The man named by David Cameron as his “deputy in all but name” went farther than before in suggesting that a Tory government would kill the Lisbon treaty and halt the latest process of European integration. He promised immediate legislation for a referendum to reject the treaty if it had not been ratified by the whole of the EU by the time that the Conservatives took power.

He left open the door to the possibility of the Tories promising a referendum in their election manifesto even if the treaty had been ratified by then.

In an interview with The Times, the Shadow Foreign Secretary cast aside caution: “It is likely that we are going to be able to win the next election . . . I put it no more strongly than that.”

While there was no complacency in the party, he said that a trend was setting in. “However much opinion polls go up and down there is a mood of ‘this is long enough of a Labour government’ .” The Tories were psychologically prepared for government, he said. “We have the right mixture of excitement — when you have lost three elections it is quite exciting. But there is also a sober atmosphere, because if and when we win we will have the worst financial inheritance of any government in peacetime.”

In a sign of the leadership’s increasing confidence about the election, Mr Hague revealed details of handover talks with the Civil Service — and contrasted them with the “fantasy politics” that marked the talks he had held as Conservative leader in 2001.

Mr Cameron’s team has instructed the Permanent Secretary of the Foreign and Commonwealth Office to prepare for a “national security council”. Headed by Mr Cameron, it would include the defence, foreign, home and energy secretaries. Breaking with Labour’s “sofa government” it would be a decision-making body staffed by the Cabinet Office secretariat, he said. Putting the Foreign Office on notice, Mr Hague said: “That is one of the things we would expect them to be prepared for when we come to office.”

He said that, under Mr Cameron, the Tories approached the next election as a “genuine team”, in contrast to the divisions of the past — including those during his leadership. “One of the most refreshing things about coming back on to the front line was returning to a totally different atmosphere. David Cameron creates a great team atmosphere with the right combination of collegiateness and decisiveness.”

Mr Hague expressed confidence about the party’s advance, drawing attention to victories in the North. He said that it had moved at “the right pace” in laying out policy, promising new green papers in the coming months.

He acknowledged that the “budgetary situation had changed dramatically”, making it even more difficult to make specific pledges, but said that the party would know the Tories’ intended “direction of travel”.

The leadership was not “remotely complacent”. He was astonished that Gordon Brown had not cashed in on popular goodwill when he took over at No 10 and called a poll: “It was his best chance . . . He could well have won.”

He praised Mr Cameron’s coolness under fire when he was seen as “political toast” in the autumn of 2007. He recalled how, on the eve of the Tory conference, Mr Cameron had told his top team they had to achieve the “biggest political turnaround in modern political history” — in only a week that the Tories had achieved it. The episode had helped to bond Mr Cameron’s top team, he said.

Mr Hague used the interview to reassure President Obama and European leaders that a Tory government would be “active, energetic and engaged members of the EU”. The party had welcomed every foreign policy initiative by the new US Administration and Britain “owed” it to Mr Obama to back his plan for Afghanistan, he said.

The chances of the Lisbon treaty not being approved by next year, with difficulties in the Czech Republic and Poland and Ireland still to hold a second vote, were 50-50, he said. If his party wins, it will recommend rejection of the treaty in the referendum.

He also said that if the treaty were ratified in the run-up to the election or soon afterwards it would not have democratic legitimacy, implying that the British vote would still go ahead.

And for the first time he hinted that a referendum could still be promised in the Tory manifesto, even if the treaty had been ratified. Previously the Tories have said that they would not let matters rest in the event of the treaty being ratified but have declined to expand on what they might do.

Mr Hague said that, if it were not ratified by the time of a Tory victory, there would be a referendum “in the opening months” and a Bill preparing for the vote would be ready. If the treaty had been ratified, the party would, nevertheless, spell out in its manifesto what action it would take to reverse European integration. Pressed on whether in those circumstances a referendum could still be promised in a Tory manifesto, he said: “We would not rule anything in or out.”

The Shadow Foreign Secretary said that formal talks on an “amicable separation” from the European People’s Party in the Strasbourg Parliament had been completed. The Tories would leave after the European elections on June 4 to establish a new group. Its name had been decided and he was “very confident” that parties from the required minimum of seven nations would sign up. “We’ve got lots of partners in the wings.”

On issues such as climate change, energy liberalisation and the single market they were “great enthusiasts”. “Our difference is that we are not in favour of the institutional aggrandisement of Brussels,” he said.

Asked whether he expected British troops to be in Afghanistan at the end of a first Tory Parliament, he said. “They will be if we’re getting somewhere. We’re not going to succeed in Afghanistan if people think we’re going to walk away every five minutes.”

Britain had borne a “disproportionate” military burden, he said, but hinted at support for Mr Obama’s “reinforcement of the military position”. There was consensus with the Government on much foreign policy, but a Cameron administration would give higher priority to relations with the Gulf states and India. The role of the Commonwealth would be restored.

Mr Hague defended Mr Cameron’s record on promoting female Tory MPs. He said that the aspiration that a third of all ministers would be women by the end of a first Tory government was a “correctly ambitious goal”. In seats where sitting Tory MPs were standing down “about half” of the candidates were women. Mr Hague admitted that one of his mistakes as leader had been to pull back from insisting that a woman be on every selection shortlist.

Asked whether the Tories were in danger of seeking to “coast” to victory, he replied sharply: “Do we look like we are coasting? There is a lot of hard work going on here.” He defended Mr Cameron against accusations of over-caution, citing the leader’s frank warnings over the need for public sector control. “I don’t think that’s overcautious, David Cameron is bold.”

He said that the leadership was examining savings in public spending. The MoD budget was “not immune”. But he again pledged his party to upgrading the Trident nuclear deterrent.

Mr Hague, who cheerfully admitted having made “a lot of money” in his time away from frontline politics, backed the full disclosure of MPs’ outside earnings. He said things were “not so bad” when MPs were not paid at all and Parliament was made up of those “enterprising enough to have some other income”.

Hague attacks Brown on EU treaty

William Hague has accused Gordon Brown of "debasing the coinage of politics" by not holding a referendum on the European Union's Lisbon Treaty.

The shadow foreign secretary said Labour has squandered voters' trust by not giving them a say on EU reforms. He used speech ahead of June's European elections to argue this is a betrayal of Labour's manifesto promise of a referendum on the failed constitution.

Britain became one of 25 EU nations to ratify the Lisbon Treaty, which aims to streamline the EU's institutions and replaces the failed EU constitution, after a Parliamentary vote in June last year. The document has proved controversial, with unsuccessful attempts in the UK Parliament and the courts to force a referendum on the issue.

Mr Hague used his speech to put the treaty at the heart of his party's campaign for the European Parliament elections on 4 June.

He told the Conservative Spring Forum in Cheltenham: "The message we will take to the doorsteps in the coming weeks is that if you vote Conservative it is not too late to have the referendum you were promised. It is a matter of trust; it is a matter of faith in politics

"It is not too late to send Gordon Brown a message on June 4 so loud he cannot ignore it, and it is not too late to elect a Conservative government that will fulfil the promise that all parties made at the last general election and to which only the Conservative Party has stayed true."

Mr Hague repeated the Tory promise to hold a referendum on the Treaty if it remains unratified by any of the EU's 27 states if the party is elected to government.

"It is a matter of trust; it is a matter of faith in politics; and our commitment rests on the truth that, in a democracy, lasting political institutions cannot be built without the people's consent," he is expected to argue.

Mr Hague went on to say the government has contributed to the public's "disillusionment" with politics and justified their "mistrust".

"They have not only devalued the currency of the nation, but their breaking of promises has been so brazen, and in the case of the referendum so inexcusable, that they have debased the coinage of politics itself.

"Their legacy will be to leave office with the word of government less believed than at any time in our lifetimes - another aspect of the scorched earth they will leave behind them, on which only a new government can plant the seeds of trust and belief afresh."

Tory MEP Daniel Hannan, whose three-minute European Parliament speech attacking Gordon Brown as the "devalued prime minister of a devalued government" became a worldwide hit on YouTube, gaining more than two million hits, is to address the party's spring conference on Sunday.

The Lisbon Treaty is awaiting approval by the Czech senate and president and Poland's president.

In Germany, despite parliamentary approval, the constitutional court is studying the treaty to judge whether it conflicts with the German constitution.

It will also face a second referendum in the Irish Republic, where it was rejected in 2008.

Under EU rules, the treaty cannot enter into force if any of the 27 member states fails to ratify it.

We've got it all wrong on fishing strategy, says EU

Stocks of cod, bluefin tuna and anchovy have been almost fished to extinction

David Charter in Brussels, The Times, April 23, 2009

Europe’s fishing industry is on the brink of suicide and several species are in danger of extinction after 25 years of policy failure,the European Commission said yesterday.

Officials admitted five key failings in the EU’s Common Fisheries Policy as they prepared to tear up the idea of a centrally dictated strategy. They launched the search for an alternative, saying that much of the responsibility for fishing must be returned to EU member states.

One key failing that has led to the near-extinction of stocks of cod, bluefin tuna and anchovy is the “deep-rooted problem” of fleet overcapacity, with campaign groups arguing for a 40 per cent cut in the EU’s 90,000 vessels. Its admission that Europe’s controversial fisheries policy had failed was broadly welcomed by the fishing industry.

The Commission said that 88 per cent of EU stocks were overfished, compared with only 25 per cent worldwide.

“Most of Europe’s fishing fleets are either running losses or returning low profits,” said Joe Borg, the EU Fisheries Commissioner, in a Green Paper published yesterday. “There is chronic overcapacity, of which overfishing is both a cause and a consequence — fleets have the power to fish much more than can safely be removed without jeopardising the future productivity of stocks.”

He said that cuts in fleets of only 2 to 3 per cent a year had been offset by increases in catching capacity.

Ministers from individual EU states were given much of the blame in the Green Paper. They meet every December to set fish quotas and every year they override expert scientific advice, which, for example, has been calling for cod fishing to be closed in the North Sea to allow it to recover.

Last year 93 per cent of cod was caught before the fish were mature enough to reproduce. But a higher cod quota was set for this year, under pressure from member states.

“Sustained political and economic pressure has led industry and member states to request countless derogations, exceptions and specific measures,” the Green Paper stated.

Many EU fishermen then receive subsidies to help them to stay in business — for instance, those involved in the anchovy grounds that have been closed to save the species. “European citizens almost pay for their fish twice: once at the shop and once again through their taxes,” said the Paper.

One of the most senior European Commission fisheries officials added: “The sector is overfishing and, if you like, committing suicide.”

Spain has the biggest fleet in terms of tonnage, but its 11,350 boats are still outmatched by Greece, which has 17,350, and Italy with 13,700. France, which traditionally is at the forefront of industrial action against EU fishing restrictions, has almost 8,000 boats.

Britain has 6,763 fishing vessels, according to an official survey in 2007, compared with 8,458 ten years earlier.

The EU consultation, which will run to the end of the year, will be followed by studies next year, but it will be 2011 or 2012 before decisions must be taken.

Campaigners called for the politicians to be taken out of detailed quota-setting. “Cod in Newfoundland never came back after it was fished to extinction and bluefin tuna is going the same way ,” said Julie Cator, of Oceana, a marine conservation organisation. “We cannot keep fishing down the ecological chain until we are left with jellyfish.”

Bertie Armstrong, chief executive of the Scottish Fishermen’s Federation, said: “Reform is very necessary indeed — by anyone’s standards the Common Fisheries Policy has failed.”

Richard Lochhead, Scotland’s Fisheries Minister, said: “Those who are best placed to protect our precious fishing stocks are those with the greatest interest in them. Therefore, it is fundamentally wrong for landlocked member states, and others with no interest in crucial Scottish fisheries, to have a decisive say over how that resource is managed.”

Aaron McLoughlin, head of the European Marine Programme at WWF, said: “The Commission have produced an admirably honest critique of a dysfunctional fisheries policy.” He said the successful fisheries of Alaska, New Zealand and Norway, based on long-term management plans for fish stocks and cuts in fleet capacity, could be copied in Europe.

William Hague interview: Gordon Brown could be forced into European referendum

Gordon Brown could be forced to call a referendum on the new European "constitution" if faced with a large protest vote in the forthcoming European elections, the Conservatives believe.

By Robert Winnett, Deputy Political Editor, Daily Telegraph, 10 Apr 2009

In an interview with today's Daily Telegraph, William Hague, the shadow Foreign Secretary, says that Britain urgently needs to renegotiate its relationship with Europe. It will be a priority for the Conservatives if elected.

He is particularly angered at suggestions that Tony Blair is being lined up to become the first full-time EU president.

Mr Hague and David Cameron are planning to make the failure of the Government to call a referendum a key campaigning point in the run-up to June's European elections. The shadow Foreign Secretary today calls on Britons to use the elections to cast a "protest vote".

However, it represents a risky strategy for the Conservatives which could open a rift within the shadow Cabinet over European policy in the run-up to the general election.

Mr Hague says that he expects Ken Clarke, the shadow Business Secretary who is a passionate supporter of the EU, to vote against the Lisbon Treaty in any referendum.

He also indicates that the Conservatives are likely to attempt to scrap the Treaty - possibly by calling a retrospective referendum - if they are elected.

The Prime Minister has faced intense public criticism after reneging on a Labour manifesto commitment to call a referendum on a European constitution. The Daily Telegraph has campaigned for a referendum.

Labour claim that there is no need to ballot voters on the renegotiated constitution - known as the Lisbon Treaty - although it is virtually identical to the original agreement.

In the run-up to the last European elections in 2004, Mr Blair was forced to offer a referendum in the face of widespread public concern.

Mr Hague now believes that the Government could be forced into a similar climbdown. The Irish are preparing to hold another referendum on the Treaty in the autumn.

"It's not too late to stop the Lisbon Treaty," Mr Hague said. "I think it's time to ring the alarm bell, it's time to alert people to the fact that this denial of democracy is not far away unless we do something.

And the opportunity to do something is in the European elections, which are only two months away now."

"It's possible to make Gordon Brown change his mind. If you remember in 2004, in the run-up to the European elections that is when Tony Blair did his famous u-turn on the referendum.

"He [Mr Brown] doesn't want to have a referendum, he doesn't like having elections about anything. But I think it's a Government of such spectacular u-turns you can't rule anything out."

The shadow Foreign Secretary reveals that other European leaders have discussed with him the possibility of Mr Blair becoming the first president of the EU. "Our point about this is that this would be unacceptable to the majority of people in Britain," he said. "It would be a double denial of democracy because we would have a former Prime Minister returning to a position of influence and power over British affairs without any electoral mandate of any kind.

"If a figure like Tony Blair assumed the presidency of the EU, it would be Tony Blair who went off to visit the White House claiming to represent all the people of Europe including Britain once again. Just when people thought they were free of that, that would be back, And they wouldn't be able to do anything about it."

The shadow Foreign Secretary, who is also Mr Cameron's deputy, insists that he is not concerned about campaigning against further European integration. The issue has previously proved highly damaging for the Conservatives as splits within the party emerged.

Ken Clarke, before returning to the shadow cabinet, earlier this year said that calls for a referendum were "absurd". However, Mr Hague today makes it clear that Mr Clarke will now be expected to block the Lisbon Treaty.

When asked if Mr Clarke would have to vote "no" in any referendum, Mr Hague said: "I wouldn't expect any member of the shadow Cabinet to oppose the party's policy...to reject the treaty. Ken has joined the shadow Cabinet in full knowledge of our policy on this."

Mr Hague signals that, if the Conservatives are elected, he plans to spend the first few months in office renegotiating Britain's relationship with Europe. He is not concerned about being isolated at a time when Barack Obama is making extensive efforts to improve relations between America and the EU.

"We are committed to restore national control to social and employment law," he said. "It is something we feel very strongly about, it is something that will be reflected in our manifesto but clearly it is also something that has to be negotiated.

"The EU should be concentrated on adapting to globalisation and global competitiveness, not building more powerful centralised institutions in Brussels," he said.

The former Conservative leader refuses to reveal exactly what he plans to do if the Lisbon Treaty is ratified and he becomes Foreign Secretary.

However, he makes it clear the Conservatives would consider calling a referendum retrospectively - which could dominate the party's early months in office if they are elected.

"We will address that if we come to that point," he said. "We would face a treaty that lacks democratic legitimacy and we wouldn't let matters rest there...You can still get a referendum on Lisbon. If that happens we don't have to worry about what we do if it is ratified."

Mr Hague's call to tackle further European integration will delight many Conservative activists. The shadow Foreign Secretary is one of Mr Cameron's closest frontbench colleagues and friends say he is relishing the prospect of becoming Foreign Secretary.

He is already beginning to "run down" his outside interests which have proved a source of controversy. If the Conservatives are elected, it is thought he may only serve for one Parliamentary term and he will therefore be keen to make rapid progress on the delicate task of extricating Britain from legally-binding European commitments.

The DM says: The Conservatives might be persuaded to take a stronger line on the EU, but only if they fear losing votes. Make the European Elections our referendum.

Britain must take back control of its own laws

Telegraph View: It is time for the UK to opt out of the jurisdiction of the European Court of Human Rights

Sunday Telegraph leader, 4 Apr 2009

Lord Hoffmann, one of Britain's most senior Law Lords, has fired a well-aimed bullet at the heart of one of the great sacred cows of contemporary political and legal life: the European Court of Human Rights which sits in Strasbourg. This institution, as Lord Hoffmann pointed out in a lecture to the Judicial Studies Board, has arrogated to itself the power to be the ultimate arbiter on any issue which the Court interprets as involving human rights. Since, as the Court's practice demonstrates, it thinks that almost every legal matter involves fundamental rights, it has given itself the power to dictate to Britain – and the other 47 countries that have signed the European Convention on Human Rights – what laws should be obeyed .

As Lord Hoffmann also patiently explains, there is no legitimate basis for the Court's conception of its power. When Britain signed the treaty which created the Court nearly 60 years ago, the government of the day did not think that it was surrendering sovereignty over the law: it did not believe that it was creating the equivalent of the Supreme Court of the United States, which would then dictate federal law for all the states of Europe. But that is how the judges on the European Court have conceived their task. They have ruled – to give one example of many – that British courts infringed human rights when they allowed a statement by a woman who had been raped by a doctor to be admitted as evidence against him in his trial. The woman had been so traumatised by what the doctor had done to her that after she had given her statement to the police she committed suicide. The Strasbourg Court nevertheless overturned the doctor's conviction on the grounds that her evidence was "hearsay" and should never have been allowed.

Even if the judges on the Strasbourg Court were of the very highest quality, that would not give them the entitlement to overrule settled law in Britain in that way. But they are not of the very highest quality. In fact, their legal reasoning is often incompetent. They reached their decision in the rape case, for example, without even reading the careful examination of the question by our own Law Lords. Every one of the 47 countries that have signed the Convention is entitled to a judge on the Court. Judges from countries such as Bulgaria, Romania, Slovenia and Russia – states which have little experience of the rule of law, never mind of human rights – receive a tax-free salary of £200,000 a year for handing down decisions which overturn laws made in Britain.

The solution is simple: Britain should formally opt out of the jurisdiction of the European Court. Lord Hoffmann's quarrel is not with the European Convention of Human Rights, which he thinks was rightly incorporated into British law by the Human Rights Act of 1998. His issue is with the way those rights are interpreted by the Strasbourg Court. Human rights can be interpreted in different and conflicting ways by different countries, as the difference between the way Britain and the United States interpret, say, the law on freedom of the press illustrates. It is the fundamental mistake of the Strasbourg Court to believe that there should be uniformity on the interpretation of rights, and to impose it when in fact such issues can only be resolved at a national level, by answers that are informed by the legal and political traditions of each individual nation.

Britain needs to take back control over its own laws. Many of the objections to the Human Rights Act evaporate if its interpretation were left to British judges, rather than being ultimately determined by judges on the Strasbourg Court. We hope that if Labour cannot bring itself to see the merit in Lord Hoffmann's arguments, the Conservatives will – and that the ability of the British people, and British institutions, to determine the nature of the laws we have to obey will be returned to this country.

Now we treat our fishermen like drug dealers

Fishermen have been ruined and sent to jail thanks to a ruthless war waged by the marine agency, says Christopher Booker.

By Christopher Booker, Sunday Telegraph, 4 Apr 2009

The Proceeds of Crime Act is now invoked in the cases of fishermen exceeding their EU quotas Photo: PA
We now know where the EU's Common Fisheries Policy, brought into being after Edward Heath gave away Britain's fishing waters in 1973, has ended up. The answer is in Walton Prison, Liverpool, a notoriously tough jail where two respected fishermen from Northern Ireland, Charlie McBride and his son Charles, are currently incarcerated.

Although I briefly noted this story last week, it is so shocking that I now return to it in greater detail. In December 2007 the two McBrides appeared in Liverpool Crown Court, having pleaded guilty earlier in the year to misidentifying catches of fish for which they had no quota under EU rules. But instead of just asking for fines to be imposed on fishermen who break quota rules, the Marine Fisheries Agency (MFA) now has a new tactic. It calls in the Serious Organised Crime Agency (Soca) to use the Proceeds of Crime Act, designed to recover money from international drugs traffickers, money launderers and other major criminals.

Soca – which last year replaced the Assets Recovery Agency, after it had spent £65 million to recover £23 million – assumes that if someone has benefited from the proceeds of crime for more than six months, he is living "a criminal lifestyle". Everything he owns can then be deemed to have derived from criminal activity.

In the case of Charlie and Charles McBride, all their assets were thus valued at more than £1 million, including their boat and homes (valued at the height of the property boom). On this basis Judge Nigel Gilmour not only imposed on them fines of £385,000 – infinitely more than the value of the fish they had wrongly declared – but ruled that all their assets should be frozen as "proceeds of crime", even though the home and boat had been bought before the offences were committed. He also told the men that, unless they paid the fines within six months, they would go to prison for up to three years.

At their wits' end as to how to raise the money, the two McBrides negotiated a second mortgage on their homes. Charlie McBride presented Soca with £120,000, asking that it should be taken as a down-payment on the fine until he had somehow found the rest. The agency asked how he had come by the money and, when told that it came from remortgaging his house, told him that he would be charged with contempt of court because the house was a "frozen asset".

Two weeks ago the two men were accordingly jailed for contempt, and having been allowed one telephone call to tell his wife Karen what had happened, Charlie is now serving out his sentence as a prison refuse collector.

So delighted is the MFA at discovering the Proceeds of Crime Act that it has used this sledgehammer tactic twice more in the past year. Three Thames fishermen were fined £317,000 for catching sole for which they had no quota. (Most of the UK sole quota
had been given to foreign fishermen.)

In January the owners and skippers of six Newlyn boats were fined £188,000 for catching hake for which they had no quota (though hake were abundant). Among those fined were an 83-year-old widow, Doreen Hicks, and 82-year-old Donald Turtle and his wife Joan. They were found guilty by Judge Wassell because they were part owners of boats skippered by their sons.

In all these cases, the absurdly disproportionate fines have caused serious hardship; but the McBrides are the first fishermen who have been not only ruined but sent to jail, thanks to the ruthless war waged by the MFA.

When Mr Heath gave away Britain's fishing waters 36 years ago, his ministers lied to Parliament by pretending that we still retained control of our waters out to 12 miles. But even Mr Heath cannot have foreseen the day when, thanks to the zeal of British officials and judges, our fishermen would end up alongside violent criminals in a Liverpool prison.

EU Commissioners to take home more than £1 million each on leaving office

New research from Open Europe has found that European Commissioners leaving office later this year will receive more than £1 million each in pension payments and so-called 'transitional' and 'resettlement' allowances.

Long-serving Communications Commissioner Margot Wallstrom - whose main job has been to promote the EU - will receive almost £1.8 million if she leaves the Commission this year.

Meanwhile, UK Commissioner Catherine Ashton, who replaced Lord Mandelson and who has been in the job for less than a year, will qualify for an ample pension of £9,600 a year, in addition to three years of 'transition' payments, valued at over £89,000 a year. On top of this, she will receive a £18,700 'resettlement' allowance.

This is in addition to the salaries and perks that Commissioners are entitled to during their term of service. Commissioners receive basic salaries of at least £220,000 a year (more for Vice-Presidents and the President) - meaning that in one five-year term alone, a Commissioner earns in excess of £1 million.

Commission President Jose Manuel Barroso receives an annual salary of over £275,000, which is almost exactly equivalent to US President Barack Obama's salary ($400,000). This is in addition to a host of other perks, which include residence allowances of 15% of their salary (£40,000) and monthly 'entertainment allowances'.

Reacting to the news, European Commission spokesperson Valerie Rampi justified the pay-outs, saying, "Open Europe didn't discover anything new, it's all public and online... Everyone who has worked as a commissioner is entitled to pension rights, like you and me". She said the money was to help Commissioners with their "re-entry" into the non-EU world. (EUobserver, 24 March)

She also denied that Commissioners received "golden one-off payments", despite the fact that all will receive £18,700 in 'resettlement' allowances. Chief Spokesman Johannes Laitenberger said the payments system helped Commissioners "to preserve their independence". (AFP , 30 March)

Meanwhile, Danish Commissioner Mariann Fischer-Boel told newspaper Politiken "I'm worth all the millions", while Belgian Commissioner Louis Michel denied the figures, and told newspaper De Standaard: "if that's true, I'll retire immediately". The paper reported: "After consulting an assistant, the report seems to be accurate. This was followed by Louis Michel suddenly changing his tune, saying the compensation is completely justified. "We are being well paid, that is. But every morning getting up at 5 o'clock, lots of travelling, heavy files... This is a parachute, but not a golden one'". (Politiken, 25 March; Standaard, 27 March)

French daily Le Monde noted that Commission salaries are "historically high" in order to be competitive with the salaries in the steel-manufacturing industry, which prospered in the 1950s when the European Community was first conceived. The Malta Today reported that Fisheries Commissioner Joe Borg is "Malta's highest paid pensioner". (Malta Today, 29 March; Le Monde, 1 April)

For details see: http://www.openeurope.org.uk/media-centre/pressrelease.aspx?pressreleaseid=102, or EU Waste

Lisbon Treaty round-up: Europe Minister admits she has not read the Treaty

During questions in Parliament this week, Europe Minister Caroline Flint admitted that she had not read the EU Lisbon Treaty in its entirety. Following a series of vague answers on the implications of the Treaty for European defence, Shadow Europe Minister Mark Francois asked, "Has the Minister read the elements of the Lisbon Treaty that relate to defence?". Ms. Flint replied, "I have read some of it but not all of it." She went on to say: "I have been briefed on some of it."

Reportedly, Flint's admission went down like a "lead balloon" in the Foreign Office. A colleague said: "Her department is both furious and embarrassed...She was given a copy by her staff as soon as she got the job". (Express, 1 April)

Mark Francois said, "It's wonderfully honest of the Minister for Europe to admit that she hasn't actually read the renamed EU Constitution. It's not every day that someone will admit they haven't read the most important document for their job. Her astonishing admission does leave some questions. How does she know if the Treaty's good for Britain if she hasn't read it? How could she lecture the Irish that they'd only rejected the Lisbon Treaty because they didn't understand it?" (Parliamentary Committee debate, 30 March; Mail Telegraph Sun, 1 April)

Meanwhile, plans to tack proposed Irish 'guarantees' onto the Lisbon Treaty via the Croatian Accession Treaty have run into opposition in the European Parliament. The 'guarantees' were agreed by EU leaders in December in return for a second Irish referendum on the Treaty. Liberal Democrat MEP Andrew Duff, one of three MEPs who sat on the intergovernmental conference that drew up the Treaty, told journalists that adding an Irish-specific protocol with legal guarantees to an accession treaty was not legally possible.

He said: "Adding this protocol to the Croatian accession treaty would leave the treaty wide open to attack in the courts." He said that rules in the EU treaties governing accession treaties only allow issues pertaining to a state's accession to be dealt with, and that the insertion of an Irish protocol into the EU treaties may have to wait for a new EU treaty to be drawn up and ratified.

Irish PM Brian Cowen has said that the 'guarantees' promised by EU leaders "must be legally robust in order to reassure the public about the treaty". A final decision on how to structure the guarantees is expected at an EU summit planned for June. (Irish Times, 2 April)

Meanwhile, the resignation of Czech Prime Minister Mirek Topolanek, current holder of the EU presidency, has the potential to impact on the ratification process in both the Czech Republic and Ireland. Czech Deputy Prime Minister Alexandr Vondra said that the government's collapse will make it harder to ratify the Treaty in the Czech Senate. "The ratification process is on track...but it will be a lot more difficult now to convince people to vote in favour," he said. In addition, it is Czech President Vaclav Klaus, a critic of the Treaty, who has the power to choose who forms the next government. (FT, 26 March)

EU Commission President Jose Barroso reacted by saying, "The Czech Republic has signed the treaty and so the Czech Republic has an obligation to ratify. I really hope that this domestic, political development is not used as a way to put in question the treaty." The President of the European Parliament, Hans-Gert Pöttering said, "I cannot imagine that 10 million Czechs will turn against (the other) 490 million EU citizens." A European Commission official has said the situation has the potential to influence a second Irish referendum in October: "if it is still stuck in the Czech Republic by then, it becomes a lot less risky for the Irish to vote against. Then they are not the only bad guy". (Telegraph, 26 March; Volkskrant, 27 March)

Irish Foreign Minister Michéal Martin, who is negotiating the terms on which to hold the second Irish referendum, said, "Now we have to see how things evolve with the Czech presidency and who we will be negotiating with...that's a bit more complex than we would have anticipated." (FT, 26 Marc

Britain sees 40 per cent rise in cash lost to Brussels, National Audit Office says

The public spending watchdog has raised concerns about how Brussels is spending the increasing amount of cash given to it every year by Britain.

The National Audit Office found that Britain's net cash contribution to Brussels jumped by 40 per cent to more than £4billion between 2006 and 2007. In the same year, the total value of reported irregularities rose by 20 per cent to €1,392 million (£1.3billion) across all European Union countries, a report published today finds.

This figure is set to continue rising. Treasury figures released in December showed that the net payment to Brussels in 2008/09 will be £6.1 billion.

The rises are the result of a 2005 agreement by Tony Blair - with Gordon Brown's backing - to a staged series of cuts in the rebate, which was won by Margaret Thatcher in 1984.

The report found that 11 per cent of the cash intended to offer economic support for member states was mis-spent. Errors were mainly due to inclusion of ineligible costs, over-declaration of money spent, or failure to respect procurement rules. Of the irregularities across all member states, the United Kingdom reported 1,666 irregularities (including possible fraud), an increase over 2006, up 18 per cent.

The report, Financial Management in the European Union, found that for the first time the European Court of Auditors has confirmed the acounts gave a "true and fair view". But for the 14th year running, there was no positive "statement of assurance on whether the underlying transactions conformed to applicable laws and regulations".

Edward Leigh MP, the chairman of the Public Accounts Committee, said: "EU financial systems are still far too complex."

Mr Blair, as Prime Minister, justified the removal of Britain's EU subsidy as an "anomaly" and said it had to be linked to farm subsidy reform.

Matthew Elliott, chief executive at the TaxPayers' Alliance said Britain was spending more and more on Brussels and getting "fewer tangible benefits in return. It was bad enough that the Government abandoned the rebate, but it is very worrying that even the Treasury don't seem to understand how much that deal is going to cost."

"It's time the Government grew a backbone and started doing what's right for Britain, instead of kow-towing to Brussels."

Philip Hammond, Shadow Chief Secretary to the Treasury, added: "It is outrageous that the EU's shambolic financial management will force struggling British taxpayers to surrender even more of their hard-earned money to Brussels - particularly when this is partly due to weak financial controls here in Britain.

"Yet again, people will be furious that Gordon Brown signed away a huge chunk of Britain's rebate in return for absolutely nothing."

You can forget about getting British justice

To help fulfil the EU dream, you could end up in a foreign jail, says Alasdair Palmer.

Telegraph, 20 Mar 2009

It has often been claimed that the project of "ever-closer union" within the EU is over, killed when the Lisbon Treaty was rejected by the Irish, the only people who had the chance to vote on it. That's a big mistake. The Eurocrats think integration is inevitable and essential – and they are certainly not going to let it be derailed by anything as vulgar as the fact that most of the EU's citizens do not want it.

Perhaps the best example is an imminent change to the justice system, designed to make it easier for one state to imprison citizens who live and work in another. Under the present rules, the Government is not obliged to hand over a British citizen who has been convicted of a crime in another EU country. There are very good reasons for that. The procedures of justice are not of a uniformly high standard across the EU.

The EU must be made to listen to concerns. Organisations such as Fair Trials International have many examples of British citizens who have been convicted of crimes in countries such as Romania, Bulgaria, Greece and even Portugal, where the most basic elements necessary to a fair trial were absent, and where the defendant was not even present.

It is true that British judges do not always treat claims by, say, a Romanian court that a British citizen was given "a fair trial" in his absence with the scepticism they deserve. However, British courts do have the power, at present, to decide that it would not be in the interests of justice to extradite a Briton who was not present at his own trial to serve his sentence in a foreign jail.

Under the new regulations, we will lose that power: our courts will be compelled to order the extradition of British citizens to any EU country that wants them. The state that wants to extradite a Briton will simply have to sign a form which says that it told the Briton of his trial, and gave him some form of legal representation.

Such an assurance will, in many cases, be worthless – at least without independent investigation and verification.

Bulgaria, for example, is the only country in the EU that claims to have implemented "99 per cent of EU regulations". In fact, even the EU recognises that almost none of its regulations is complied with in Bulgaria. That country is also universally recognised as being totally corrupt, with the police and judiciary being particularly rotten.

The EU enthusiasts, however, simply pretend that "variations in the standards of justice" do not exist. So once the forms have been received by the British government, that will be that – you will have to be packed off to serve the sentence imposed on you by a Bulgarian court, at a trial at which you were not present, and may not even have been told about. And it doesn't matter what the offence is: it could be a traffic misdemeanour, it could be misuse of your credit card, or it could be murder.

Our Government has not just enthusiastically endorsed the new regulations: it has sponsored the legislation, passed by a huge majority in the EU Parliament last September. Why? No one seems to know.

The Ministry of Justice has said the change will "help our citizens", but I cannot see how it will help anyone to lose any protection that the British government might have been able to provide against the injustices perpetrated by foreign courts. That, however, is the only "benefit" that this new regulation will deliver.

Do not be fooled by Labour's weasel words. This is about showing the EU bureaucrats that we are committed to "ever-closer integration" – and if that means giving up our ability to protect British citizens from injustice, then that's just fine by our Government.

Those EPP extremists and fascists in full

José Manuel Barroso is cross because the Tories are leaving the Euro-fanatical European People's Party. Paul Waugh of the Evening Standard glosses the Commission President's remarks as follows:

"Why is Cameron linking up with fringe parties, some members of which have strange views on climate change, homosexuality and race?"

Hmm. Let's have a look at some of these "fringe parties", shall we? Here's the Deputy Speaker of the Polish Sejm rejoicing in a court's decision to deprive a lesbian mother of custody of her four-year-old daughter: "The court didn't bow to pressure from the aggressive homosexual lobby, which came to make a scene as usual".

Here's a blatantly homophobic poster from last the Italian general election ("Daddy and Papa? This isn't the family we want!")

Here's the first minister of Hesse calling for deportations: "We have too many criminal young foreigners... Germany has had a Christian and Western culture for centuries, and foreigners who don't stick to our rules don't belong here".

(Even more blatant, incidentally, was that party's slogan in North Rhine-Westphalia in 2000, when it campaigned against the proposed immigration of computer programmers from India with the slogan Kinder statt Inder: "Children rather than Indians".)

And let's not forget the Austrian party whose Secretary General recently called for the banning of burqas, adding: "If we allow consultations to be held in Turkish, we will one day become Turkish ourselves".

What do you reckon? Acceptable partners for the modern Cameronian Conservatives?

Well, here's the thing. All these parties are currently in the EPP. They are, respectively, the Polish Civic Platform, Forza Italia, the German CDU and the Austrian People's Party.

Now you might object that I am quoting them selectively. You might protest that every party has its share of cranks and bigots. You might argue that a quick Google would reveal similar dirt on pretty well any party in Europe. And you'd have a point.

But can you imagine what Labour and the BBC and the Guardian would be making of these remarks if they had come from parties whom the Tories want to join outside the EPP?

Actually, you don't have to imagine. Ten years, the same Paul Waugh, then working for The Independent, wrote several reports about how the Conservatives were about to link up with "Italian neo-fascists". The reports were unfounded: no one had the slightest intention of sitting with the Alleanza Nazionale (which is whom he meant): as if its fascist roots weren't enough to disqualify it, the party was also anti-American, corporatist and Euro-fanatical. Not that this stopped the Indy running pompous comment pieces about "Tory extremism", and filling its pages with pictures of Mussolini.

Well, guess what? The Alleanza Nazionale is now joining the EPP. I've been scouring the pages for the denunciations by all those who have spent the past decade raging against the rumours of a Conservative/Alleanza tie-up. At the very least, Paul himself, having made such a big deal out of it, ought to be congratulating David Cameron for walking out the EPP rather than allowing his MEPs to sit with "the heirs to Mussolini". Oddly, I can't find anything by him yet. I'm sure it's on its way.

There is a serious point here, and it has to do with double standards. Being pro-Brussels is somehow regarded as an inoculation against the possibility of extremism. You can't possibly be a bigot, reason Leftie commentators, if you want to give more powers to the EU. (Actually, plenty of fascists have been Euro-fanatics, from the 1930s to the present day.) Do try to be even-handed, guys. There are good and bad people who oppose the EU, and there are good and bad people who support it. Any party can be caricatured through selective quotation. But being against Euro-federalism doesn't ipso facto make anyone extreme

Is the Euro Sustainable?

Libertas to contest European Elections in UK

Libertas website, 10 March 2009

Libertas, the movement that led the successful campaign against the Lisbon Treaty in Ireland, is to run candidates in the UK for the European Elections. The party will also contest elections in countries across Europe to get the voters' mandate to bring more democracy, accountability and transparency to European Union governance.

Announcing the UK campaign today, party chairman Declan Ganley said "Almost 80% of laws that change the daily lives of Britons come from Brussels, and those laws are drafted by unelected, unaccountable civil servants. Brussels does not want to answer to the people of Europe. We want to bring the EU back to its people."

Heading the campaign in the UK is Robin Matthews, a former British Soldier. Speaking at the launch, Robin Matthews said "By building a pan European bloc of seats in the European Parliament, Libertas offers the only real opportunity for people across the UK to get a better deal from Europe. National parties are powerless - the biggest UK party in the European Parliament has less than 4% of the seats and represents only one country out of 27".

On the Lisbon Treaty, Declan Ganley said “The Labour government promised the people of the UK a referendum on the Lisbon Treaty and then reneged on the promise. This election is the last and best chance that voters have to send a very clear message that they do not support the Lisbon Treaty.” . Robin Matthews added "If people want a strong and healthy Europe that is democratic and answerable to them, they should vote for a Libertas candidate. If they do not want Europe to succeed or if they are happy with the current undemocratic practises, then they should vote for another party".

Libertas is to run candidates right across the United Kingdom and is currently building its candidate lists.

The DM says:There will be several parties supporting a referendum on Lisbon in the elections. Make the European Elections our referendum.

Sitting MEPs join Libertas for election campaign in France

The Libertas European Parliament election campaign in France kicked off today with political parties Mouvement Pour la France and CPNT announcing that their candidates will run for Libertas. Jérôme Rivière, a former member of Parliament for the ruling UMP party, will be Campaign Director for Libertas France.

Speaking at the campaign launch in Paris, Libertas Chairman Declan Ganley said “millions of French people have shed blood throughout the generations to achieve democracy. That democracy is being taken away from the French by elites in Brussels. Those elites tried to silence the voice of the French on the European Constitution. They tried with the Dutch and they tried with the Irish. It’s time to change.”

Philippe de Villiers, President of Mouvement Pour la France, sitting MEP, and candidate for Libertas said “we want a Europe that defends its peoples’ interests, not attacks them. We want a referendum on the Lisbon Treaty. We want the democratic will of the people of France to be treated with respect.”

Frédéric Nihous, chair of CPNT and candidate for Libertas said “We do not want the Europe that belongs to Brussels. We want another Europe. A Europe that is ours.”

As well as running candidates in all eight constituencies in France, Libertas will support candidates in all 27 member states. By building a pan European bloc of seats in the European Parliament, Libertas offers the only real opportunity for people across France to get a better deal from Europe. National parties are powerless - the biggest French party in the European Parliament has a tiny proportion of the seats and represents only one country out of 27.

Declan Ganley called on the people of France to “vote for democracy. Vote for France. Vote for Europe”. He said “France must be at the heart of the democracy renaissance in Europe. You have the audacity and the ambition to make a change”

THE LEAKED BRITISH E-MAIL ON THE IRISH GOVERNMENT’S REFERENDUM STRATEGY

IRISH DAILY MAIL: (Front page report on Monday 14 April 2008 + Editorial on page 14)

THE TREATY CON

The Government has hatched an elaborate plan to deceive voters over the forthcoming EU treaty referendum, the Irish Daily Mail can today reveal.
A leaked email shows that ministers are planning a deliberate campaign of misinformation to ensure that the Lisbon Treaty vote is passed when it is put to the public as required by the Constitution

Foreign Affairs Minister Dermot Ahern has even been personally assured that the European Commission will “tone down or delay” any announcements from Brussels “that might be unhelpful”. Alarmingly, the email says that ministers ruled out an October referendum, which would have been better procedurally, because they feared “unhelpful developments during the French presidency - particularly related to EU defence”. This suggestion will raise grave fears that the State’s constitutional commitment to military neutrality could be undermined by the treaty - a rehashed version of the failed EU constitution.

The memo was sent to the British government by Elizabeth Green, a senior UK diplomat in Dublin, following a briefing from Dan Mulhall, a top official in the Department of Foreign Affairs. Its aim was to relay to her political masters in London the lengths to which the Government here was going to in its bid to ensure a “Yes” vote in the referendum.

Ireland is the only EU state which is allowing voters a say on the treaty, and European heads of state are terrified that they will reject it. Campaigners have warned that the new treaty could remove Ireland’s powers to decide its own tax rates and social policies.

However, the most controversial aspect is the likelihood that it will be used to advance the concept of a “European army” which would violate the principle of neutrality that has long been a foundation-stone of the State. France is particularly keen to advance the notion of an EU force, which critics fear could be ordered into action over Irish objections by a majority vote of EU heads of state.

Already concerns have been raised that soldiers who are part of the Irish peacekeeping force being sent to Chad could be compromised by French political and military objectives in the area. The leaked email admits that this is one of the issues which needs to be kept from voters, saying that the possibility of the French speaking out on this issue meant that the referendum could not be delayed until the autumn.

It states: “Mulhall said a date in October would have been easier from a procedural point of view. “But the risk of unhelpful developments during the French presidency - particularly related to EU defence - were just too great. (Nicola) Sarkozy was completely unpredictable.”

The Irish official was also worried that the latest World Trade Organisation talks, which have already aroused the fury of farmers, could turn the voters against the new treaty. Farmers and suppliers are planning a one-day shut down this week to protest at the tack being taken by EU trade commissioner Peter Mandelson. The email said that Mulhall was concerned about “a WTO deal based on agricultural concessions that could lead the powerful farming association to withdraw its support”.

However, Government ministers appear to be basing their hopes on the fact that the treaty cannot be read or understood by most voters - and that launching a quick referendum would stop them from doing so. “Most people would not have time to study the text and would go with the politicians they trusted,” it said. And it pointed out that the Government plans to keep people from analysing the details, saying the “aim is to focus the campaign on overall benefits of the EU rather than the treaty itself”.

It goes on to explain the details of the Referendum Bill, which it says, was “agreed following lengthy consultation with Government lawyers and with the political parties”. However, it admits that the bill is “largely incomprehensible to the lay reader”.

The memo refers to plans to fool campaingers over the date and states:
“Irish have picked 29 May for voting but will delay an announcement to keep the No camp guessing. “The Taoiseach and (Dermot) Ahern saw a slight advantage in keeping the No camp guessing.” It has since been stated that the referendum will be held on June 12 - although it is not clear from the email whether this is the correct date or whether the May
29 option is still being considered as a possibility in order to destabilise the “No”campaign.

The email adds that the EC was doing its best to keep any bad news from the Irish voters and that Mr Mulhall had maintained that other partners - including the commission - were playing a helpful low-profile role.

It added that during a trip to Dublin, Vice-President Margot Wallstrom “had told Dermot Ahern that the commission was willing to tone down or delay messages that might be unhelpful:.

The leaked message also points out that most Irish media have been supine on the issue, saying “Mulhall remarked that the media had been relatively quiet on the ratification process so far. We would need to remain in close touch, given the media crossover”

A Government spokesman refused to comment on the leaked email last night- merely saying: “The date is as set by the Taoiseach, there is no change in that.”

LISBON CAMPAIGN IS ANOTHER BITTER BETRAYAL

Whether the Lisbon Treaty is accepted by the Irish public or not, one thing is clear - the Government campaign in its favour is already one of the most deeply dishonest in Irish history.

The revelation that the Government has conspired with foreign politicians to deceive its own electorate speaks of profound betrayal.
For months, ministers have been calling for a fair campaign based on the facts of the treaty itself. Now we know that all the while the very same ministers have been collluding in a campaign of deliberate misinformation.

That the Irish people should be the victims of a dishonest alliance between their own government and outside powers is something many will find very hard to forgive quickly.

As for the Lisbon Treaty itself, voters will now find it very difficult to trust a single word the Govenrment says in its defence. At each stage, the aim has not been to inform the electorate but to deceive it.
Instead of scheduling polling day for October,which would allow the country to come to grips with the treaty’s byzantine complexity, the Government has specifically chosen a date to capitalise on the artificial uncertainty this premature vote creates. Even the precise timing has been cynically manipulated to catch the other side off-guard.

This is not just poor form; it is a thoroughly undemocratic way to conduct what is supposed to be a free and fair vote. These low tricks are not just a case of using dark arts for narrow tactical advantage, they are deliberate lies about crucial matters of the Irish national interest.

One reason there is so much understable uncertainty in the electorate over the Lisbon Treaty is that it might mean we lose control over our military commitments and that our low corporate tax rate might be abolished by Brussels.

Now we know that on both counts the Government’s conspiracy has specifically sought to conceal the truth. We are voting earlier than would ordinarily be expected so that voters will not have a chance to see new defence developments in the EU that officials expect from the French EU presidency later this year.

Opinion divides on the merits and demerits of Irish neutrality, but that question should be decided by Irish voters, not slipped through on false premises. Today’s revelations also prove that neither our Government nor the French Government can be trusted when they say that well-known plans to introduce tax harmonisation have been sidelined.

This all amounts to a shocking culture of lying in the highest echelons of Irish politics. Deliberate lying about vital matters of Irish national interest should be unreservedly condemned by those in favour of Lisbon as much as by those against. The political culture in which this is possible is the proof, also, of just how corrosive the departing Taoiseach’s lying has been for public life.

Many people have not yet reached an opinion about the Lisbon Treaty.
That decision must be taken on the full facts and not on a shimmering mirage of dishonesty. Nor should we be afraid to consider our relationship with the EU anew. We have been well served by EU membership in the past. We are under no obligation, though, to vote blindly for whatever is put before us simply for that reason.

If there is a case for the Lisbon Treaty on the merits of the actual document, the Government should make it - and should be able to make it easily and persuasively. That they have not will lead many to wonder why a campaign based on proven dishonesty should be given the benefit of the doubt when such crucial issues are at stake

The DM says: Why do we allow these people to have any say in our country, let alone rule it as they do. Make the European Elections our referendum.

EU ruling will delay operations on NHS

Patients face a significant increase in waiting times for operations because "insane" European rules mean doctors’ hours will be cut so much they will not be able to cope, surgeons said.

By Rebecca Smith, Medical Editor, Telegraph, 12 Mar 2009

The majority of NHS patients are treated within the target of 18 weeks from seeing their GP, but this will be reversed if junior doctors limit their working hours to 48 per week, down from 56.

The extension of the European Working Time Directive would result in the loss of thousands of doctor shifts, John Black, President of the Royal College of Surgeons, said. As a result, patients could have to wait months for routine operations as surgeons prioritised emergencies.

The Royal College of Surgeons also said trainee surgeons should work a 65-hour week in order to produce safe, properly-trained doctors and cover the workload. Mr Black said: "If the 48-hour limit is enforced, surgeons will have to make a hard choice between caring for emergency cases and dealing with elective cases as there will not be the time available to do both.

"Surgeons will put patient safety first and focus on looking after emergency patients. All the progress on reducing waiting lists will go out of the window. Forty eight hours for surgeons is currently insane if we want to maintain surgery in the NHS," he said.

Doctors said that by cutting doctors’ hours, an average hospital trust outside London would lose the equivalent of three trainee surgeons. Other specialities such as paediatrics, trauma, and intensive care were also likely to be affected. The Department of Health is understood to be considering an increase in the time it takes to qualify as a consultant surgeon, from seven years to eight or nine, so doctors can gain enough experience and comply with the reduced hours.

Vanessa Bourne, of the Patients Association, said: "How can this be happening in a supposedly patient-centred service? Access to high-quality, safe care is the paramount requisite for patient and clinician alike and this muddle needs sorting out before patients are put at risk."

The regulations come into force on Aug 1, when hospital trusts will be trying to cope with organising the new intake of junior doctors. Remedy UK, the junior doctors’ pressure group, said limiting juniors to a 48-hour week was the equivalent of losing one working day per doctor per week, or up to 70,000 doctor days per week.

Dr Matt Jameson Evans, co-founder of Remedy UK, said: "Just imagine the impact of a blanket reduction in doctors’ hours by one full day a week. A creaking system will collapse. And yet most doctors want the freedom to choose to opt-out of 48 hours.

"We’re begging for some common sense – an official endorsement by government of the individual opt-out for trainee doctors would go a long way."

Andrew Lansley, the shadow health secretary, said: "NHS staff have been absolutely clear that if the 48-hour working week is imposed it will leave many junior doctors with insufficient experience. It will also threaten the care that patients receive because there will not be the same continuity of care and because smaller surgical teams will have to be shut down."

The Department of Health wants to delay the introduction of a 48-hour week for some specialities and is expecting an answer from the European Commission by the end of May.

A spokesman said: "Most UK doctors in training already comply with the Working Time Directive, and the overwhelming majority will do so by Aug 1.

"However, we have notified the commission that we intend to operate a derogation for a small number of services involved in delivering urgent care."

The Working Time Directive is already in force in most areas of business, limiting the working week to 48 hours and setting minimum rest periods.

Thanks to the Bank it's a crisis; in the eurozone it's a total catastrophe

The Bank of England may have averted a catastrophe. If ever there was a time when this country needed its own monetary authorities – acting with wartime urgency – this is the moment.

Those nations with fossilised or timid central banks clinging to outdated ideologies are not so lucky. Even less lucky are those such as Spain and Ireland that have surrendered policy to a body that is deaf to their pleas and constitutionally obliged to ignore the welfare of their particular societies. They face crucifixion.

Spain's agony is already well advanced. Industrial output has fallen 24pc. Some 352,000 people have lost their jobs in two months. BBVA expects unemployment to reach 20pc next year, touching 4.5m. Premier Jose Luis Zapatero can do nothing as long as Spain remains in monetary union. He cannot devalue to claw back 30pc in lost labour competitiveness against EMU's German bloc, or take emergency steps to slow the property crash. In an odd lapse last week – perhaps a slip – he advised Spaniards that the best thing to do in these dark times was to ****.

Yes, it is dangerous for the Bank of England to buy up a third of all long-dated gilts. But it would be even more dangerous to allow deflation to run its course in an economy where debt levels have reached such extremes. Debt and deflation are a deadly mix.

The errors that led to our current predicament are well-known. A small army of economists – Austrians, Monetarists, and Keynesians – warned that central banks were playing with fire by fixing the price of credit too low and ignoring asset bubbles. The $6.7 trillion in reserve accumulation by China, Japan, and the petro-powers drove bond yields too low for safety.

Credit signals were gravely distorted. In Britain, Gordon Brown poured petrol on the fire by pushing the fiscal deficit to 3pc of GDP at the top of the cycle. Wretched man. However much we rage at Sir Fred or Citi-wrecker Chuck Prince, let us not forget that this crisis was confected by governments. To blame the free market is to miss the bigger point.

But I digress. We are now faced with the post-debt wreckage. The task at hand is to hold our societies together as best we can. One dreads to think what would have happened if the Hoover-Brüning nostalgics had succeeded in blocking every remedy.

As it is we have seen industrial production collapse in every region. The drops in January were: Japan (-31pc), Korea (-26pc), Russia (-16pc), Brazil (-15pc), Italy (-14pc), Germany (-12pc). Falls that took two years from late 1929 have been compressed into five months.

Those who say this is nothing like the Great Depression are complacent. Household debt is higher today, and UK banks are in worse shape. (No bank of size failed in the British Empire during the slump). Britain's economy contracted by 5.6pc from peak to trough in the early 1930s (Eichengreen). Some put the figure at nearer 8pc. We may surpass that this time.

America suffered worse. Real GDP fell 28pc. But the worst occurred in the second leg, after the heinous policy blunders of late 1931. Reading contemporary accounts, it is clear that hardly anybody – not even Keynes or Fisher – realised that the world was slipping into a depression during the first 18 months.

Nobel laureate Paul Krugman says the Fed has been as far behind the curve today as it was then, given the faster pace of collapse. It is bizarre that Ben Bernanke has not started to buy US Treasuries a full three months after he floated the idea, despite a yield rise of 80 basis points.

He has been stymied by the hawks. Kansas chief Thomas Hoenig said last week that the top priority is to drain liquidity before recovery later this year sets off inflation. Well, Mr Hoenig said last May that inflation psychology was gaining a hold "not seen since the 1970s and early 1980s" with a risk that inflation would become "embedded in the economy." The price spike broke within weeks. If his model was wrong then, why is it right now?

As for the ECB, it has not reached the starting line. Jean-Claude Trichet insists that there is no danger of deflation in Europe. What is the weather like on his planet, asked Mr Krugman.

The ECB has cut rates to 1.5pc, but since they need to be minus 1pc on the Taylor Rule, this leaves the breach as wide as ever. The Bundesbank is blocking any serious move towards quantitative easing.

Given that Germany's economy is imploding (Deutsche Bank sees 5pc contraction this year) one wonders if the Bundesbank would be less hawkish if the D-mark still existed. Even their hard-money brothers at Switzerland's SNB are cash printers these days.

So has monetary policy in euroland been paralysed by squabbles at a calamitous moment, blighting every member state? Almost certainly.

The bill that could break up Europe

If eastern Europe goes down, it may take the European Union with it

TUMBLING exchange rates, gaping current-account deficits, fearsome foreign-currency borrowings and nasty recessions: these sound like the ingredients of a distant third-world-debt crisis from the 1980s and 1990s. Yet in Europe the mess has been cooked up closer to home, in east European countries, many of them now members of the European Union. One consequence is that older EU countries will find themselves footing the bill for clearing it up.

Many west Europeans, faced with severe recession at home, will see this as outrageously unfair. The east Europeans have been on a binge fuelled by foreign investment, the desire for western living standards and the hope that most would soon be able to adopt Europe’s single currency, the euro. Critics argue, with some justice, that some east European countries were ill-prepared for EU membership; that they have botched or sidestepped reforms; and that they have wasted their borrowed billions on construction and consumption booms. Surely they should pay the price for their own folly?

Yet if a country such as Hungary or one of the Baltic three went under, west Europeans would be among the first to suffer (see article). Banks from Austria, Italy and Sweden, which have invested and lent heavily in eastern Europe, would see catastrophic losses if the value of their assets shrivelled. The strain of default, combined with atavistic protectionist instincts coming to the fore all over Europe, could easily unravel the EU’s proudest achievement, its single market.

Indeed, collapse in the east would quickly raise questions about the future of the EU itself. It would destabilise the euro—for some euro members, such as Ireland and Greece, are not in much better shape than eastern Europe. And it would spell doom for any chance of further enlarging the EU, raising new doubts about the future prospects of the western Balkans, Turkey and several countries from the former Soviet Union.

The political consequences of letting eastern Europe go could be graver still. One of Europe’s greatest feats in the past 20 years was peacefully to reunify the continent after the end of the Soviet empire. Russia is itself in serious economic trouble, but its leaders remain keen to exploit any chance to reassert their influence in the region. Moreover, if the people of eastern Europe felt they had been cut adrift by western Europe, they could fall for populists or nationalists of a kind who have come to power far too often in Europe’s history. How to avert disaster

The question for western Europe’s leaders is how best to avert such a disaster. Although markets often treat eastern Europe as one economic unit, every country in the region is different. Three broad groups stand out. The first includes countries that are a long way from joining the EU, such as Ukraine. Here European institutions may help financially or with advice, but the main burden should fall on the International Monetary Fund. These countries will have to take the IMF medicine of debt restructuring and fiscal tightening that was meted out so often in previous emerging-market crises.

Things are different for the countries farther west, all EU members for which the union must take prime responsibility. One much-touted remedy is to accelerate their path to the euro, or even let them adopt it immediately. It might make sense for the four countries with exchange rates pegged to the euro: the Baltic trio of Estonia, Latvia and Lithuania, plus Bulgaria. (Slovenia and Slovakia have joined the euro already.) None of these will meet the Maastricht treaty’s criteria for euro entry any time soon. But they are tiny (the Baltics have a population of barely 7m), so letting them adopt the euro ought not to set an unwelcome precedent for others nor should it damage confidence in the single currency. Yet the European Central Bank and the European Commission firmly oppose this form of “euroisation”, even though two Balkan countries, Montenegro and Kosovo, use the euro already.

Unilateral or accelerated adoption of the euro would make far less sense for a third group of bigger countries with floating exchange rates: the Czech Republic, Hungary, Poland and Romania. None of these is ready for the tough discipline of a single currency that rules out any future devaluation. Their premature entry could fatally weaken the euro. But as their currencies slide, the big vulnerability for the Poles, Hungarians and Romanians, especially, arises from the debt taken on by firms and households in foreign currency, mainly from foreign-owned banks. What once seemed a canny convergence play now looks like a barmy risk, for both the borrowers and the banks, chiefly Italian and Austrian, that lent to them. Stopping the rot

The first priority for these four must be to stop further currency collapse. The second is to prop up the banks responsible for the foreign-currency loans that are going bad. The pain of this should be shared four ways: between the banks and their debtors, and between governments of both lending and borrowing countries. From outside, these two tasks will necessitate help from several sources: the European Central Bank as well as the IMF, the commission’s structural funds, the European Bank for Reconstruction and Development and perhaps the European Investment Bank. Given the scale of the problem, the lack of co-ordination between these outfits has been scandalous. A third aim must be to get eastern European countries to restart the structural reforms they have evaded thus far.

Bailing out the same mythical Polish plumbers who just stole everybody’s jobs will be hard for Europe’s leaders to sell on the doorsteps of Berlin, Bradford and Bordeaux, especially with the xenophobic right in full cry. German taxpayers are already worried that others are after their hard-earned cash (see article). The bill will indeed be huge, but in truth western Europe cannot afford not to pay it. The meltdown of any EU country in the region, let alone the break-up of the euro or the single market, would be catastrophic for all of Europe; and on this issue there is little prospect of much help from America, China or elsewhere. It is certainly not too late to rescue the east; but politicians need to start making the case for it now.

The Whiff of Contagion

Eastern Europe's woes are not unmanageable. But they are not being managed. The result could be catastrophe

AMID the wreckage of Latvia's retailing industry, which has declined 17% year on year according to the latest figures, one item is selling well: T-shirts with seemingly mysterious slogans such as "Nasing spesal". Latvians are glad to have something to laugh about, even if it is only their finance minister, Atis Slakteris. In an ill-judged foreign television interview, using heavily accented and idiosyncratic English worthy of the film character Borat, he described his country's economic problems as "nothing special".
Put mildly, that was an original interpretation. Fuelled by reckless bank lending, particularly in construction and consumer loans, Latvia had enjoyed a colossal boom, with double-digit economic growth and a current-account deficit that peaked at over 20% of GDP. Conventional wisdom would have suggested applying the brakes hard, by tightening the budget and curbing borrowing. But the country's rulers, a lightweight lot with close ties to business, rejected that. Fast economic growth made voters feel that European Union membership was at last producing practical benefits, after a disappointing start when tens of thousands of Latvians went abroad in search of work, leaving rural villages and small towns depopulated.

The central assumption, in Latvia and many other countries in or near the EU, was that convergence with rich Europe's living standards and other comforts was inevitable. Lending in foreign currency went from 60% of the total in 2004 to 90% in 2008. Why pay high interest rates in the local currency, the lat, when the cost of a euro loan was so much cheaper? In a few years Latvia would surely join the euro anyway. Similarly, worries about financing the inflows were dismissed: Swedish banks would no more abandon their subsidiaries in Latvia than they would pull out of, say, southern Sweden.

Last year tested those assumptions nearly to breaking point. First, Latvia's housing bubble popped. Then the main locally owned bank, Parex, went bust and had to be nationalised, amid fears that it could not pay two syndicated loans due this year. In December Latvia accepted a humiliating €7.5 billion ($9.56 billion) bail-out led by the IMF.

The big cuts in social spending that the package entailed led to vigorous public protests. Now the government has resigned. At a time when strong leadership and public trust are needed more than ever, the country's squabbling and discredited politicians look hopelessly out of their depth. Latvia is an economic pipsqueak, with just 2.4m people. But the rest of the region is watching nervously, fearful that more bad news from the Baltics could bring others crashing down too.

It is easy to be pessimistic. This is indeed the worst economic crisis since the collapse of the communist planned economies and the wrenching process of privatisation, liberalisation and stabilisation that followed. The main ex-communist economies are likely to contract by 3% this year, according to Capital Economics, a consultancy. Yet the picture is not uniform. Only a few countries have needed an IMF bail-out. One is Latvia, whose economy is set to contract by at least 12% this year, and whose credit rating has just been downgraded by Standard & Poor's to junk. Another is Hungary, burdened with a larger debt-to-GDP ratio than almost any other new EU member. It received $25 billion in October and faces a contraction of up to 6%. A third is Ukraine�"chaotically run, corrupt and badly hit by the slowdown in its main export market, Russia. Ukraine's IMF deal brought it $4.5 billion in November. But a second tranche of $1.9 billion is stuck; the deal is unravelling as politicians squabble over spending cuts. Its economy is likely to shrink by 10% this year. Other countries with IMF packages agreed or pending include Belarus (a Russian ally which is still expected to see growth this year), Georgia (which was bailed out after last year's war with Russia) and Serbia.

Most other countries in the region are faring much better, though. Poland "by far the largest economy of the new EU members "is nowhere near collapse. Unlike its central European neighbours, it is big enough not to depend chiefly on exports to the rest of the EU. By European standards, its public finances are in fairly good shape. Its debt-to-GDP ratio is below 50%. Growth will be negligible, or slightly negative, but nobody is forecasting a big decline. Some Polish firms and households have taken out foreign-currency loans"but the figure is around 30% of all private-sector lending, compared with twice that in Hungary.

The second-biggest economy, the Czech Republic, is in good shape too. Its economy may shrink by 2%, but it has a solid banking system and low debt. Its neighbour Slovakia is in better shape still: it managed to join the euro zone this year. Like Slovenia, which joined two years ago, Slovakia can enjoy the full protection of rich Europe's currency union, rather than just the indirect benefit of being due to join it some day.

Farther afield, the picture is very different. For the poorest ex-communist economies, the problem is not financial meltdown. They lack much to melt. Their exports are raw materials, agricultural products and people. In six countries, money sent home by foreign workers counts for more than 10% of GDP (in Tajikistan and Moldova it is more than 30%). Outsiders who agonise over the Latvian lat or Hungarian forint are rarely bothered with worries about the somoni (Tajikistan), leu (Moldova) or manat (Turkmenistan).

That highlights an important problem. Outsiders tend to lump "the ex-communist world" or "eastern Europe" together, as though a shared history of totalitarian captivity was the main determinant of economic fortune, two decades after the evil empire collapsed. Though many problems are shared, the differences between the ex-communist countries are often greater than those that distinguish them from the countries of "old Europe".

They range from distant, dirt-poor despotic places to countries in the EU that are not just richer than some of the old ones, but have better credit ratings, sounder public finances and stronger public institutions. In almost any contest for good government, stability or prosperity, Slovenia (under a sort of communism until 1991) looks better than Greece, which invented democracy and was never communist.

The thirst for capital

Historical and geographical quibbles aside, what the ex-communist countries have shared over the past decade is a mighty thirst for capital. Having missed out on decades of growth and integration with the outside world, almost all (a few oddballs in Central Asia aside) are trying to catch up. Money from abroad has come in from borrowing on the bond market, from foreign direct investment or from selling shares. Most often it has come through bank loans.

At one extreme is Russia, which enjoyed huge external surpluses thanks to its wealth of raw materials. But its big companies borrowed lavishly on the strength of that, creating a potential short-term debt problem. Russian corporate borrowers have to pay back around $100 billion this year. At the other extreme lie countries such as Slovakia. They attracted billions from foreign car manufacturers, drawn by a skilled workforce, low taxes and decent roads in the heart of high-cost Europe.

Countries that relied chiefly on foreign direct investment are the least vulnerable now. The new factories may shut down. But it is harder for that capital to flee. Those that rely on foreign investors buying their bonds, such as Hungary, are the most vulnerable: their fortunes vary with every twitch of a trader's fingers. In the middle are those that rely on lending from foreign banks to their local subsidiaries. That looked solid in the boom years, as Western banks scrambled to win market share by offering good terms to borrowers and lenders in the fastest-growing bit of Europe. It is still highly unlikely that any Western bank will pull the plug on a subsidiary anywhere" even in troubled Ukraine.

But nerves are jangling. The ex-communist countries have survived the first phase of the crisis, thanks to their own policies and some external support. The second phase, in which the rich world is turning stingier and possibly more protectionist and lenders are scurrying to safety, may be harder. The ex-communist economies must repay or roll over a whopping $400 billion-odd in short-term borrowings this year. Coupled with the lazy but easy lumping of nearly three dozen countries together, that creates the region's biggest danger: contagion. In other words, failure in one place sparks a disaster in another, even though it may be far away and have the same problem in a far more manageable form.

Contagion could happen in many ways. One is if depositors lose confidence that their savings are safe. So far, Western-owned banks have enjoyed rock-solid credibility: more so, in many cases, than governments or other public institutions. But that confidence could be undermined. If only one foreign bank pulls the rug from under one local subsidiary, leaving depositors stranded, it will cloud perceptions of banks' reliability across the region. The most dangerous kinds of bank runs would be those in which depositors try to pull out either their foreign currency, or local currency which they would then attempt to convert into hard currency. In some countries that could overwhelm the ability of the central bank to support the financial system.

Another weak point is where shareholders take fright. If a foreign bank with big exposure to the region - Swedish, Austrian or Italian - needs to raise more capital but finds that outsiders think its loan book is too risky, what happens? The price of rescue may be that it sheds a troubled foreign subsidiary. Signs of shareholder twitchiness are growing.

For now, the most likely source of contagion is collapsing currencies. The paradox is that for countries with floating exchange rates, an orderly depreciation would in normal circumstances be a good way of cushioning an external shock, such as the slump in export markets now hitting the ex-communist economies. It stokes competitiveness and, along with lower interest rates, it lays the foundations for a return to growth. Governments with sound public finances might also consider running a looser fiscal policy to counteract the downturn.

Propping up the currency

For most of the countries in the region, such a textbook response is out of the question. Some have currency boards, or pegged exchange rates. In the Baltic states these have been the centrepiece of economic policy for more than 15 years.

Abandoning them would not only bankrupt big chunks of the economy that have borrowed in euros. It would also be a huge psychological blow to public confidence in the whole idea of independent statehood. These countries have suffered the most painful part of being in the euro zone - the inability to devalue and regain competitiveness - without getting all the benefits.

Countries with floating exchange rates have a bit more room for manoeuvre. Their problem (a big one in Hungary, a lesser one in Romania and Poland) is that falling exchange rates may bankrupt the firms and households which have, in past years, taken out unwise loans in foreign currencies, chiefly euros and Swiss francs. That was, in effect, a convergence play. If you believed your country was heading for the euro zone some time in the next few years, then why not take advantage of the low interest rates there, rather than suffer the higher ones in your domestic currency?

What seemed a minor risk back then now looks painfully mistaken. For those earning forints or Polish zloty, the big swings in exchange rates in recent weeks have sent the size of both loans and repayments spiralling upwards. The zloty has dropped 28% and the forint 22% against the euro since the middle of last year. If the East Asian crisis of 1997 is any guide, these and other currencies may yet have further to fall.

This risk of a currency collapse will limit these countries' options. So far many big central European countries have cut interest rates heavily to try to boost their economies - Poland's central bank cut its policy rate again this week. But currency weakness will limit their room for manoeuvre. The Czech, Hungarian and Polish central banks issued a co-ordinated statement this week hinting they might intervene to support their exchange rates. But that route is tricky. Russia has blown half its reserves in a series of unsuccessful attempts to try to prop up the rouble.

Spending and tax policies would be another way of dealing with a downturn. But these are constrained, too. Those countries with a chance of joining the euro are scrambling to cut their budget deficits to get them in line with the 3% of GDP target set by the EU's Maastricht treaty. Yet that aggravates the problem. The danger for Latvia and Ukraine is a downward spiral, where cuts in public spending damage the economy in a way that helps to entrench the deficit.

So far, the economic crisis has not translated into populist or protectionist politics. It is the east European countries that have been demanding that the rest of the EU stick by the rules of the single market. Their development over the past decades has been thanks to the free movement of capital, goods and labour. They would like a lot more of it: in a contest to subsidise industries, rich countries always win.

But that stance will not hold indefinitely if things get worse. Willem Buiter, a prominent economist, believes it is only a matter of time before some of the ex-communist countries introduce capital controls. That, in theory, would allow them to concentrate on stabilising their economies without worrying so much about the external value of their currency. If voters find the economic pain of adjustment unbearable, politicians can pass laws that will make foreign-currency borrowings repayable in local currency. That would be met with fury by the foreign banks, who would in effect see their loan books expropriated. But it could happen.

Against that background, what can be done? The east European countries are, belatedly, co-ordinating their approach within the EU, holding their own mini-summit on March 1st. They want to embarrass countries such as France for what they see as its protectionist approach to the crisis. They are supporting each other: the Czech Republic and Estonia were among those contributing to the Latvian bail-out.

But even co-ordinated local efforts are unlikely to make much difference, given the scale of the problem. The real lead, and the real money, must come from outside the region. That brings into play a slew of political problems. Having trumpeted their free-market principles in past years, and dismissed the stodgy approach of countries such as Germany and France, the new EU members from eastern Europe are now turning to old Europe in the hope that it can hurry up the flow of EU structural funds to counteract the downturn, bail out or prop up over-exposed banks in places like Austria, and stretch the rules of the European Central Bank to let it provide support to countries outside the euro zone.

The case for such measures is strong, and it is in the interest of all Europe that contagion is contained. But that does not mean that it will happen.

It's the Europhiles versus reality, and reality is going to win

Milton Friedman was right to predict that the euro might not survive a recession, notes Simon Heffer.

Simon Heffer, Telegraph, 4 Mar 2009

During the current crisis we have several times heard invoked the wisdom of Milton Friedman about the unfeasibility of the euro as a currency surviving a recession. In an interview not long before his death three years ago, Friedman said: "The euro is going to be a big source of problems, not a source of help. The euro has no precedent. To the best of my knowledge, there has never been a monetary union, putting out a fiat currency, composed of independent states. There have been unions based on gold or silver, but not on fiat money – money tempted to inflate – put out by politically independent entities."

It is what lies below the surface of this observation that is putting not just the euro, but the entire confection of the European Union, under such intense pressure. Any recession would bring into play tensions between idealism and nationalism: the desire by those who pilot the European project to maintain the confection for as long as possible and as intact as possible, that it might come out on the other side of this economic horror bloodied but unbowed; and the inevitable identification of hundreds of millions who stand outside the fantasy world of the political class with their own nation state, their own nationals and their own national interest. Without a degree of coercion beyond what even this undemocratic, Sovietised swindle has attempted in the recent past, the national interest will in the end prevail.

There have been auguries of this for some months, while we have waited for the breakdown of the condition of denial in which Europe's political class finds itself. We recall last September's banking summit, at which the Germans decided to go freelance to shore up their own banking system, not least because it appeared that theirs was in far better shape than that of almost any other European country. Then about a month ago one of the most pro-European newspapers in the EU, Le Figaro, carried an article by one of its economics experts that for the first time took the paper's readership into its confidence about the gravity of the situation: it admitted that a country could drop out of the euro.

Last week Jean-Claude Trichet, head of the European Central Bank (ECB), said much the same; and Joschka Fischer, the former German foreign minister, followed that with a hint of Germany's unwillingness to continue to bankroll the more economically delinquent nations of the 27 and implying, for good measure, that Franco-German relations had probably not been so bad as this since Monty and Eisenhower chased the Wehrmacht over the Rhine in 1944.

The truth is that Europe has never had so dire a crisis since the Treaty of Rome was signed in 1957. Sauve qui peut is the watchword. President Sarkozy has entered a familiarly Gaullist phase, ignoring EU competition policy and pushing through a €6 billion support for the French car industry; other manufacturers, notably in eastern Europe, have protested to no avail.

Mr Sarkozy's assertion that he is not a protectionist is purely rhetorical. When a German minister says that "now is not the time" to let workers from the EU's former eastern bloc countries have full immigration rights in Germany, he is saying the same thing. Gordon Brown may not be able to ensure British jobs for British workers, but the Germans are determined to keep their jobs for German ones.

This bending of the rules – or rather this wholesale disregard of them – is the surest sign of a currency, and quite possibly an empire, in terminal decline. Mr Trichet went to Dublin last Friday to try to calm the Irish, whose own crisis brought 100,000 protesters on to the city's streets 10 days ago. He said the usual stuff about Ireland's being able to come out "well placed" to take economic opportunities after the slump. He was less able to square the political point about how Brian Cowen, the Irish prime minister, will win an election if he swallows the medicine the ECB is forcing down his throat: spending cuts, public sector wage cuts and eye-watering tax rises to bring Ireland's deficit down to the levels demanded of a member of the eurozone.

But the dishonesty with which all this is being addressed is breathtaking. Joaquin Almunia, the EU's economy commissioner, has initiated "disciplinary action" against France, Spain, Malta, Greece, Latvia and Ireland for breaking the fiscal rules by running excessive deficits. The offenders could be fined. It would be pointless. Both Greece and Portugal have been fined in recent years and have never paid a penny.

There have already been riots in Greece. The government in Latvia has been thrown out, and the Latvian people are now aware that whatever replaces it will have no scope to pursue anything other than an even more unpleasant economic policy. The danger of civil disorder is already spooking Mr Sarkozy, whose intelligence services have told him that it is not just the banlieues that are at risk of going up in smoke. Imposition of the strict rules on these six countries could lead to revolutions in some of them, Ireland not excluded. How would any fines be paid? With a loan from the Germans? Forget it.

Tomorrow the ECB is meeting to discuss the interest rate, and it is predicted that it will be cut from two to 1.5 per cent. That would make little odds in countries that, like Latvia, have literally run out of money. The IMF is trying to build up a special new fund to bail out countries in distress. It may soon become apparent that this attempt at a currency for disparate nations is about to disappear under the weight of reality – nationalist reality – and the big boys are going to have to come in and sort some nations out. For some countries there will be only three means of staying in the euro. One is to impose the discipline, and risk rioting and the fall of governments. The second is to persuade the ECB to bend the rules to such an extent that the illusion of the euro's strength (it is still, as I write, at an incomprehensible 90p against sterling) is forcibly broken and the speculators have their own field day with it, at last. The third is to get the lender of last resort – the Germans – to bail out countries in trouble.

The Germans have, quite commendably, refused already to do that. When Ferenc Gyurcsany, the Hungarian prime minister, asked them for a €190 billion handout last weekend to prevent a new economic Iron Curtain from going up across the continent, Angela Merkel told him to get lost. She has the German people and, more to the point, German business behind her: why should they pay for the unregenerate behaviour of others? Why should they worry about the collapse of the zloty and the forint? Why should it bother them that Latvia's debt now has junk rating, or that the Irish are almost broke? If Mrs Merkel wants to stay in power, and German workers wish to keep the fruits of their own labours, they must harden their hearts.

As for the rest of Europe, it must choose either to devalue and end the pretence of economic strength, or persist and risk the breakdown of individual governments. Either way, it is never glad confident morning again for the EU and its bastard currency. Milton was right.

How long will Germany carry the EU?

When I was an undergraduate, I once discussed the future of Europe with a Right-wing Italian student. “Brussels will eventually be brought down by anti-German feeling in the rest of the EU,” he said. I contradicted him sharply: “No: it’ll eventually be brought down by anti-EU feeling in Germany.”

People are rarely so indelicate as to draw attention to the fact, but the EU rests on the sufferance of the German taxpayer. No other country (other than Britain, obviously) does so badly out of Brussels. Germans have been the largest net contributors in every year since 1956, even though several other member states have higher incomes. In return, they get the poorest per capita representation in EU institutions.

Why do they put up with it? Well, at first the EU was a way to return to the comity of nations. Konrad Adenauer and his contemporaries believed that Germany would be allowed to become prosperous, powerful and, in time, united, only when her neighbours felt that she was, in a sense, their country, too. This calculation worked, and it has ruled German policy ever since. As Helmut Kohl put it in 1990. “German unification and European unification are two sides of the same coin”.

But, as so often happens, the political class is clinging to a policy whose rationale has long since ceased to be relevant. Ordinary Germans can see this. Hence their court challenge to the European Constitution Lisbon Treaty, on grounds that it is not democratic enough to be compatible with German Basic Law. Hence the recent poll showing that four out of five Germans believe that the EU has “some of the characteristics of a dictatorship”. (Perceptive bunch, the Jerries, no?) Hence, too, the first recognition by a mainstream party of how out of line it is with public opinion: the Bavarian CSU, worried about falling below the five per cent threshold at June’s European elections, now says it wants a referendum on European integration. While it is plainly in no position to deliver such a referendum, being a regional party, its reading of its voters’ mood is telling.

So, turning to the question of the day: will German taxpayers consent to bail out Central and Eastern Europe? Will they respond, as they always have in the past, to the unspoken appeal to historical responsibility? Will they shell out in order to avert the Hungarian Prime Minister’s threat that five million unemployed Magyars will thunder Westward across the plains and line up outside dole offices in Düsseldorf?

Maybe. But I wouldn’t bet on it. The old incantations—the assertion, above all, that Europe was an antidote to aggressive nationalism—have lost their power. The Euro-shamans still chant them, but there is less and less response. The magic is fading. The dream is dying

Will the Euro survive?

Listen to the swelling tumult. The euro won't last! It has only ever known prosperous times! This is its first trial, and it will fail! After its hubris comes its nemesis! Woe, woe woe, sings the chorus.

So far, I have refused to join in. Brussels, it seemed to me, had invested too much in the single currency, politically as well as economically, to let it fail. If the EU had been chiefly interested in the prosperity of its citizens, it would never have launched the euro in the first place. Eurocrats would surely hold the currency together, whatever the cost to the ordinary citizen.

Now I'm starting to wonder. No less a figure than Karl Otto Pöhl, who ran Germany's Bundesbank with almost unalloyed success in the 1980s, is predicting a default by one of the smaller countries, probably Greece. Were this to happen, says the tough old central banker, "the exchange rate would go down, 50 or 60 per cent and then interest rates would go sky high because the markets would lose all confidence."

Pöhl is no Euro-sceptic. On the contrary, he is often referred to as one of the fathers of the euro: his anti-inflationary policies created the conditions that made monetary union possible. True, he was never a dogmatic Europhile. He was alert to the potential dangers of a European Central Bank that lacked the tough monetarism of the German Central Bank. If the euro was to work, he felt, it had to be soundly based.

Which is precisely what makes his apostasy so damaging. The support of people like Pöhl has always been critical to the credibility of the single currency. As long as Pöhl was for it, we could all feel that the spirit of the Bundesbank was infusing the ECB. Suddenly, Europhiles are crying "Pöhl, Pöhl, why persecutest thou me?"

The euro rests, ultimately, on the sufferance of the German electorate. If German voters decide that they are not prepared to bail-out governments that lack their fiscal rectitude, the whole thing is over. Finished. Vorbei.

EU pledges eurozone rescue

Europe's financial authorities have revealed the existence of a contingency plan to rescue eurozone states at risk of default, giving the first clear assurance that the EU will mount a defence if monetary union comes under speculative attack.

By Ambrose Evans-Pritchard, Telegraph, 4 Mar 2009

Joaquin Almunia, the economics commissioner, said EMU economies in distress can count on EU solidarity if they get into trouble, rather than having to go cap in hand to the International Monetary Fund.

"It is clear that there are serious problems in certain countries. If a crisis emerges in one eurozone country, there is a solution before visiting the IMF. We are equipped intellectually, politically and economically to face this crisis scenario. It's not clever to tell you in public. But the solution exists," he said.

Mr Almunia said the probability of a eurozone break-up is "zero", despite the surge in interest spreads on Greek, Irish, Austrian, and Italian 10-year bonds above German Bunds. "Who is crazy enough to leave the euro area? Nobody. The number of candidates to join is growing," he said.

Officials are keeping a close eye on renewed stress in Europe's credit markets. The iTraxx Crossover index measuring default risk on low-grade corporate bonds jumped above 1,100 yesterday, nearing the panic levels after the Lehman collapse last year.

Hans Redeker, currency chief at BNP Paribas, said the "real" yield on 'AAA' corporate bonds has crept up to 5.3pc over recent weeks, the highest in seven years. "There is an urgent need for credit easing by the European Central Bank to bring down yields. The eurozone's peripheral economies are sliding into depression," he said. Spain's unemployment rose 154,000 to almost 3.5m in February.

The ECB is expected to cut rates from 2pc to 1.5pc on Thursday, and is exploring options for "quantitative easing" along US, British, and Japanese lines.

Christian Noyer, the Bank of France's governor, said the ECB was "studying the whole panoply of measures", including the direct purchase of commercial paper to help unclog the credit markets. While the ECB has lent freely, it has held back from buying assets outright.

Jacques Cailloux, Europe economist at RBS, said the ECB is wise to move cautiously before taking on credit risk. "Everybody is pleading for something to be done, but they have not their homework to find out what really works," he said.

Mr Almunia's promise of a eurozone bail-out is certain to anger East European leaders. They were denied backing for Hungary's €190bn plan to prop up the region's financial system at an EU summit over the weekend. They were advised to look to the IMF instead for external support.

Hungary's premier Ferenc Gyurcsany said the contrasting treatment of East and West was denegerating into the "greatest crisis in the history of European integration. We do not want any new dividing lines. We should not allow a new Iron Curtain to be set up," he said, warning of an eruption of political unrest across East Europe.

Klaus Schmidt-Hebbel, the chief economist of the OECD club of rich states, said fast-track euro membership was no magic cure for a region that built up huge imbalances during the bubble years. "Some of these countries are facing a big crisis. This is not only a balance-or-payments crisis, it is also financial crisis with a risk of default on debt," he said.

The "massive accumulation of foreign debt" creates the risk of repeating the Mexican and Asian blow-ups in the 1990s.

Europe sees trouble rising in the East

Economic crisis has brought tensions between the 'old' and 'new' EU to boiling point, say Adrian Michaels and Bruno Waterfield, Telegraph, 2 Mar 2009

So much for a compelling display of European unity. A disastrous summit in Brussels at the weekend laid bare what everyone already knew: the global economic crisis is threatening to tear apart both the continent's single market and the peaceful transition to a prosperous European era after the dissolution of the USSR.

Mirek Topolanek, prime minister of the Czech Republic, one of the first former Eastern Bloc countries to hold the European Union's rotating presidency, warned of "the greatest crisis in the history of European integration". Ferenc Gyurcsany, his Hungarian counterpart, spoke of fears that the economic meltdown would lead to the abandonment of poor by rich, of East by West. "We do not want any new dividing lines. We do not want a Europe divided along a North-South or an East-West line … We should not allow a new Iron Curtain to be set up."

But disputes between East and West were very much in evidence. Germany scoffed at Hungary's call for a mass bail-out of economies near the brink in eastern Europe. The French, who recently handed the EU presidency to the Czechs, continued to act like disruptive back-seat drivers. Nicolas Sarkozy openly suggested the Czechs were not up to the task of running the EU.

On Sunday, following a tense lunch hosted by the Czechs, he even claimed that the whole idea of an emergency summit had come from him and from Angela Merkel, the German Chancellor.

So far, Latvia's government is the only one to have fallen in the East. But there are increasingly shrill demands from countries such as Hungary to be bailed out by their wealthier European partners. Germany, understandably, has balked at being considered the sole source of funds. Its economy is contracting fast and it has limited resources.

The problem is a serious one. If Europe cannot solve its difficulties, say the doom-mongers, the euro will split, the union's authority will be fatally undermined and member states could find themselves run by xenophobes and extremists, being wooed back into the fold by a wounded but competitive Russia.

Robert Zoellick, president of the World Bank, said last month: "It would certainly be a political and human tragedy if you saw the reuniting of Europe from 20 years ago [when the Berlin wall came down] come to a crisis now."

Two years ago, the EU celebrated its 50th birthday in the shadow of Berlin's Brandenburg Gate. The symbolism of marking the Treaty of Rome's anniversary at the point where the free West once met the totalitarian East was obvious. Leaders partied to the strains of Joe Cocker and solemnly intoned: "Thanks to the yearning for freedom of the peoples of central and eastern Europe, the unnatural division of Europe is now consigned to the past."

But countries in the East still feel apart, in spite of 10 former Soviet satellites being members of the enlarged EU. (Slovenia and Slovakia are already using the euro.) Nine countries held their own breakaway summit on Sunday morning, discussing their worries that the West was treating them as second-class citizens.

Meanwhile, global summits reinforce the East's view that it is being made to ride in the back of the bus. The G20 group of developed and developing nations will be the major discussion and co-ordination forum for the crisis and the next meeting is in London next month. The big EU four – Germany, France, Britain and Italy – will be there.

As a courtesy, the Czechs will be there in their capacity as holders of the EU presidency. Thanks to President Sarkozy and Gordon Brown, Spain and the Netherlands are also on the guest list.

But Poland, for example, which is a new, large and crucial eastern member of the EU, has been shunned. "Since when did it become the G22 and since when was Holland bigger than Poland?" asked one diplomat.

Poland can feel particularly aggrieved in being left out of discussions. Its economy, though under pressure like everyone else's, is far from the desperate straits suffered by some of its regional neighbours. The East is no monolith and its comparatively healthy economies such as Poland, the Czech Republic and Slovenia are, by many measures, faring better than Spain, Ireland or Greece.

But there is no denying the pain currently afflicting many of the countries that celebrated their post-Soviet freedom by rushing headlong into free trade of goods and services and loading up on debt-fuelled expansion.

Western companies were attracted to the East for its cheaper manufacturing costs. Now there are fears that subsidiary plants will close while subsidised jobs are protected at home. In Hungary and elsewhere, citizens abandoned mortgages denominated in their home currencies in favour of the lower interest rates on offer in euros or Swiss francs. Now the monthly payments are hard to meet.

Italian and Austrian banks were allowed to buy up most of the region's largest financial services companies. There are now legitimate fears they will repatriate their dwindling funds to focus on home markets.

Meanwhile, far too much debt was taken on and the risk of default is rising. The East must repay or strike new deals covering $400 billion in short-term debt.

The Baltic countries have pegged their currencies to the euro in the hope of speeding their accession to the single currency. But the lack of consequent room for manoeuvre means swingeing cuts in spending are required while exports collapse and the recession deepens.

The cost of getting eastern Europeans, including the EU's poorest countries, out of the crisis was estimated at £169 billion by Hungary, a sum that was dismissed out of hand at the summit in Brussels.

But the figure might not be extreme. Zoellick, at the World Bank, has called for western Europe to find the lion's share of £85 billion of fresh banking capital for the East – big money when western countries are facing their own crisis. A decision last Friday by the European Investment Bank, the European Bank for Reconstruction and Development and the World Bank to find £22 billion seems a drop in the ocean.

Whatever Germany may feel about being the saviour of last resort, the truth is that the EU cannot afford to let countries in central and eastern Europe fall apart: the political consequences of a new Iron Curtain would be too grave.

The EU needs a blueprint to sell to western voters as their own economies contract. So far, it has put what seems a sensible brake on further enlargement. Germany and the Netherlands last week blocked an assessment of a membership application from Montenegro. Long-standing promises, made in 2003, that Albania, Bosnia and Serbia will be considered for EU entry look like being broken. Turkey's entry bid is stalled.

Next month, Germany, Austria and Belgium are expected to extend free movement restrictions on workers from central and eastern European countries, a full five years after they joined the EU. Eleven countries have announced that restrictions on Bulgaria and Romania, which both joined the EU in 2007, will be in place until 2012.

But Thomas Klau, Paris director of the European Council on Foreign Relations, warns that these measures could undermine Europe's stability. The very promise of entry into the EU was driving essential economic reforms and leading to prosperity, even though hectic growth and too much debt contributed to the crash. An enlarged EU with open markets has in general spread benefits across the bloc.

"To take back the firm commitments [of EU entry] would be devastating," Klau said.

Just as Europe needs to keep open the door to future new members, it needs also to defend the openness of its markets and societies from protectionism. New EU countries grew 5.5 per cent per year over the five years before the crisis, compared with about 3 per cent before entry. Meanwhile the West should remember that exports to the East have tripled in the last decade and East-West trade has generated three million jobs.

Twenty years after the fall of the Berlin Wall, Europe needs a unity and new sense of purpose. Plau emphasised that if European interests were to be upheld on the world stage, then the EU must try to speak with one voice at next month's G20 summit in London. "Europe's contribution is absolutely vital," he said. "The answers cannot be left to the Americans and the Chinese alone."

Confidence falls in eurozone as economy fears grow

Consumer and business sentiment in the eurozone plunged to a record low in February, heightening fears that the recession is tightening its grip on the 16 nations that use the single currency.

The economic sentiment indicator, published by the European Commission, fell by 1.8 points to 65.4 this month, the lowest level since the series began in 1985. The wider gauge of sentiment for the 27 nations in the European Union also plunged to a record low of 61.

This was the third consecutive monthly fall for both indexes, which are now well below the long-term average of 100 points. The readings disappointed analysts who had hoped that the fall in confidence had bottomed out.

Howard Archer, of IHS Global Insight, said: “The further deterioration in economic sentiment in February bodes ill for investment, employment and consumer spending across the eurozone over the coming months, and suggests that the region is likely to see further marked contraction in the first half of the year at least.” Some analysts forecast that eurozone GDP will fall by as much as 3 per cent this year. However, one glimmer of hope emerged as consumers’ inflation expectations remained low, easing the way for more interest rate cuts by the European Central Bank.

The fall in confidence affected all sectors of the economy except retail, which recorded a rise of a single point.

The worsening plight of the eurozone economy was underlined as private sector lending stagnated. An indication of this steep decline in the growth of lending came as new figures showed that the annual growth rate in money supply fell sharply from 7.5 to 5.9 per cent.

As unemployment rises and the global economic turmoil continues, analysts fear that banks will become even more conservative in their lending, acting as a dampener on any potential recovery in 2010.

Ben May, European economist at Capital Economics, said: “The eurozone banks are becoming increasingly reluctant to lend and we think this could prompt bank lending to decline by about 10 per cent over the next couple of years. Falling bank capital looks set to prompt a sustained contraction in loans to households and firms, suggesting that any economic recovery in 2010 will be modest at best.”

There are anxieties that the increasing economic woe across the eurozone will inflame political tensions, particularly as countries in emerging Europe plunge into economic turmoil.

Richer eurozone countries have so far resisted calls to contribute more to the International Monetary Fund to fund aid schemes. The IMF yesterday renewed its calls for member countries to double the lender’s resources as more countries turned to it for aid.

The scale of the deepening gloom engulfing emerging economies came as Standard & Poor’s, the credit ratings agency, this week downgraded Ukraine’s sovereign credit rating. Although Ukraine is not in the EU, the move has added to concerns of a “domino effect”, with the difficulties faced by countries in the region leading to added pressure on Western European economies. Latvia and Romania have already had their ratings downgraded to junk status.

Breaking point for the eurozone?

Ireland's 'miracle' economy has turned terrifyingly sour - and as it strains against the inflexibility of the euro, its next crisis may shake the entire EU.

By Gordon Rayner, Telegraph, 27 Feb 2009

They can barely let the words pass their lips, but some of the EU's most important policymakers were forced this week to discuss what was once unthinkable: that at least one of the 16 eurozone countries might be on the brink of ditching the single currency.

Jean-Claude Trichet, president of the European Central Bank, admitted that the 10-year-old eurozone was under "extreme strain", with weaker countries struggling to keep their economies afloat in the face of the devaluation of other currencies, such as sterling and the dollar.

Joschka Fischer, Germany's former foreign minister, darkly suggested that we would soon find out whether the eurozone would turn out to be "a disaster", while the German finance ministry is vacillating on whether it would be prepared to bail out insolvent states.

The current thinking is that Germany and France, as the strongest economies in the zone and "lenders of last resort", would have to bail out failing states: the prospect of the eurozone breaking up would bring the future of the EU into question.

But the most startling fact to emerge this week is that the country which is seen as the most vulnerable, and therefore the most likely to ditch the euro, is not Slovenia, or Cyprus, or Greece, but Ireland.

Until a year ago, the Republic's Celtic Tiger economy, which attracted such blue-chip companies as Dell, Microsoft and Intel, seemed unstoppable. In a decade, the Irish economy grew by almost 90 per cent, catapulting it from one of the poorest countries in Europe to the fourth-richest per capita. Government advisers from as far afield as Chile and Israel made pilgrimages to marvel at a model that they were desperate to emulate.

Not any more. All of a sudden, Ireland's debt-fuelled economy, built largely on a construction boom, has collapsed in a more spectacular manner than almost any other in Europe. Irish government bonds are rated as the riskiest in the EU (see graphic), and there has been panicky talk of Ireland as "the next Iceland".

On the streets, there is a whiff of revolution, with 120,000 people staging Dublin's biggest mass rally in 30 years last weekend to protest at the government's handling of the economy and its decision to impose what amounted to a pay cut on public sector workers. The unions have now threatened a "Doomsday" strike next month if the prime minister, Brian Cowen, does not think again. As the celebrated Irish economist David McWilliams put it: "The entire Irish episode will be studied internationally in years to come as an example of how not to do things."

Visiting Dublin this week, I took a stroll down the south bank of the River Liffey, to the site where Ireland's tallest building, the U2 Tower, should by now have been rising out of the ground as the ultimate symbol of the Celtic Tiger's "economic miracle". Designed by Lord Foster, the 60-storey glass skyscraper was to have housed dozens of one-million euro apartments (£1 million), topped by a penthouse recording studio for Ireland's most successful band.

Instead, there was nothing to see but dead grass, crushed beer cans and a rusting skip inhabited by 3ft weeds. Two months ago, the developers postponed the project indefinitely. This scruffy patch of former dockland represents the end of the dream for Ireland, whose "economic miracle" was largely based on a crazy construction bubble, fuelled by tax incentives, which, when it finally (and inevitably) burst, created a black hole that threatens to suck in the rest of the failing economy.

In 2006, Ireland (population 4.2 million) built 88,000 houses, compared with 150,000 in the UK (population 60 million). At one point, a fifth of the workforce, swelled by tens of thousands of immigrants, worked in construction.

Irish families on middle and even low incomes cashed in their pensions or borrowed heavily to buy second, third or even fourth properties, believing they could rent them out to the migrant workers who had caused net immigration for the first time in Ireland's history. They could borrow from banks that enjoyed one of the loosest regulatory regimes in Europe, and which shipped in money from abroad to further stoke up the boom.

Ireland now has up to 350,000 empty homes – more than its entire private rental market – many of them simply abandoned as builders went bust. House prices are expected to fall by 80 per cent.

Ireland might have been able to withstand Europe's most savage property collapse had not its export trade been shredded at the same by currency devaluation in its two key markets – Britain and America.

The relative rise in the value of the euro against sterling and the dollar has made Irish goods – and wages – prohibitively expensive. Businesses in the north of the Republic are on their knees because competitors in Northern Ireland are undercutting them by as much as half.

In an ominous sign of things to come, the computer firm Dell has announced 250 redundancies at its plant in Limerick, simultaneously confirming that it intends to create thousands of new jobs in Poland.

The slump in the Irish job market means that the country's youth, who for years now have been able to find jobs at home, are once again having to look abroad for employment, so that the Republic may soon return to its traditional pattern of net outward migration. Already, large numbers of Irish workers are moving to Britain seeking work.

Crucially, the Irish government is powerless to act because, as a member of the eurozone, it has no control over interest rates or currency devaluation.

While the Bank of England could cut interest rates to one per cent and plans to devalue sterling with "quantitative easing", the Irish have had to resort to desperate measures to reduce their budget deficit, such as the public sector wage cuts which led to the mass demonstrations.

Evidence of the effect on Ireland's real economy, as unemployment heads towards 10 per cent, is everywhere.

In Dublin's docklands, once expected to become a sort of European Dubai, row upon row of kitchen suppliers, interior design and furniture shops have closed since my last visit nine months ago, their windows covered in a thick layer of grime.

Catherine Claffey, whose family have sold flowers at the same pitch in Grafton Street, a few yards from Chanel and Louis Vuitton, for 85 years, told me business was down 60 per cent on last year.

"I've only been able to keep going because I've never taken out any big loans," she said. "But I have friends earning very modest salaries in the public sector who have been told their wages are going to be cut by 500 euros a month. How are they going to survive?"

A hundred yards down the road, a group of taxi drivers was staging a noisy protest over the government's failure to manage taxi numbers. Thousands of workers who have lost their jobs in other sectors have been allowed to set up as cabbies, meaning that Dublin now has 16,000 licensed taxis. New York, with a population 17 times as large, has 13,000.

Andy Doyle, a cabbie for 20 years, said: "There are so many taxis now that you can be waiting two-and-a-half hours on a rank before you pick up a fare. Yesterday I waited an hour and three quarters for a 6.20 euro fare. You just can't live on that. But the government is happy to let it go on because it keeps the unemployment figures down. It's madness."

The resounding "No" vote in last year's referendum on the European Constitution suggested that Ireland has finally fallen out of love with Europe. But will it now take the ultimate step and ditch the euro?

Sean Murphy, director of policy at the business organisation Chambers Ireland, believes not.

"Everything positive in the Irish economy for the past 30 years has been driven by our membership of the EU," he said. "In the long term it will continue to benefit us. We have a small, flexible economy, which means we will be able to turn it round much quicker than a bigger economy like the UK's.

"It's become clear that we need a more balanced, diverse economy, with more jobs in things like alternative energy and information technology. I believe our EU membership can only help with that."

But if the Irish economy, and that of other struggling EU states, continues to nosedive, the cohesion of the eurozone is likely to be tested to breaking point.

Are Germans giving up on the Euro?

Ambrose Evans-Pritchard, 26 Feb

Ex-Bundesbank chief Karl Otto Pohl has just said that Ireland and Greece are in danger of defaulting on their sovereign debts and/or may be forced out of the Euro, for those who may not be aware of his Sky interview by my colleague Jeff Randall.

"I think there are countries considering the possibility. It would be very expensive," he said. "The exchange rate would go down, 50 or 60% and then interest rates would go sky high because the markets would lose all confidence."

Professor Pohl said Germany's political class is afraid their country will ultimately have to pay for the EMU mess. His view is that the burden should be shifted to the IMF (ie. the US, Canada, Japan, Britain). Thanks a lot Karl Otto. You broke it, you fix it.

This is more or less what ex-foreign minister Joschka Fischer has been saying in London over the last two days, although his main point is that Russia is now the equivalent of Germany in the 1930s: an embittered nation with a revanchist and dysfunctional leadership class.

Mr Fischer now thinks monetary union is beyond saving. A massive rescue will be needed. It will not be forthcoming. German-French relations are the worst since the war, he said. The European insitutions have lost virtually all authority in this crisis. The half-century Project is collapsing. .. or words to that effect, from what I hear.

As regards Prof's Pohl's comments, they are revealing. Why should the currencies fall 60pc unless they are massively overvalued? If they are massively overvalued by anything like this amount - or even half - how can they possibly rectify this within the eurozone? Is Germany going to inflate at 10pc to let them claw back competitiveness? Of course not. This is pure madness.

Prof Pohl shrinks from the implications of his own logic, as almost everybody does in Euroland when they near the high-voltage line. EMU is inherently unworkable. It was launched before there had been real convergence of productivity growth rates, wage bargaining systems, legal practices, mortgage markets, etc, and without the fiscal transfers and debt union that makes monetary union work (badly, but on balance positively) in, say, the US, Canada, and Britain. The destructive effect has now brought the EU project to this unhappy pass, where even Joschka Fischer is giving up on it.

I remember hearing Joschka give a speech in Strasbourg eight years ago in which he said the euro was a powerful federalizing force - "quantum leap" - that would lead ineluctably to full political union. Here is the piece I wrote.

On the same theme, three notes have hit my desk on the risk of EMU break-up/default -- one from France, one from Benelux, and one from a Swede in the City

1) Laurence Chieze-Devivier from AXA Investment Managers -- in "Leaving the Euro?" -- says that the rocketing debt costs of Ireland, Greece, Spain, and Italy are taking on a life of their own. (Italy has just revised is public debt forecast from 2010 from 101pc to 111pc. That is a frightening jump. While the CDS default swaps on Irish debt is are at 376 basis pouints. Austria is at 240. This is getting serious).

It is far for clear whether all these countries will accept the sort of drastic retrenchment required to stay in EMU. "By leaving the euro, internal adjustments would become less `painful'. An independent currency would re-establish economic competitiveness quickly, not achieved by a sharp drop in employment or wage cuts".

Mr Cheize-Devivier makes a point often missed. Countries in trouble may not have a choice. "In our view a FORCED EXIT could be provoked by investors' distrust."

The AXA view is that the crisis will ultimately lead to the creation of a new EU machinery -- in effect, an EU economic government -- ensuring the survival of EMU.

(This, of course, is what many Brit, Danish, Swedish, and Gallic eurosceptics always suspected, which is why wanted their countries to stay out. Romano Prodi candidly said once that the euro would lead to a crisis one day that would let the EU do things it cannot do now)

2) Carsten Brzeski for ING in Brussels said the eurozone laggards were more likely to default than pay the punishing costs of leaving EMU.

"It is difficult to believe that Portugal, Italy, Ireland, Greece, and Spain, would be better off outside the eurozone. While a government could possibly get away with a redenomination of its debt, the private sector would still have to service its foreign debt. We believe any attempts to leave monetary union would lead to the mother of all crises, and total isolation in any future European integration"

Mr Brzeski said the bigger danger is that countries will face a buyers' strike for their debt as a flood of bond issues across the world saturates the markets.

"A further worsening of the crisis could lead to (partial) sovereign defaults in one or several countries."

Others would launch come to the rescue. The "No-Bail" clause in the Maastricht Treaty would be ignored. The EU would instead use the "exceptional occurences beyond its control" clause (Article 100.2) to do whatever it wanted.

There would be a price. "The country in question could be partly warded and have to fuilfil strict controls".

Quite. This is another long-held fear of eurosceptics: that EMU would lead to vassal states.

3) Gabriel Stein from Lombard Street Research in "A Road-map for EMU break-up" says the euro has shielded weaker member from a currency crisis in this global recession, but only the cost of letting imbalances get further out of hand. Currency crises are often good. If you don't get tremors, you get an earthquake.

Mr Stein says a country like Italy that has lost some 40pc in labour competitveness could in theory do what Germany has done for the last 13 years after the D-Mark was locked into the euro system at an overvalued rate. It could screw down wages but that was during a period of global growth. No Greek or Italian government is likely to opt for mass unemployment, or stay in power if it does so. (Actually, I would go further. I doubt whether Italy can possibly do this. Germany was able to pull it off because the Club Med states were all inflating merrily. Italy would have to deflate against a low-inflation Germany. If Italy deflated with a public debt of 111pc of GDP, it would face a debt compound trap. In my view, Italy is already past the point of no return.)

Mr Stein's piece is a study of break-down mechanics. What would actually happen? The country's parliament could pass a law redenominating debt into the new Lira, Drachma, or whatever. But there would be a pre-emptive run on bank deposits long before then. "Anyone not desirous of losing money would presumably see the writing on the wall and transfer any funds beyond the reach of the state. In other words, close down that account with Monte dei Paschi di Siena and open a new one with Commerzbank in Germany".

Such a wholesale shift would lead to a collapse in the money supply, perhaps equal to the 38pc contraction in M3 from October 1929 to April 1933 in the US -- but concentrated in a much shorter period. "Banks would be forced to call in outstanding loans, bring about a collapse in the country's business."

That is something I never thought of before. Italy is really damned if it does, and really damned if it doesn't. Lasciate Ogni Speranza, Voi Che Entrate EMU

An ever weaker union

Far from being ready to take on banking regulation, the EU may yet struggle to keep its currency union together.

Telegraph Editorial, 25 Feb 2009

José Manuel Barroso, the European Commission president, has proposed a pan-European regulatory system which would cover the City of London and all other financial centres. He wants to see sweeping changes to how banks, insurers and markets are supervised to apply lessons from the credit crunch. Characteristically, the Commission has simply not caught up with what is happening inside the EU. The member states are not coming together like circling wagons under attack in the Wild West; rather, the Union is fragmenting. The eurozone itself is under threat.

These are not merely the observations of a newspaper that has always been deeply sceptical about the European single currency. The evidence of its unsustainability is growing daily and is causing serious alarm even among the most ardent supporters of the EU. Earlier this week, Jean-Claude Trichet, president of the European Central Bank, conceded that the eurozone is under extreme economic strain. Weaker countries, he admitted, are feeling the pressure of staying within the currency's parameters.

While no one in the eurozone wishes to contemplate it, the possibility is growing that one or more countries will leave, dealing a severe blow to the concept of "ever closer union". Germany, as the eurozone's surplus economy, should be bailing out those in difficulty; but the Germans have made it clear they do not intend to do so. In a gloomy speech to the London School of Economics on Tuesday, Joschka Fischer, the former foreign minister of Germany, said European nations are retreating into their nationalist shells in the face of the crisis. But it was always going to be thus. The euro was conceived when the global economy was booming and its true test was always going to be in a time of want. That time has come.

MEPs walk out when Vaclav Klaus questions European integration

I've just witnessed one of the most unintentionally hilarious scenes ever to have been played out in the European Parliament. Vaclav Klaus was addressing the chamber as President of the Czech Republic, the state that currently holds the EU presidency. His speech was moderate, thoughtful and restrained - in places, almost to the point of being platitudinous. Governments worked better when there was an opposition, he said. We should all listen to dissenting points of view, he said. He had grown up in a system where there was no opposition, he said, and he didn't want the EU to go down that road.

The response of MEPs? To hoot their derision and flounce out. By a delicious coincidence, the walk-out happened just as Klaus was making his point about listening to opinions you disagreed with. It may have been an accident of timing: the vinegary Thatcherite had, moments earlier, been arguing that democracy was not necessarily enhanced by giving more powers to the European Parliament. Perhaps the walk-out was a delayed response to that implied slight, or perhaps the simultaneous interpretation was taking a while to catch up. But the effect was that, when Klaus made his anodyne plea for tolerance, MEPs responded by shouting "Shut up!" and storming out of the chamber.

European Elections - June 2009 - Our chance for a Referendum

The DM says: The European elections in June this year will be a crucial test of public opinion on the EU. It is the only election where EU issues are given their full weight. Before voting, we need to look very carefully at what the parties say in their manifestoes. David Cameron has made a very clear pledge to leave the federalist European People's party in the European Parliament, and to hold a referendum on the Lisbon Treaty. The big question is whether he will keep those promises. His promise about the EPP is below, with Dan Hannan's explanation of why it is important for the Conservatives to leave the EPP.

Seven reasons to leave the EPP

The row continues over at ConservativeHome about whether Conservative MEPs should leave the Euro-federalist Christian Democratic bloc in the European Parliament, the EPP. Some MEPs, emboldened by having already checked David Cameron on this issue, plainly believe they can do so again. My friend Charles Tannock, for example, argues that we could stay as we are, but dress it up as some sort of new EPP-ED confederation. (As if the experience of the past 5 years hasn't comprehensively discredited this option.) The excellent Rupert Matthews, a Euro-candidate in the East Midlands, deals with Charles's arguments here.

It seems timely to repeat the basic case for leaving. So here, once again, are seven reasons to leave the EPP:

(1) The European Parliament lacks an Official Opposition:
At present, every political alliance in Europe - the Communists, the Socialists, the Liberals, the Greens, the Christian Democrats - supports the euro, the constitution, a common foreign policy and an EU criminal justice system. Indeed, the EPP goes further than the others, demanding a single EU seat at the United Nations, a European army and police force and - my particular favourite, this - a pan-EU income tax to be levied by MEPs. Once there is a mainstream conservative bloc positing a different kind of Europe, the cartel will be broken. From that moment, Euro-federalism will cease to be inevitable, and become one among a series of competing ideas.

(2) Our message must be consistent:
"I want Conservatives to be saying the same thing in Westminster, in Brussels and in Strasbourg," says David Cameron. Spot on. In the past we have suffered electorally - especially at the 2004 European Election, when we got our worst share of the vote since 1832 - because we were thought to be dissembling. We fought Euro-sceptic campaigns in Britain and then, when elected, we scuttled off and sat with the most integrationist group in the chamber.

(3) An independent group will control its own resources:
Every political group in the European Parliament receives millions of euros for political activism. Some of this money is passed on to the national parties to allocate as they wish; but a good deal is held back to spend on pan-European campaigns. So what does the EPP spend our money on? You guessed it: campaigns to promote the European Constitution, the Common Agricultural Policy, the Charter of Fundamental Rights and so on. A chunk of money - the money to which Tory MEPs ought to have been entitled - was spent in support of "Yes" campaigners when Sweden voted on the euro. Outside the EPP, we'd be free to create a campaigning machine to promote a completely different vision of Europe: one based on free markets, national independence and the Atlantic Alliance. This, of course, is what the other side fears.

(4) Leaving the EPP will put Conservatives in the mainstream:
Nothing - nothing - could be further from the truth than the idea that the only parties outside the EPP are far-Right. The persistence of the notion that "Tory MEPs may end up with Italian fascists" is one of the most successful pieces of black propaganda I've ever encountered. No one has ever proposed such a thing and, for what it's worth, the party that is descended from Mussolini's, the Alleanza Nazionale, is currently applying to join the EPP. Nor does anyone deny that there were enough respectable parties to form a new group two years ago. This time, there are several more parties in play, including from Romania and Bulgaria, as well as others that have become uncomfortable with their existing affiliations.

(5) We mustn't sit with extremists:
Let's look at some of the supposedly far-Right parties, shall we? Some do, admittedly, say unpleasant things. One of our potential allies, for example, ran election posters showing a gay couple with the slogan "Daddy and Papa? Say No!" Another has had hundreds of its MPs and councillors convicted in fraud cases. A third campaigned against the immigration of some computer programmers from India under the slogan "Children Before Indians". But here's the thing: all three of these parties are currently in the EPP. They are, respectively, Forza Italia, the French UMP and the German CDU. High time we found some more moderate partners, I'd say.

(6) British leadership in Europe:
Don't just think of it as leaving the EPP. Think of it as what it really is: leading the crusade for reform in Europe. Let me quote David Cameron again: "I want to apply the modernising approach that I am bringing to the Conservative Party to our approach to Europe. I want us to be the champions of change, optimism and hope in Europe as well as Britain. It is time for a Europe not of deals but of ideals. So we say to the moderate mainstream, who are not satisfied with the EU as it is today: come and join us - we have a future to fight for." Hard to disagree, no?

(7) Conservatives keep their word:
There are not many things an Opposition can do. There are plenty of things it can promise that it would do if it were in power, but precious few it can deliver in the mean time. This is one of them. We need to convince people that we mean what we say, so that when we promise to improve schools, cut taxes, or decentralise power, they have cause to believe us.

'I want us to be the champions of change and hope'

During the Leadership election, I made a pledge that Conservative MEPs should leave the European People's Party (EPP). I made that promise for a very simple reason - I think it is right.

While the British Conservatives and Continental parties in the EPP agree on many things, such as open markets and deregulation, we don't share their views about the future direction of the European Union.

The Conservative Party is opposed to the Constitution, and believes in a Europe of nation states co-operating where it is in their interests to do so, looking outwards to the world, flexible, competitive, ready to face the challenges of globalisation. The EPP takes a more federalist view, backing the Constitution and steps to closer union.

Commentators, including some on The Daily Telegraph, have robustly criticised the direction in which I am taking the party but they can't say that I have somehow hidden my intentions from it.

I fought an incredibly frank leadership campaign on the need to make changes. These include changes to our policies, like ending the approach of up-front tax cuts or subsidising private health care. I stressed the need for changes to our party, like ensuring that we have more women and black and minority ethnic community candidates as well as changing the way we do politics, like supporting Government legislation when we agree with it, for instance the Education Bill.

Yesterday I made good my promise to take the Conservative Party out of the EPP. The Czech prime minister designate, Mirek Topolanek, and I announced our decision to establish a new group straight after the European elections in 2009. The delay is at his request but the agreement to form a new group is not an aspiration, it is a guarantee - and it will be delivered.

We will also set up, immediately, a Movement for European Reform. This movement will be open to all like-minded parties from EU member states and from EU candidate countries, who share our ideas of a modern, open, flexible and decentralised EU, ready to face the challenges of the 21st century.

Some will argue that the right course would have been to leave immediately and sit on our own in the European parliament. I looked carefully at this option and rejected it. It would have meant sitting next to figures such as Mrs Mussolini and Robert Kilroy-Silk. Others say it would have been possible to form our new group now, without the Czechs. I looked carefully at this option too and decided it would have been very difficult to sustain over the long-term. It could easily have collapsed at any moment.

Others believe that we should just stay in the EPP but it would not be right to remain in a group with such fundamentally different views from ours about the institutional and constitutional direction of the EU.

I want to apply the modernising approach that I am bringing to the Conservative Party to our approach to Europe. I want us to be the champions of change, optimism and hope in Europe as well as Britain.

We are a new generation. We have no time for the culture of hopelessness that has plagued the way the EU addresses the global challenges we face. It's because we want to see a future for the EU and believe in a strong Europe that we want to make the EU confront its failings and grasp the opportunities open to us. We refuse to accept failure as Tony Blair has. We want to win the arguments, build support and get things done.

It is time for a Europe not of deals but of ideals. So we say to the moderate mainstream, who are not satisfied with the EU as it is today: come and join us - we have a future to fight for.

Spain's downward spiral spooks bond investors

Spain lost almost 200,000 jobs in January in the worst one-month rise since records began, lifting the unemployment rate to 14.4pc and inflicting further damage on the credibility of the Spanish government.

By Ambrose Evans-Pritchard, Telegraph Business, 3 Feb 2009

The ferocity of the downturn has led to a sharp jump in borrowing costs for the Spanish state, which lost its AAA credit rating from Standard & Poor's last month.

A €7bn treasury auction of 10-year Spanish bond on Tuesday saw yields jump to 137 basis points above German Bunds, a post-EMU high. Foreign investors were conspicuously absent, leaving Spanish banks to soak up the debt.

"This is a national emergency. The government is being overwhelmed by events," said Mariano Rajoy, the opposition leader. The mood has changed dramatically in recent weeks as debtors launch hunger strikes and one builder threatened to set himself on fire to protest the credit crunch.

Maravillas Rojo, the labour secretary, said four million people may be out of work by end of the year – up from 3.3m now. "We're suffering from a grave international financial crisis, lack of liquidity, and falling consumption," she said.

Spain is losing jobs at three times the rate of the US, in proportionate terms. Over one million Spanish men under thirty are unemployed, leading to a surge in applications to join the armed forces. Three quarters of the army candidates are being turned away.

Industry minister Miguel Sebastian has launched a "Made in Spain" drive, exhorting the nation to buy Spanish clothes and to take ski holidays in the Sierra Nevada instead of the Alps. He claimed that 120,000 jobs can be saved if every citizen spends €150 less this year on imports.

The campaign amounts to a partial boycott of foreign products and may breach EU law. It is the sort of protectionist reflex becoming visible daily in much of the world.

Mr Sebastian blamed the banks for causing the crisis by tightening credit. "We're losing our patience," he said.

But the banks themselves are coming under strain – even though they have held up better than Anglo-Saxon and German banks so far. Bad loans have reached 3.5pc and are expected to surpass the 8pc peak seen in the crunch of the early 1990s.

"Banks have closed the tap," said Jesus Barcenas, Spain's small business leader.

Finance minister Pedro Solbes says there is almost nothing Madrid can do to halt the downward spiral. "We have exhausted our margin for manoeuvre," he said.

While he has avoided blaming Spain's euro membership for the country's plight, there is no question that Spain's failure to adapt to the rigours of EMU is at the root of its structural crisis.

S&P said euro membership had become part of the problem since it prevented the country resorting to aggressive monetary stimulus to counter the housing crash, or from devaluing to restore competitiveness.

Spain has become trapped after letting wage costs rise faster than German and French costs for year after year, leading to a current account deficit of 10pc of GDP. The socialist government of Jose-Luis Zapatero has so far recoiled from imposing the necessary remedy of wage deflation. It may be forced to do so by the bond markets.

Pressure on UK to find shelter in the euro

EC looks for coordinated action to tackle crisis as Barroso warns states cannot face challenge alone

The President of the European Commission has hinted again that the pound should now join the eurozone. Jose Manuel Barroso said that "even the biggest states can't face these challenges alone", and that he would seek "more coordinated EU action" to deal with the financial crisis.

He voiced his belief that more majority voting would help EU decision-making. Despite sterling's slide and the well-known problems in the UK's banking system, Mr Barroso seemed as keen as ever to hint at his enthusiasm to see the pound in the European single currency.

In December Mr Barroso embarrassed Gordon Brown when he claimed: "Some British politicians have already told me, 'If we had the euro, we would have been better off'."

Yesterday he did not take up the opportunity to repeat earlier remarks that the UK was "closer than ever" to joining the euro and that the "people who matter" in British politics were contemplating giving up the pound; but the hints were plain.

The European Commission also wants to acquire "oversight" over national financial regulators, such as the UK's Financial Services Authority. Mr Barroso said that "national supervision systems did not work – that is obvious".

Individual European governments soon broke ranks during the pressure of the banking crisis last autumn, with nations such as Ireland and Germany acting unilaterally to guarantee banks and depositors in emergency conditions, creating chaos as investors moved money around European institutions offering the most cast-iron guarantees.

Mr Barroso said he wanted to see a "more coordinated approach at the European level" and that work was in progress to pull together the various national regulators. Troubled European banks with extensive retail cross-border activities, such as Fortis's branches in the Netherlands and Belgium, caused serve strains last year.

However, despite these reservations, Mr Barroso and the President of the European Central Bank (ECB), Jean-Claude Trichet, expressed confidence in the other arrangements surrounding the euro. Mr Barroso also stressed that the flexibility in the Stability and Growth Pact, agreed under the Maastricht Treaty, would be enough to contain the current strains, and that the EU is not thinking of changing the Maastricht criteria.

M. Trichet dismissed concerns about strains in the eurozone arising from soaring spreads between relatively well-regarded German government debt, or Bunds, and euro-denominated debt issued by other members states, notably Greece and Italy.

The credit ratings agencies have also downgraded or revised to the downside their view of Spanish, Irish and Portuguese government debt in recent weeks. The more apocalyptic observers imagine that some or all of these nations might be driven out of the eurozone. The legendary investor George Soros said on Wednesday that he considered it to be a "constitutionally incomplete" currency and many others have called for a single European Treasury to work alongside the European Central Bank.

M. Trichet said: "I do not see the euro at stake, certainly not the solidity of the euro area. What is at stake is the judgement of the market at the moment on the sustainability of fiscal polices. We have always said we should not have a single message for states and that they should use the room for manoeuvre" in the EU's Stability and Growth Pact, which limits government debt and borrowings. M. Trichet added that despite threats there would be no "bailout" and that "various executive branches", ie national governments such as Greece, were "getting the message".

Perhaps not, though: Italy's Finance minister, Giulio Tremonti, during the same Davos session on "the Economic Governance of Europe", replied that taking private as well as public debt into account made Italy look much better. He suggested the issuance of government debt by the European Union, rather than individual states: "Now my feeling – I am speaking of a political issue not an economic issue – is... now we need a union bond."

On the day the Bank of England announced its asset purchase scheme, M. Trichet also indicated that further cuts in rates and "non-standard" tactics are ruled in by the ECB.

"I said we could engage in non-standard actions, and indeed we have already done so, notably on refinancing... We are at 2 per cent and I didn't exclude we could go below 2 per cent. What I have said is we have a very important rendezvous in March," M. Trichet added.

M. Trichet also tackled the issue of collapsing bank shares, and the signal from the markets that the banks should be augmenting their capital positions rather than, as most governments and the EU would like, running them down. "It is not our position, and we will do all that we can to pass the message that we are not in agreement with that," he said. "That would augment the pro-cyclicality of the present period."

Trichet is bounced into defence of the euro

Europe's top officials have been forced into repeated assurances that the eurozone is in no danger of falling apart, despite growing stress in the Greek, Italian, Irish, Spanish and Austrian bond markets.

By Ambrose Evans-Pritchard in Davos, Telegraph, 30 Jan 2009

"There is no risk that the euro will break apart," said Jean-Claude Trichet, the European Central Bank's president, speaking at the World Economic Forum.

Yesterday was the second day Mr Trichet has had to parry questions about the viability of monetary union. He seemed ill at ease when asked whether Greece and Italy had become so uncompetitive they might be forced out of the EMU.

EU officials are furious over comments this week by Dominique Strauss-Kahn, head of the International Monetary Fund, who said the euro could prove unworkable unless the member states give up some control over fiscal policy. "Otherwise, differences between states will become too big and the stability of the currency zone is in danger," he said.

The yield spreads on Greek 10-year bonds have reached post-EMU highs of 265 basis points over German Bunds. The spreads have jumped to 236 for Ireland and 153 for Italy, levels unthinkable just months ago.

The spreads are watched by traders as the eurozone's stress barometer. They also imply a large jump in funding costs for the budget deficits of heavily indebted states such as Italy and Greece. The Italian treasury needs to raise €200bn (£184bn) of debt in 2009.

José Manuel Barroso, the European Commission's president, insisted that the single currency had more than proved its worth since the crisis erupted. "The euro has acted as a very important shield," he said. "Just compare Ireland with Iceland. I don't agree at all that the euro is at risk."

However, the questions refuse to go away. Investor George Soros said it was far from clear whether EMU's weaker states would be able to uphold their bank guarantees, given the "structural weaknesses" of a system where each country is in charge of fiscal policy and EU bail-outs are prohibited.

"There has to be agreement at EU level on spreading risk. Germany has been reluctant to reach into her deep pockets for countries like Italy," said Mr Soros.

Mr Trichet denied the ECB was unable to take the sort of measures being considered by the Bank of England and US Federal Reserve. "We could engage in non-standard actions and, indeed, have already done so. What we have done is extraordinary," he said.

The ECB has increased its balance sheet by more than the Fed, accepting housing debt as collateral from banks. But it has not gone to the next stage by purchasing bonds outright.

Such a radical move would open a political can of worms, raising suspicions that German taxpayers were funding a covert bail-out of Club Med.

Italy's finance minister, Giulio Tremonti, who was sitt-ing on the same Davos panel, nevertheless called for the issue of a "union bond". Any such instrument would amount to a huge leap forward for an EU debt union.

Mr Tremonti said Italy had been unfairly singled out. While its public debt is high at 107pc of GDP, its private debt is very low. Indeed, Italy has avoided the sort of housing bubbles that are affecting other states.

Fall in sterling may avert UK depression

The devaluation of the pound over the past year has given Britain its best chance of avoiding a depression, experts have said.

By Angela Monaghan and Edmund Conway, Sunday Telegraph Business, 24 Jan 2009

The 25pc fall in sterling since early 2008 has sparked fears of a run on the pound, and prompted warnings that the UK is facing near-bankruptcy. However, experts said the fall should be regarded as a "competitive devaluation" which would help lessen the pain for the UK in the coming years.

Albert Edwards, strategist at Société Générale, said that the UK may stand a better chance of avoiding a deep decline because of the fall in the pound.

Sterling fell last week to the lowest level since 1985. It closed at $1.37 on Friday, after being worth more than $2 last July. Many economists suspect that the weak pound will leave the UK well-placed to recover because it will boost exports as well as encouraging investment.

Mr Edwards said: "The next few years will be the worst since the Great Depression. A depression is effectively assured for the US. But the UK had a much shallower recession than the US in the 1930s – largely because it devalued sterling and abandoned the gold standard. Now, it's doing the right thing by devaluing its currency, as it did in the Great Depression."

In a review published today Roger Bootle, economic adviser to Deloitte, warns that the UK is ill-prepared for the period of deflation which is almost certainly in store this year, and possibly further ahead. While a short bout of inflation would do little harm, he says, a longer period poses a more sinister threat.

Could the fall of sterling be a tonic rather than a torment?

If the strength of a country’s currency is often taken as a national virility symbol, then the fortunes of the pound in recent weeks suggest that Britain’s economic potency is fading fast.

Little wonder, then, that George Osborne, the Shadow Chancellor, has seized on sterling’s freefall in recent days as a powerful political weapon with which to lash Labour’s economic record.

His attack on Gordon Brown and Alistair Darling is made all the more telling in the public imagination by now-hazy memories of “runs on the pound” under the Labour governments of the Sixties and Seventies, and Harold Wilson’s notorious 1967 “pound in your pocket” speech, justifying that year’s devaluation of sterling. Mr Osborne surely hopes to make sterling’s latest slump an equally telling emblem of Labour economic failure.

A more cynical interpretation is that the Shadow Chancellor is seeking to deflect pressure on his policy of opposing Mr Brown’s plan to reinvigorate the economy with a “fiscal stimulus” of tax cuts and higher public spending. Knowing that this may well prove popular, Mr Osborne is on the defensive over his insistence that tax cuts must be “funded” by offsetting tax increases or spending cuts elsewhere. This strategy of giving with one hand and taking with the other is unlikely to do much to jump start stalled growth. So the claim that Mr Brown’s scheme threatens to undercut the pound makes for a useful political counter-strike – especially since the precipitous drop in sterling makes it all the more compelling.

The pound has plunged at a headlong rate. Its overall value against a basket of rival currencies has hit a 13-year low, after it plummeted by 15 per cent against the dollar over the past month, and by 8 per cent to record lows against the euro. Yet while the fall has been dizzying, it can hardly be seen as a surprise. Sterling’s plight can be traced back to the deepening woes of the country’s stricken economy, and their fallout. Britain is entering its first recession for 16 years, and is set to fare worse in the global downturn, worse than its rivals. The Bank of England has cut interest rate to 3 per cent, a 54-year low.

The result is a double whammy for sterling. Dire prospects for UK plc make investing in British assets unattractive, while very low interest rates make Britain a much less appealing place for investors to park cash. So flows of “hot money” that have flooded in during the good times are starting to flood out.

How much does any of this really matter? There are two main dangers. First, as Mr Osborne argues, a weak pound that makes it even less attractive to invest in Britain could make it harder for the Treasury to borrow in the markets by selling government bonds. In turn, that means that it may end up having to pay more to finance surging government borrowing.

Secondly, a weak currency risks igniting inflation by driving up the nation’s import bills.

For now, however, while the pound’s fall is sharp, it is not unprecedented and the threat to Treasury fundraising remains limited. Nor is the second problem a real headache for now. Inflation is set to tumble. In a recessionary climate, businesses are unlikely to be able to pass on the higher cost of imports.

Crucially, a weaker pound will actually help to bolster the economy, making British exports more competitive. As other economies revive, this ought, eventually, to allow an export-led recovery. Provided that the pound does not collapse in a destabilising and disorderly way, its slide can be seen as a tonic, not a torment.

Sterling’s fall can rescue Britain

Two seemingly opposite dispositions among policymakers have done much to bring about the recession. One is undue faith in markets. The other is undue faith in themselves. Both were typified in the US by Alan Greenspan, the former Federal Reserve chairman, and in Britain by Gordon Brown, the prime minister. Mr Greenspan has shamefacedly admitted it. Mr Brown has yet to do so. Their failures may be partly a matter of individual psychology but they also have systemic and intellectual roots. To gain insight into these, historical parallels help.

One is tempted to compare Mr Greenspan with Rudolf von Havenstein, the man in charge of the German Reichsbank during the 1923 hyperinflation. At the height of the crisis he promised to relieve the shortage of currency through the Reichsbank’s new high-speed printing presses. But Mr Greenspan’s failings, although extending to monetary policy, were mainly in financial sector regulation, where his instinct was to rescue delinquent institutions without disciplining them.

For the same reason an analogy with Arthur Burns does not work. Burns was Richard Nixon’s Fed chairman. In the aftermath of the 1971 dollar devaluation he pursued untrammelled monetary expansion to boost Nixon’s re-election prospects, thereby helping to kindle the global inflation of the 1970s.

The parallel is much closer between Mr Brown and Burns’ British partner in crime, Anthony Barber, who as chancellor of the exchequer was author of the Heath-Barber boom of 1970-73. This, like Mr Brown’s fiscal expansionism, was supposed to put an end to “stop-go” in the British economy. It too ended in monetary collapse, namely the secondary banking crisis, which came close to necessitating the rescue of NatWest. No less illuminating, however, than these similarities between Mr Brown and Barber are the differences. The Brown boom threatens to prove far more damaging than its predecessor, because it lasted so much longer – more like 10 years than two-and-a-half – thanks to international payments patterns and elastic credit markets.

This meant a correspondingly prolonged overvaluation of sterling and of UK assets. British export capacity, especially in manufacturing, was severely eroded. In the face of poor productivity performance, expansion relied on immigrant inflows and external borrowing. British consumers became habituated to unsustainable spending, based on misleading indicators of household wealth as well as lax credit conditions.

So much for the bad news. Two aspects of today’s global economy make the prospects for renewed upturn nonetheless more favourable than was the case 35 years ago – or for that matter 75 years ago, in the early 1930s. One is that, despite disconcerting fluctuations in commodity markets, especially for oil and gas, the world has had near-stable price levels for two decades, something not achieved since 1914. The other is that world economic expansion is no longer hyper-dependent on the North Atlantic area. Asia has come into its own, led by China and India. They are not immune to global recession in the short term. But their underlying growth impetus is a long way from exhaustion. They are not on a deceleration threshold like that of western Europe in 1970 or of Japan in the late 1980s.

It follows that the most promising development for re-expanding Britain’s economy in the medium term is the decline in the sterling exchange rate. This was achieved by currency market responses to the emergency easing of monetary policy precipitated by the banking crisis. No further macro-policy activism is appropriate for the UK at this juncture – certainly not the knee-jerk fiscal stimulus rightly mocked by Germany’s finance minister.

The “automatic stabiliser” effects of lower tax receipts and higher social security spending are the only source of wider UK budget deficits that should be contemplated. Debate on this matter being unavoidably associated with John Maynard Keynes, it needs emphasising that in his The General Theory he was concerned with escape routes from chronic depression, not with growth maintenance or damping the “normal” business cycle.

The main strategic challenge today is not demand management but regulation of financial markets. These need to become less competitive and less technically inventive. In short, more boring. The difficulty of achieving this in a world of global enterprise is not to be underestimated.

The DM says: Lucky we didn't opt for the "safe haven" of the Euro, like Ireland and Spain - see below. It may seem hard to believe, but things could be worse.

A little spot of rioting doesn’t bother the EU

Mr Brown is not alone in being oblivious to his catastrophic mistakes and their consequences; he has that in common with the gang of crooks, sleazeballs, inadequates and incompetents who run most of the countries of Europe. But at least they have decided they ought to meet in a few weeks’ time – there is manifestly no hurry as far as they are concerned – to discuss the wave of rioting and civil unrest across the EU as its financial and economic system starts to creak, with unemployment piling up. There seems to be a pretence that it is organised anarchy, but in fact it is the only resort for people in many countries, such as Greece, where voting in a different government won’t change the value of the currency or economic policy. As my colleague David Blair pointed out yesterday, the costs of a country seeking to leave the euro would be crippling, with the prospect of widespread debt defaults. But it may soon be apparent that the price of staying in is social meltdown.

'Worst day' in Irish financial history

Ireland's entire banking system may have to be nationalised after the "worst day in Irish financial history" in which the benchmark index fell the most since 1993, according to a leading economist.

By Rowena Mason, Telegraph, 19 Jan 2009

The six-member Financial Index plunged 48pc, with Allied Irish (AIB) down 59pc and Bank of Ireland (BoI) down 55pc, over speculation they may soon need more cash. Brian Lucey, professor of finance at Trinity College, Dublin, said the state needs to act now to prevent total collapse.

"Their shares are being hammered and this is going to continue until the Government steps in," Professor Lucey said. "It doesn't seem to know what to do."

The market reacted badly to news that Brian Goggins, chief executive of BoI, would step down in the summer. There was also speculation that the Bank of Ireland and Allied Irish could not wait for €2bn capital injections set for April.

Earlier, the Irish government was forced into a U-turn, abandoning plans to freeze the deposits of customers with accounts at Anglo-Irish Bank. The country's third-biggest lender was nationalised on Thursday after a "mini-run" of people withdrawing money.

S&P strips Spain of its AAA credit rating

Standard & Poor's has stripped Spain of its coveted AAA status in the first such move against a top-rated country since the global crisis began, reflecting the deep damage suffered by Spanish public finances as the debt bubble bursts.

By Ambrose Evans-Pritchard, Telegraph, 20 Jan 2009

The credit-rating agency's downgrade comes at a delicate moment for Euroland's weaker bloc. Several states already face difficulties raising money on the bond markets. The yield spreads on Spanish debt rose yesterday to a post-EMU high of 122 basis points above German Bunds, though still below levels for Italy, Ireland and Greece.

Explaining the downgrade, S&P cited the "structural weaknesses in the Spanish economy" and predicted a long recession that will raise public debt by 18pc of GDP and may entail a huge bank bail-out.

Brussels predicted that unemployment in Spain would reach 19pc by next year, pushing the jobless total to near 4.5m. Opposition leader Mariano Rajoy called on finance minister Pedro Solbes to step down as a "patriotic duty". "This is a man who has thrown in the towel. He's given up, he's got no ideas left and no clue what to do next," he said.

Myriam Fernández, S&P's lead analyst, said Spain's euro membership provided stability but also tied Madrid's hands as it tries to respond to the crisis. "It doesn't have control over monetary policy and lacks the flexibility to correct its current account by devaluation," she said.

Alberto Mattelan, an economist at Inverseguros, said the key risk over the next two years is Spanish companies' debt load. "They are very dependent on external credit. At 10pc of GDP, it's the highest in Europe. There won't be a real recovery until 2011," he said.

Spanish politics may not wait that long. Some 35,000 trade unionists marched through Zaragoza, in the county's north-east, on Sunday to demand "job protection" after a clutch of factory closures in Aragon's industrial hub. It was the first big labour protest against the Socialist government of Jose Luis Zapatero. "We're paying the bill for this crisis and we are not going to pay the bill any longer," said union leader Julian Buey.

Help Ireland or it will exit euro, economist warns

A leading Irish economist has called on Dublin to threaten withdrawal from the euro unless Europe's big powers do more to rescue Ireland's economy.

By Ambrose Evans-Pritchard, Telegraph Business, 19 Jan 2009

David McWilliams, a former official at the Irish central bank, has said that Ireland could withdraw from the euro if they are not given more help Photo: Rex Features
"This is war: countries have to defend themselves," said David McWilliams, a former official at the Irish central bank.

"It is essential that we go to Europe and say we have a serious problem. We say, either we default or we pull out of Europe," he told RTE radio.

"If Ireland continues hurtling down this road, which is close to default, the whole of Europe will be badly affected. The credibility of the euro will be badly affected. Then Spain might default, Italy and Greece," he said.

Mr McWilliams, a former UBS director and now prominent broadcaster, has broken the ultimate taboo by evoking threats to precipitate an EMU crisis, which would risk a chain reaction across the eurozone's southern belt, where yield spreads on state bonds are already flashing warning signals. The comments reflect growing bitterness in Dublin over the way the country has been treated after voting against the EU's Lisbon Treaty.

"If we have a single currency there are obligations and responsibilities on both sides. The idea that Germany and France can just hang us out to dry, as has been the talk in the last couple of days should not be taken lying down," he said.

Mr McWilliams cited the example of New York's threat to default in 1975. President Gerald Ford "blinked" at the 11th hour and backed a bail-out to prevent broader damage.

As yet, there is no public support for withdrawal from the euro. A Quantum poll published by the Irish Independent yesterday found that 97pc reject such a radical move. Three-quarters are in favour of a national government, an idea floated by Unilever's ex-chief Niall Fitzgerald.

"The economic disaster we are facing is unlike anything which has happened in my lifetime. It is a national crisis and needs a government of national unity," Mr Fitzgerald said.

Mr McWilliams said EMU was preventing Irish recovery. "The only way we can win this war is by becoming, once again, an export country. We can do what we are doing now, which is to reduce our wages, throw more people on the dole and suffer a long contraction. The other model is what the British are doing. Britain is letting sterling fall so that the problem becomes someone else's. But we, of course, have ruled this out by our euro membership.

"We are paying twice for the euro: once on the exchange rate and once more on the interest rate," he said.

"By keeping with the current policy, the state is ensuring that Ireland turns itself into a large debt-repayment machine. Is this the sort of strategy to win wars? " he said.

Monetary union has left half of Europe trapped in depression

Events are moving fast in Europe. The worst riots since the fall of Communism have swept the Baltics and the south Balkans. An incipient crisis is taking shape in the Club Med bond markets. S&P has cut Greek debt to near junk. Spanish, Portuguese, and Irish bonds are on negative watch.

Dublin has nationalised Anglo Irish Bank with its half-built folly on North Wall Quay and €73bn (£65bn) of liabilities, moving a step nearer the line where markets probe the solvency of the Irish state.

A great ring of EU states stretching from Eastern Europe down across Mare Nostrum to the Celtic fringe are either in a 1930s depression already or soon will be. Greece's social fabric is unravelling before the pain begins, which bodes ill.

Each is a victim of ill-judged economic policies foisted upon them by elites in thrall to Europe's monetary project – either in EMU or preparing to join – and each is trapped.

As UKIP leader Nigel Farage put it in a rare voice of dissent at the euro's 10th birthday triumph in Strasbourg, EMU-land has become a Völker-Kerker – a "prison of nations", to borrow from the Austro-Hungarian Empire.

This week, Riga's cobbled streets became a war zone. Protesters armed with blocks of ice smashed up Latvia's finance ministry. Hundreds tried to force their way into the legislature, enraged by austerity cuts.

"Trust in the state's authority and officials has fallen catastrophically," said President Valdis Zatlers, who called for the dissolution of parliament.

In Lithuania, riot police fired rubber-bullets on a trade union march. Dogs chased stragglers into the Vilnia river. A demonstration outside Bulgaria's parliament in Sofia turned violent on Wednesday.

These three states are all members of the Exchange Rate Mechanism (ERM2), the euro's pre-detention cell. They must join. It is written into their EU contracts.

The result of subjecting ex-Soviet catch-up economies to the monetary regime of the leaden West has been massive overheating. Latvia's current account deficit hit 26pc of GDP. Riga property prices surpassed Berlin.

The inevitable bust is proving epic. Latvia's property group Balsts says Riga flat prices have fallen 56pc since mid-2007. The economy contracted 18pc annualised over the last six months.

Leaked documents reveal – despite a blizzard of lies by EU and Latvian officials – that the International Monetary Fund called for devaluation as part of a €7.5bn joint rescue for Latvia. Such adjustments are crucial in IMF deals. They allow countries to claw their way back to health without suffering perma-slump.

This was blocked by Brussels – purportedly because mortgage debt in euros and Swiss francs precluded that option. IMF documents dispute this. A society is being sacrificed on the altar of the EMU project.

Latvians have company. Dublin expects Ireland's economy to contract 4pc this year. The deficit will reach 12pc of GDP by 2010 on current policies. "This is not sustainable," said the treasury. Hence the draconian wage deflation now threatened by the Taoiseach.

The Celtic Tiger has faced the test bravely. No government in Europe has been so honest. It is a tragedy that sterling's crash should have compounded their woes at this moment. To cap it all, Dell is decamping to Poland with 4pc of GDP. Irish wages crept too high during the heady years when Euroland interest rates of 2pc so beguiled the nation.

Spain lost a million jobs in 2008. Madrid is bracing for 16pc unemployment by year's end. Private economists fear 25pc before it is over. Spain's wage inflation has priced the workforce out of Europe's markets. EMU logic is wage deflation for year after year. With Spain's high debt levels, this is impossible.

Either Mr Zapatero stops the madness, or Spanish democracy will stop him. The left wing of his PSOE party is already peeling off, just as the French left is peeling off to fight "l'euro dictature capitaliste".

Italy's treasury awaits each bond auction with dread, wondering if can offload €200bn of debt this year. Spreads reached a fresh post-EMU high of 149 last week. The debt compound noose is tightening around Rome's throat. Italian journalists have begun to talk of Europe's "Tequila Crisis" – a new twist.

They mean that capital flight from Club Med could set off an unstoppable process.

Mexico's Tequila drama in 1994 was triggered by a combination of the Chiapas uprising, a current account haemorrhage, and bond jitters. The dollar-peso peg snapped when elites began moving money to US banks. The game was up within days.

Fixed exchange systems – and EMU is just a glorified version – rupture suddenly. Things can seem eerily calm for a long time. Politicians swear by the parity. Remember John Major's "soft-option" defiance days before the ERM blew apart in 1992? Or Philip Snowden's defence of sterling before a Royal Navy mutiny forced Britain off the Gold Standard in 1931.

Don't expect tremors before an earthquake – and there is no fault line of greater historic violence than the crunching plates where Latin Europe meets Teutonia.

Greece no longer dares sell long bonds to fund its debt. It sold €2.5bn last week at short rates, mostly 3-months and 6-months. This is a dangerous game. It stores up "roll-over risk" for later in the year. Hedge funds are circling.

Traders suspect that investors are dumping their Club Med and Irish debt immediately on the European Central Bank in "repo" actions.

In other words, the ECB is already providing a stealth bail-out for Europe's governments – though secrecy veils all.

An EU debt union is being created, in breach of EU law. Liabilities are being shifted quietly on to German taxpayers. What happens when Germany's hard-working citizens find out?

The Rescue Plan has Failed

Liam Halligan, Sunday Telegraph 18 January (tailpiece of an article on the UK banking system)

As if all this renewed banking angst wasn't enough, yet another fear is now stalking international capital markets. Last week, any remaining hope the eurozone had escaped the worst of this crisis was blown out of the water. Economic sentiment is now at a post-war low. Even the European Central Bank, admirably restrained until now, could resist the political pressure no longer and cut its interest rate to 2pc.

This column has long questioned the eurozone's long-term survival. Now global markets are doing the same. At the start of last year, the average 10-year government bond yield among the weaker member states (Portugal, Greece, Spain, Ireland and Italy) was just 25 basis points above the comparable number in Germany. That spread is now six times bigger.

Credit default swaps (the cost of insuring against a government default) among the most feckless eurozone members have reached Latin American levels. Would French and German taxpayers bail out another eurozone member? The longer this crisis goes on, the larger that incendiary question looms.

S&P threatens to strip Spain of top AAA rating

Standard & Poor's has threatened to strip Spain of its coveted AAA rating as country's budget deficit explodes, offering the clearest warning to date that even wealthy states are running out of room to borrow.

By Ambrose Evans-Pritchard, Telegraph Business, 13 Jan 2009

Standard & Poor's has threatened to strip Spain of its coveted AAA rating as country's budget deficit explodes
The move caused fury in Madrid and revived fears in the currency and bond markets about the underlying health of Europe's monetary union.

Spanish officials are irked that S&P has placed Spain's debt on "CreditWatch Negative", a notch lower than the "outlook" alert issued on Irish bonds last week. It is the first time that a AAA country has suffered such a harsh verdict since the start of the global financial crisis.

Such a move typically precedes a downgrade within weeks but the finance ministry insisted last night this would not be allowed to happen. "There's not going to be a rating downgrade because we are taking measures to overcome the crisis," it said.

Trevor Cullinan and Myriam Fernández, the agency's analysts, said the housing crash had set off a downward spiral in Spain that would drive the budget deficit above 6pc by 2006, double the EU's Maastricht limit.

"We expect a substantial worsening in the Kingdom's public finances," it said, predicting 2pc contraction in 2009 and a long slump as years of credit excess are slowly purged.

Spain is discovering the limits of action within the eurozone. It can no longer let its currency take the strain, or follow the US, Switzerland, Sweden, Britain, in slashing rates. Indeed, Frankfurt raised eurozone rates last July at a time when Spain's housing crash was already under way. Unemployment has surged to 13.4pc, breaking the 3m barrier.

Michael Klawitter, from Dresdner Kleinwort, said Spain was now crumbling on every front. "Tax revenue is collapsing. There is a banking crisis and a massive deterioration linked to housing. It is arguable that Spain has already let matters go past the point of no return," he said.

"We are going to see fresh talk about the sustainability of monetary union and it is going to get messy. Spain is the most pro-EMU of the big states so there has not been any backlash against EMU, but who knows what will happen," he said.

Ian Stannard, a currency strategist at BNP Paribas, said Spain needs to raise €70bn (£63bn) this year on the bond markets, both to roll over old debts and to pay for a fiscal rescue package worth 1pc of GDP.

Europe's bond supply will reach €765bn this year, up 15pc from 2008. It is far from clear whether the markets can absorb so much debt. Although Spain's public debt is modest at under 40pc of GDP, this may not prevent a downgrade.

"The economy is less resilient than any other AAA state. It is more dependent on real estate and tourism, and there is very high corporate debt. Household debt is close to levels in Britain and the US," said Mr Fernandez.

The DM says: So much for the benefits of being in the Euro. Spain has no control over its interest rate, and is having to make do with one largely set to suit Germany. Export industries are prevented from getting the relief that a falling currency would give them.

Loosen Britain's ties with European Union, say two-thirds of voters

Almost two-thirds of voters want a significant loosening of Britain's ties with the European Union including an end to the supremacy of the European Court of Justice, a new opinion poll reveals.

By Patrick Hennessy, Political Editor, Sunday Telegraph, 11 Jan 2009

The YouGov survey for the TaxPayersAlliance and Global Vision, the Eurosceptic pressure group, shows that voters remain antagonistic towards the EU in the wake of the Lisbon Treaty, which increased the powers of Brussels at the expense of national governments, as well as towards the euro, despite recent falls in the value of the pound.

The survey – released exclusively to The Sunday Telegraph – also spells out the threat posed to the Tories by the United Kingdom Independence Party (UKIP) in elections to the European Parliament which take place on 4 June. Ten per cent of those who would vote Tory in a general election will back UKIP in the euro-election, the survey suggests.

David Cameron has been trying to "close down" Europe as a political issue amid fears that traditional Tory divisions on the subject could resurface with the possible return of Ken Clarke, the strongly pro-Brussels former Chancellor, to the shadow cabinet.

Overall, 16 per cent of voters want Britain simply to withdraw from the EU, while 48 per cent would like to see a much looser relationship, with the government taking back powers from Brussels and ending the supremacy of the European Court of Justice over British law.

Added together this makes 64 per cent in favour of weakening Britain's ties with the EU, compared with just 22 per cent in favour of keeping the UK's current full membership including the Lisbon Treaty, which was passed by parliament without a referendum.

Asked if they favoured joining the euro, in the wake of the slump in the value of the pound which at one stage brought it close to parity with the single European Currency, 64 per cent said No, with 24 per cent backing euro membership, a finding broadly in line with a BBC opinion poll earlier this month.

In the first study of voting intentions for the European parliamentary elections in June the Tories are on 35 per cent, six points ahead of Labour on 29 per cent with the Liberal Democrats on 15 per cent and UKIP on 7 per cent. Then come the Greens (5 per cent), the British National Party (4 per cent) and nationalist parties in Scotland and Wales (also 4 per cent).

Significantly, 10 per cent of Conservative voters at a general election would switch to UKIP in the euro-election, compared with 2 per cent of Labour voters and 1 per cent of those backing the Lib Dems. Conservative support could fall still further if Mr Clarke makes a front-bench return, using his position to make high-profile interventions on European matters.

Some 45 per cent of voters, meanwhile, believe none of the three main political parties adequately reflects their views on Britain's future relations with the EU, while 59 per cent of the population believes ministers should disregard the EU's VAT rules if they feel a further cut in VAT is necessary in this year's Budget. The current rate of 15 per cent is the lowest permitted by Brussels.

David Cameron will need a delicate touch to defuse the Eurosceptic bomb

The looming European elections - and the possible return of Ken Clarke to the front bench - present the Tory leader with a dilemma, writes Iain Martin.

Iain Martin, Sunday telegraph, 10 Jan 2009

Isn't it good, the Conservative leader likes to say, that the Tories have not had many rows about Europe for the past couple of years. The subject that fuelled thousands of headlines about splits and ideological convulsion appears finally to have lost its power to trouble the party. It is difficult to blame David Cameron for wanting to avoid a return to the days of division.

Many of you will think that ending or altering Britain's membership of the European Union is the most important topic of our age. Beyond the need to save capitalism from the wave of corporatist interference and ineptitude currently threatening to engulf it, I am inclined to agree.

But Cameron's supporters make a good point: if you want a change in Britain's relationship with Europe, then first a change of government must be secured. Touring the country, standing on the back of a flatbed truck festooned with Union flags and shouting until you are hoarse that democracy is in peril from the EU, has produced limited electoral returns. Ask William Hague; in the 2001 general election campaign he was that man, on that truck.

As a consequence of these failed tactics, moderate Eurosceptics have continuously adapted their approach. An excellent new campaign, organised jointly by the Taxpayers' Alliance, which campaigns for taxpayer value for money, and Global Vision, which wants a renegotiation with the EU, is the latest stage of that evolution.

The campaign aims to give greater prominence to the drawbacks of the EU. Their research suggests that voters do not like hearing politicians drone on about democracy and the draining of power from Westminster, even though two thirds say they want to leave the EU or have a looser relationship with it. Voters are fatalistic about the prospects of the latter ever happening. However, they are inclined to listen when told how costly and inefficient the current set-up is.

The new campaign will thus be one of credit crunch Euroscepticism, highlighting waste and the ways in which EU decisions impact directly, in costly ways, on British lives. Just one example: the landfill directive from Europe is responsible for inadequate refuse collection by councils. The EU is literally leaving rubbish on your doorstep.

This should be useful to the Conservatives, who road-tested the rhetoric of robust scepticism to destruction and need to find a different tone. But the Tory leadership does not want to hear too much about Europe right now, as it is worried this might undo its good work so far.

By the mid-Nineties, enough voters to make a difference had concluded that the Conservatives had too great an interest in sectional infighting over the Europe issue. Combined with a sense that the party was tired, had mismanaged the economy and had governed too long, it was an explosive recipe for electoral obliteration.

And so Cameron set about trying to defuse the bomb of Euroscepticism, even though he is intrinsically a sceptic himself. In cold, purely political terms, denying oxygen to debates over European policy has possibly been Cameron's single best piece of rebranding. It has created the space in which he could emphasise other areas of concern.

But the EU never went away, and Brussels' appetite for power is undiminished. Ireland will be forced to have a second referendum on the Lisbon Treaty in October, having dared to vote "No" the first time. There will be a torrent of pro-Treaty propaganda from the EU ahead of polling day.

Before that, on June 4, Britain will vote in elections to the European parliament. As the YouGov poll published today in The Sunday Telegraph shows, one in 10 Conservative voters is planning at this stage to vote for the UK Independence Party, which campaigns for full withdrawal from the EU. This puts pressure on the Tory leadership to adjust its rhetoric, in an attempt to deter hard-liners from defecting. In doing so, would it drive away those with more moderate views? It is certainly a risk.

Steering a path through this tangle is a priority second only to the economy in the minds of Cameron, shadow chancellor George Osborne and Hague, now shadow foreign secretary.

At this point, enters a rotund and jolly gentleman who wears suede shoes and smokes a fat cigar. Ken Clarke, former chancellor, ornithologist, authority on ale, lover of jazz, and holder of extremely pro-European views, is being tipped for a return to the shadow cabinet in the looming Conservative reshuffle.

A recall for Clarke, or a rejection of the idea, is going to be the defining story when the Tory pack is reshuffled (unlikely to be this week but expected before the end of the month). The mooted return of Clarke is a consequence of the criticism that the shadow cabinet contains too few big hitters, that the Tories will need all their heavy firepower available to defeat Brown, and that "all good men" should come to the aid of their party.

A possible return for Clarke as shadow business secretary or shadow Leader of the House is Cameron's trickiest personnel judgment. Clarke has been surprisingly quiet on Europe of late and noticeably helpful to the Tory leadership, not least by delivering a robust endorsement of Osborne's handling of the shadow chancellorship (although Cameron was reminded of the risks involved when Clarke appeared recently to endorse the government's VAT cut before changing his mind).

The decision will hinge on Europe, and whether or not Clarke will promise to keep out of trouble. That is like asking him to stop smoking, says one fellow MP – although he has quietly given up being deputy chairman and director of British American Tobacco.

"Ken will have to sign in blood, his own blood hopefully, that he will not cause trouble," says a member of the shadow cabinet. This is a great test for the new model Conservative party. Whatever his limitations, Clarke has a reach beyond the Westminster sandpit. If his return is to be a success, he will need to place Conservative victory ahead of personal vanity, and the Conservative party will need to tolerate his milder eccentricities. In return, a signal will be sent to floating voters that the Tories are truly serious about winning again.

The decision will also tell Cameron's party much about their leader's ability to come to accommodations in the interests of balancing his team. If he pulls it off, it will be a great boon to the Tories. If it means only a return to infighting, Labour will quickly brand them "the same old Tories".

Either way, the Conservatives cannot postpone finding something clear and coherent to say on Europe. They must find a path between moderate Euroscepticism and "banging on about Europe".

The economic crisis has changed the world, and the resulting tensions in the eurozone are creating stress fractures that could easily force several countries to leave it this year. If that happens, it will transform the debate about the future direction of the EU and open up the possibility of a looser relationship for states that choose it. Some patience is required.

Until then, the new campaign by the Taxpayers' Alliance and Global Vision should guide the Tories. Best point out, calmly, how expensive the grand project of the EU is, at a time when there is so little money around. The Eurosceptic way to voters' hearts should this time be through their wallets.

Telegraph View: An itch for change

When asked about Europe, a majority of British voters would like our ties to be significantly loosened

Telegraph View, 10 Jan 2009

When asked about Europe, a majority of British voters would like our ties to be significantly loosened. So says the YouGov poll whose results we reveal today. Of course one may experience a natural inclination, once the Eurostar hits the warmer weather around Calais, to undo the collar button, but in this instance something more radical is called for.

The British body politic has had an overdose of Brussels, and is sending a message that nothing less than a sweeping wind of change will relieve its malaise. This sense that we are sick of the "great project" of integration is made more than metaphorical by the discovery, which James Le Fanu also reports today, that the euro is hazardous to your health. Handling the coins can cause dermatitis, because they release nickel onto the skin in concentrations wildly above the levels permitted by the EU's own stern directives.

As a symbol of the Union's internal contradictions, those brazen little quasi-sovereigns could hardly be more pointed.

The DM says: This is about the only argument against the Euro that we hadn't thought of.

Staying out of the euro has spared us a Spanish-style catastrophe

Half-built flats and soaring unemployment show that the boom has turned to gloom on the Costa del Sol. And it's a fate that could easily have befallen Britain.

By Jeff Randall, Telegraph Business, 9 Jan 2009

For a place that's called the Sunshine Coast, Spain's Costa del Sol was unusually wet and cold last week. Friday and Saturday were particularly miserable in Marbella, as the rain lashed across the main promenade, forcing restaurants to bring in tables and pull down shutters.

It was as though the weather gods had decided to reflect the country's economic outlook – which is becoming darker by the day. What many in Spain had regarded (foolishly) as an eternal summer of expansion, driven by a breakneck construction boom, has turned into a winter of plunging property prices, failing businesses and an epidemic of redundancies.

Spain's traditional new year greeting is próspero año nuevo. But even in this part of Andalucia, a favourite playground of wealthy sunseekers and golf fanatics, it is hard to find locals who are expecting prosperity in 2009. For a growing number of workers and small-business owners, anything better than a sharp decline in income will be greeted as a triumph.

Like the toros bravos that die in the corrida, Spain's bull market began with impressive vigour but ended up being dragged off through the dirt. Unemployment hit three million yesterday, about 13 per cent of the workforce (double the rate in the UK), the worst it has been for 12 years. Nearly one million of those without jobs have lost them during the past 12 months.

The speed of descent, from fiesta into crisis, has shocked the country's political class and commentariat. Inflation has dropped from 5.3 per cent to 1.5 per cent since the summer. According to the newspaper El Pais: "This situation was impensable [unthinkable] in July".

As historians begin to assess damage from the credit crunch, Spain will surely be singled out as a classic study for what can go wrong inside a monetary union when the policy requirements of its members become hopelessly misaligned. It is simply not possible to pursue the best interests of every participant when some nations are running trade and fiscal surpluses while others clock up huge deficits.

Ten years after it was launched, the euro is propelling Spain towards disaster. In giving up control of domestic interest rates to the European Central Bank, Madrid handed over a vital instrument of macroeconomic management. It is learning to regret that.

For the early part of this millennium, that loss of power seemed not to matter: Spain's outrageous (and in some cases illegal) construction frenzy hid a multitude of sins. At the peak, about 800,000 homes were being built annually on the basis that demand from foreign buyers was limitless.

That dream has vanished, along with the over-supply of cheap money that funded it. Drive down the E-15, the main motorway link between Malaga and Gibraltar, and you will see block after block of half-built apartments, connected neither to essential utilities nor to financial reality. They stand as temples to a religion that ceased to exist when the bubble popped.

The Spanish economy is weak; it needs lower interest rates and a softer currency. Such a prospect, however, doesn't suit Germany, the eurozone's dominant force, so Madrid has to sit and suffer while its people cry for help.

Discomfort is palpable in tourist centres where the purchasing power of British visitors and second-home owners has played a pivotal role in boosting local enterprise. Germans and Swedes have been important, also, but it is on the British that the leisure sector in southern Spain has depended most.

A quick scan of the exchange-rate charts explains why. In the summer of 2000, about 18 months after it was launched, the euro was out of fashion on the world's currency markets. At that time, £1 bought €1.75, making British travellers feel especially wealthy when holidaying in Spain.

Today, however, as the British economy sinks into recession, prompting the Bank of England to slash interest rates to 1.5 per cent (the lowest level in the central bank's 315-year history), it is sterling that looks like a six-stone weakling.

Many in the queue at Gatwick airport's Travelex desk last weekend were shocked to discover that the pound had fallen to below parity against the euro. For them, Spain has become an expensive experience. Old jokes about Costa Notta Lotta are no longer relevant, much less funny.

I was treated by a friend to a round of golf at Rio Real, a middle-ranking course, that is by no means among the priciest. He was charged £172 for two (no buggy). Dinner for three in a modest pizza joint came to £75. One must assume that hoteliers from Morecambe to Margate are cheering wildly.

Competing currencies invariably fluctuate on a daily basis, but not all in the City are expecting a swift recovery of sterling against the euro (even though it has picked up in the past few days). HSBC believes: "In the UK… a weaker currency seems desirable to policy makers… in our eyes all roads lead to a stronger euro."

If that analysis proves correct, parts of Spain will face devastation, and social policies that seemed generous during the go-go years will quickly become unaffordable. For example, in some instances the state pays 70 per cent of salary for up to two years when a worker is made unemployed. How will that be funded if, as some are predicting, Spain's jobless total reaches four million in 2010?

Adding to Madrid's woes is the extraordinary influx of five million immigrants, who boosted the population by about 15 per cent between 1998 and last year. It was always assumed that in tough times many would return home. But for penniless fruit pickers from Africa, life in Spain, even in the harshest economic climate, is often better than what they left behind. The number of foreigners claiming dole payments has doubled and there are mounting tensions as native job-seekers slip down the food chain.

Marbella is not used to life on a budget. Shopkeepers, newspaper vendors and bar staff seem baffled by the downturn in their fortunes. On Sunday, my family and I had dinner in a seafront bodega and were the only customers all night. "What has happened to los Ingleses?" asked the waiter.

The answer is that the United Kingdom never joined the euro. As a result, our government and monetary authorities are free to adopt policies that suit our needs. In today's circumstances, that means the freedom to live with a devaluing currency. This hurts those of us who can still afford to visit Spain, and is unfortunate for British pensioners living abroad, but is a small price to pay for the revival of our domestic industries.

Had Britain been locked into Europe's single currency, at an exchange rate far higher than today's, there is good reason to believe that we, too, would be suffering double-digit unemployment. You won't read this very often under my byline, but Gordon Brown played a blinder in keeping us out.

Europe's economy contracts at rates not seen since 1930s

Dire day for Europe as Spain's jobless blasts through 3m and German industry goes into "free-fall"

By Ambrose Evans-Pritchard, International Business Editor, Telegraph, 9 Jan 2009

Joaquin Almunia, the European economics commissioner, warned that the picture would turn "dramatically worse" this year. The eurozone's confidence index collapsed from 74.9 to 67.1, the lowest since Brussels started collecting the data in 1985.

"It makes truly dismal reading," said Julian Callow, Europe economist at Barclays Capital. "Industrial sentiment has never experienced such a rapid slump. There is an implosion of demand."

Spain lost almost 140,000 jobs in December, pushing unemployment to 3.1m or 13.4pc. The Labour Office said the country had shed a million in jobs in 2008 as the building boom collapsed. This is equivalent to 7m job losses in the United States.

The Labour Secretary Maravillas Rojo said she could not rule out a rise in unemployment to 4m this year. "We are in an unprecedented situation, and 2009 is going to be very difficult," she said.

Madrid now has its hands tied under the constraints of monetary union. It cannot slash interest rates or devalue, and it has already exhausted its scope for fiscal stimulus under the EU's Stability Pact. The one piece of good news is that euribor rates used to price almost all mortgages in Spain has dropped for 61 days in a row to 2.88pc.

Spain is now in company at last with Germany, where exports plummeted 10.6pc in November. The German economy is highly-geared to the global industrial cycle and is suddenly facing a vicious downturn as demand for machinery slumps in China, Russia, the Mid-East, and equally important as car sales crash in Italy, Spain, and Britain. The country's trade surplus has shrivelled by a third in one month.

"Industry is in free-fall," said Dirk Schumacher, from Goldman Sachs. Germany's industrial orders have plummeted 27pc year-on-year, heralding a drastic economic contraction this year. Berlin is mulling a €100bn fund to rescue companies in distress, on top of its €50bn Keynesian blitz over two years. The fiscal package includes tax cuts and infrastructure spending. Chancellor Angela Merkel's coalition has backed away from plans to `tough out' the recession after a fierce criticism from German economists and industrial leaders.

Berlin is now preparing the part-nationalisation of Commerzbank by taking a 25pc stake in exchange for a €10bn infusion of capital, helping to boost the bank's capital ratio as it digests Dresdner Bank. Commerzbank shares fell 14pc. France is also drawing up plans for a fresh €10.5bn capital injection for its banks.

Jacques Cailloux, from the Royal Bank of Scotland, said the pace of contraction in Europe is now disturbingly close to levels seen in the Great Depression. The eurozone bloc shrank by 3pc in 1930, 5pc in 1931, and 4pc in 1932.

By this count, 2009 could easily match 1930. The latest data points to 3pc contraction rate since late last year, with no improvement in sight. "Even the worst case scenarios people talked about now look too optimistic. But at least the authorities have done enough to prevent the vicious downward spiral from accelerating. We've haven't seen the sort of run on bank deposits or mass bankruptices that occurred in the 1930s. That is crucial," he said.

Elga Bartsch from Morgan Stanley said the European Central Bank may have to cut rates to 1pc and let its overnight EONIA rate drop to zero. It has already expanded its balance by 55pcc in a quiet shift to emergency stimulus, but may now have to go further than it wants to head off a "deflation trap"

The EU's role in our financial crisis

As the Western world's banking system teeters on the edge of collapse, one crucial factor in this unprecedented crisis has gone almost entirely unnoticed - although David Cameron made a veiled reference to it on Tuesday.

At the heart of this catastrophe lies a drastic change made last year to banking regulations, which has led to the current freezing of the money markets. Without it, most of the banks that have collapsed, such as Lehman Brothers, might have survived.

Last December, a leading City economist, Professor Peter Spencer of Ernst & Young's Item Club, warned that unless something was done urgently to modify the new rules, the resulting paralysis of the banking system would "make 1929 look like a walk in the park".

Last week, as his prediction seemed to be coming true, the US was moving to change the rules. But in the EU they are enshrined in a directive which could take months, or years, to unpick.

In 2004, partly in response to the Enron debacle, the world's leading economic powers made an agreement known as Basel 2.

It proposed a drastic tightening of the so-called "fair value" or "mark-to-market" rules, whereby banks and other financial institutions define whether they are solvent and fit to continue trading. Brussels, which is fast taking over regulation of our financial services, embodied this in two directives, 2006/48 and 2006/49, known as the Capital Adequacy Directive.

Much of this lays down a complex "Risk Assessment Model", under which a bank at the end of each day's trading must produce a statement of its assets to show whether or not it is solvent. If not, the bank must declare this to the regulatory authorities, such as Britain's Financial Services Authority (FSA), and cease trading.

As informed observers pointed out at the time, this might not cause problems when property and share values were rising but when markets fell the banks would be put in a critical position.

Writing down their assets to the value they would fetch in a "fire sale", without allowing for underlying value or future recovery, their asset base might be so severely undervalued that it would be difficult for them to lend or borrow, freezing those deals which are the banking system's lifeblood.

Since the credit crunch began last year, this is precisely what has happened. Another City economist, Professor Tim Congdon, warned in January that the "scientific precision of the Basel rules" had been shown to be "hocus pocus", explaining how this had already played a key part in the collapse of Northern Rock. As a "solvent but illiquid bank", wrote Prof Congdon, Northern Rock's only hope was to appeal for help to the Bank of England.

In former times, as the Bank's governor, Mervyn King, tried to explain to the Treasury Select Committee in September 2007, he could have sorted it out behind the scenes, in a rescue operation involving other banks - as had often been done before.

But Mr King was hamstrung by EU legislation, such as its directives on takeovers and "market abuse", as shown by Prof Congdon in a devastating pamphlet, Northern Rock and the European Union (published by Global Vision). The EU's role makes nonsense of the claim that Britain's financial regulation is a "tripartite" system - Bank, Treasury and FSA.

In reality it is quadripartite, with Brussels the fourth and in many ways most important player, as we saw when subsequent attempts to sort out the Northern Rock shambles fell foul of EU competition and state-aid rules.

As Ron Sandler, Northern Rock's chairman, said when it was nationalised, "the bank will have to operate according to rules set in Brussels". Because the EU's competition commissioner, Neelie Kroes, failed to grasp the difference between a loan and state aid, one of her first requirements was that the bank should sack 2,000 employees as evidence that it was being "restructured".

Thus the EU has become the gigantic "elephant in the room" of our financial services industry, on which a third of Britain's income depends. Nowhere is the effect more damaging than in those directives implementing the Basel 2 agreement (actively promoted by Britain at the time) that have reduced our banking and lending system to paralysis.

When Mr Cameron admitted last week that a "new international regulation" which "automatically downgrades the value of banks" was "making the financial crisis worse than in previous downturns", he did not dare risk inflaming his party's Eurosceptics by referring to the EU directly. He merely coyly suggested that "our regulatory authorities" should get together with "the European regulators" to "address this difficult issue".

He did not point out that, as the US Securities and Exchange Commission was abandoning the new rules (supported by the bail-out bill before Congress), all we have to look forward to is that Gordon Brown, after his "crisis summit" in Paris yesterday, will air this "difficult issue" at the European Council on October 15.

Even if they decide to follow the US lead, it would entail the tortuous procedure of the Commission drafting a new directive, which could take more than a year. Meanwhile Europe's banking system remains frozen, threatening no one more than Britain - for reasons that none of our politicians dare explain.

The Eurozone's weak links

Enough idle crystal ball-gazing, here's one prediction that's being backed by millions of pounds. Hedge funds are betting on a disintegration of the eurozone and specifically that Greece, Italy, Spain and Portugal will pull out of the single currency.

The argument is that the euro was "fudged" in the first place with radically different economies being shoehorned together. Government debt levels as a percentage of GDP have soared and are still rising. Meanwhile, the euro, unlike all other major currencies, is not implicitly backed by a central store of gold in a Central Bank vault.

As one expert, Alex Allen of Eddington Capital, told me: "That's a lot of faith to have in mere paper." These "weak link" countries are not necessarily the weakest economies but the ones that may be first to pull out. It sounds dramatic but on the upside, holidays could become cheaper again.

Puny pound may help to restore growth

First the good news. Converting prices into pounds is now a doddle. A couple of years ago, when as little as 70p bought you a euro, weighing up prices in eurozone countries such as France, Spain, the Irish Republic and Italy required a modicum of mental arithmetic. Now, you just need to replace the € symbol with a £ sign. Et voilà!

Or perhaps the apposite exclamation is sacre bleu! For at a one-to-one exchange rate, prices for Brits visiting the eurozone or buying goods from its 15 countries are fiendishly high.

It was very different in January 1999 when the single European currency was launched. Then a euro cost only 71p. It got better: the new currency started to slide and by March 2000 a euro cost just 60p.

Since then the pound has gradually slid back and the fall has turned into a near-collapse in recent weeks. This is not about euro strength, but pound weakness. The pound is plunging against the currencies of almost all our big trading partners. It is hardly surprising. Among other things, a country's exchange rate reflects its economic prospects, and Britain's right now are lousy. Past dependence on growth fuelled by borrowing; a housing and commercial property bubble; overreliance on financial services (five of our ten biggest companies were banks before the crunch); an already heavily indebted Government - all suggest that Britain will be hit harder and will have fewer resources to claw its way out of the downturn.

Monetary policy is adding to the pound's weakness. With every cut in interest rates, Britain becomes a less attractive destination for the trillions of dollars in footloose money that sloshes around the world's financial centres in search of the highest returns. Base rate at 2 per cent is at its lowest since the Second World War. More cuts are expected, possibly next week.

The currency is in a vicious circle. The more that international investors dump pounds in favour of other currencies, the further the exchange rate falls, triggering more anxiety and more currency sales. Momentum is building, with many analysts predicting the pound has further to fall. Currencies can swing wildly from what are seen as equilibrium points.

There is no denying the pain caused by a weaker pound. Harold Wilson's risible claim when he devalued sterling in 1967 that it made no difference to “the pound in your pocket” became a byword for political disingenuousness.

But that does not make the weakening currency a bad thing. The exchange rate is the shock absorber that helps to soften the economic bumps. By making exporters and Britain's tourist industry more competitive, it helps to restore economic growth. By making imports more expensive, it helps to divert spending to home-produced goods and services. The puny pound is a symptom, but also part of the cure.

Britain's difficulties have triggered fresh calls for the country to re-examine joining the single currency. Certainly, being part of a beefy and more stable currency bloc has attractions in such turbulent times. But if anything, the crisis has strengthened the arguments of the “no” camp. Britain has the flexibility to slash interest rates to zero. There is no such option for weaker eurozone economies, such as Italy and Greece, nor for economies grappling with property boom and bust - such as Ireland and Spain. How those economies cope with the single currency may determine whether Britain eventually dusts down its own euro plans.

The pound may be in trouble but don't be fooled by the euro gloaters. Their bogus currency will never see its 20th birthday

This week marks the tenth anniversary of the euro - and every eurocrat in existence is hailing the single currency as an exquisite success.

According to European Commission president Jose Manuel Barroso, the euro has helped create 16 million jobs. The French finance minister Christine Lagarde hails it as 'a zone of security and stability'.

Joaquin Almunia, the European Commissioner for Economic and Monetary Affairs, declares that: 'The euro has become the symbol of EU identity and is protecting us against the tremendous external shocks that we have had to cope with since the summer of 2007'.

Meanwhile, there are many within the British political and business elite - among them Business Secretary Peter Mandelson and former Prime Minister Tony Blair - who secretly wish Britain was in the euro, and believe we made a terrible mistake when we refused to join in 1999.

Consider these statistics. Following yesterday's accession of the Eastern European state of Slovakia, there are now 16 members of the single currency, compared to a mere 11 in 1999. This means an amazing 330 million people now use the euro as their national currency - more than the population of the U.S.

No wonder, say the eurofanatics, that it has strengthened over the past few years and now stands at parity with the pound sterling - stronger than it has ever been.

Not merely that, there are also those who now believe that the euro will soon overtake the dollar as the world's reserve currency. Indeed, even the villain in the latest James Bond film, Quantum Of Solace, chooses to pay his debts in euros because, so he says: 'The dollar isn't what it was.'

But the truth is very different. As even its strongest supporters must admit, the new currency was mollycoddled during a decade of benign global economic conditions - and only now is being tested for the first time. And it is already showing signs of being unable to survive the strain.

Indeed, far from being the staggering success its supporters claim, the euro-zone is already inflicting huge damage on the nations within it. Many currency market experts believe that some of these struggling members may be forced to peel away from the euro - with devastating consequences for the rest of the world.

The greatest problems, in the short term at least, are in the four Mediterranean economies known as the PIGS - Portugal, Italy, Greece and Spain.

Euro Disaster

For each of these countries, the euro has already proved a disaster. Put simply, most of the PIGS are so heavily indebted that the market no longer believes they will be able to repay their borrowings.

Normally, if a country falls into too much debt, it can devalue its currency, essentially devaluing its debt burden - this is exactly what Britain has done over the past few months. In the euro-zone, however, the currency's value is set centrally.

This means the only way out for the struggling PIGS is to crash out of the euro, default on their debt and start again. At the start of 2009, this prospect is beginning to cast a huge shadow over the global economy, for the sums involved are huge.

Take the terrifying case of Greece, which was an economic basket case even before it entered the euro, and is even more of a shambles today.
Greek unemployment is soaring, and its current account deficit is a whopping ten per cent of gross domestic product (Britain's deficit is bad enough at three per cent).

But the largest problem is Greek government debt, which stands at a monstrous 94 per cent of gross domestic product - and rising fast.

Already investors have reached the obvious conclusion that there is a very high chance that the poor old Greeks will never be able to repay their debts. That is why the markets now demand to be paid an extra two per cent in return for lending to Greece compared to Germany, even though both countries denominate their debt in euros.

Will the Euro Survive?

The brutal truth is that if the markets really believed the euro was going to survive, Greek and German debt would cost the same.

But soaring debt is not the worst of Greece's problems. The economy has tilted into recession, and unemployment has risen. Greece desperately needs interest rates to fall - but the European Central Bank is refusing to cut them. The effects are being felt on the streets, and the past few months have seen the worst riots in Athens since the country was a military dictatorship in the Seventies.

There have not yet been riots in the other PIGS - but Portugal-Italy and Spain are all heading for trouble. Spain, thanks almost entirely to the misguided policies of the European Central Bank, is now an economic disaster zone.

In the early years of the euro, the ECB kept interest rates far too low - fostering an inflationary property boom which has ended in inevitable collapse.

Now rates are much too high for Spain's broken economy. The Spanish jobless figure, thanks to the country's membership of the euro, is already 13 per cent. It is expected to approach a truly unbelievable 20 per cent by2010.

Things are already bad enough in Britain, where the jobless rate stands at six per cent.

At least Spain's public debt is relatively manageable, but that is not true of the remaining PIGS - Italy's government borrowing is actually larger than its gross national product.

The truth is that all the PIGS are paying a terrible price for their membership of the euro. If they had kept their own currencies, they would be able to use the traditional tools of economic management. They would set their own interest rates and they could inflate or deflate their national currencies as circumstances demanded.

The Euro - Powerless Nation States

As it is, however, governments in the euro-zone are utterly powerless to do anything about the menace of joblessness and economic collapse. And to appreciate how damaging that is, one only has to contemplate the fate Britain would now be facing if had we made the mistake of joining a decade ago.

For starters: Greece is just the first of the four major Mediterranean economies to turn into an economic basket case
In the early years, we would have suffered the problems of the poor, hapless PIGS.

The interest rates set by the European Central Bank would have been far too low - meaning the credit boom of the past decade would have been even more inflationary and damaging than was actually the case.

And the recession would have bitten far deeper. Interest rates have stayed far higher on continental Europe, driving millions who would otherwise have a job out of work.

And our currency would have been tied to the strong euro, rather than being allowed to depreciate, find its own level, and give vitally needed assistance to exporters.

Bad though the recession already is, it would have been far worse for Britain had we - as Tony Blair so desperately wanted - joined the euro.

First, it will never reach its 20th anniversary. The drachma, the lira, the peseta and the Portuguese escudo (and the Irish punt - Ireland can be regarded as an honorary PIG) will all make a return as the PIGS plunge for the exit.

Second, the collapse of the euro-zone will not be a peaceful process. Expect the European political elites to fight to save their beloved single currency.
Eventually, however, their citizens will take to the streets and force their hands. In Britain we can thank our lucky stars we do not have to go through the same painful and bloody crisis.

Gordon Brown had a mixed record as Chancellor of the Exchequer, and bears a heavy share of the responsibility for the recession. But he did one thing for which we should all be thoroughly grateful - he kept us out of the European single currency.

Bruges Group EURO-CREEP BULLETIN #12:EU Centralisation Continues Apace

Here the Bruges Group exposes the policies that the EU wants to force on Britain over the coming year. These latest EU power grabs are the challenges that we must face in 2009 and are coming regardless of the fact that the EU Constitution/Lisbon Treaty has been rejected in three referenda and has not been ratified.

These plans include:
- Adding more costs onto business
- More EU control over financial services
- The EU and the nuclear industry
- More EU control over energy policy
- EU control over asylum and immigration
- An EU threat to consumer rights
- More EU control over transport
- More EU control over justice and home affairs

ADDING MORE COSTS ON BUSINESS

MORE UNCOMPETITIVE SOCIAL-MODEL ECONOMIC POLICIES

The EU plans to step-up its legislative agenda for a more ‘social’ Europe.
The European Commission is increasingly pushing for the agenda which it describes as ‘European values’ (as opposed to Anglo-saxon values) as powerful evidence of the EU’s commitment to the ‘social dimension.’

These policy proposals will make the economy of the EU even more uncompetitive in the global economy; and gives the lie to the claim that Europe is coming our way.

Commission Communication: Renewed social agenda: opportunities, access and solidarity in 21st century Europe COM(08) 412

EU TO FURTHER UNDERMINE FLEXIBLE LABOUR MARKETS

Trade union power to be expanded.
The establishment of European Works Councils will enhance the power of trade unions and will mean employers shall be further hamstrung by EU law. This will make the EU less attractive to investors and drive jobs out of Britain to more adaptable labour markets, particularly those in Asia.

This policy proposal comes on top Article 138 of the EC Treaty which lays down that the EU must consult with ‘social partners’ (trade unions) when making social law.

EU CONTROL OVER TACKLING THE FINANCIAL CRISIS

The European Commission is reinforcing its control over how the UK can handle the economic crisis.
The EU is bolstering its rules on how and when state aid can be used to include how rescuing and restructuring proposals are applied, managed and targeted. This means that there is not full UK democratic control over how financial institutions are rescued.

Commission Communication: The application of state aid rules to measures taken in relation to financial institutions in the context of the current global financial crisis COM(08) 6045

THE EU AND THE NUCLEAR INDUSTRY

EU CONTROL OVER THE MANAGEMENT OF NUCLEAR FUEL

EU proposals seek to force the UK to store nuclear waste underground; rather than reprocessing the spent fuel.
Britain may be forced to adopt the policy of geological storage of nuclear waste. This policy will undermine Britain’s reprocessing industry in favour of French style disposal of spent nuclear fuel. It will also lead to more EU control over Britain’s energy policy.

MORE EU CONTROL OVER NUCLEAR POWER

Nuclear security and safety will come further under the control of the EU.
Instead of being under the democratic control of the British government; it is proposed that the EU will take more power over the nuclear industry.

Commission Communication: Addressing the international challenge of nuclear safety and security COM(08) 312

MORE EU CONTROL OVER ENERGY POLICY

EU CONTROL OVER THE RESPONSE TO HIGH OIL PRICES

The EU is seeking to govern how the UK can respond to increased fuel prices.
The European Commission is against the cutting of taxes on fuel to offset high oil prices because they feel that this would ‘send the wrong signal’. Therefore, the EU wants member states to redistribute income, in particular to vulnerable groups who may be suffering from higher fuel costs, rather than reduce the price of fuel through the tax regime.

OPEC has recently announced a cut-back in production to again force up the cost of oil. Yet, these proposals will limit the freedom of movement of the British government to respond to future fuel shocks.

Commission Communication: Facing the challenges of higher oil prices COM(08) 384

EU CONTROL OVER ASYLUM AND IMMIGRATION

FULL EU CONTROL OVER IMMIGRATION

The European Commission is re-doubling its efforts to develop a common immigration policy.
The EU already has extensive powers over Britain’s immigration rules, but now wants to expand these powers. The European Union aims to;

take over the coordination of immigration
promote legal immigration into the UK
control the fight against illegal immigration
manage the security issues which arise from immigration
importantly the EU also wants to control how integration is handled
The EU also aims to beef-up the powers of FRONTEX, its border agency, to implement the EU’s policies.

Commission Communication: A common immigration policy for Europe: principles, actions and tools COM(08) 359

THE EU’s ASYLUM POLICIES

The EU aims to create the completion of a Common European Asylum System.
The EU already controls the minimum standards for the treatment of asylum seekers, the minimum rules for granting and withdrawing refugee status and the minimum standards for granting temporary protection. The EU also controls the database recording asylum seekers details. Now it wishes to grab more power which will allow the EU to:

establish a European Support Office to further control the policies of member states
determine who is a refugee allowing the EU to decide who should enter the UK
make asylum more accessible
grant more rights to those who qualify for subsidiary protection
make the system more responsive to gender and other ‘vulnerable groups’
create a single procedure across all EU member states, which will undermine the independence of the UK’s legal system in that area
The EU also wants to give refugees easier access to the labour market. This is bound to increase the number of fraudulent asylum applications and increase economic migration making unemployment in Britain even higher.

Commission Communication: Policy plan on asylum – an integrated approach to protection across the EU COM(08) 360

AN EU THREAT TO CONSUMER RIGHTS

MORE EU CONTROL OVER CONTRACT LAW

Under EU proposals the right of British consumers to reject defective goods and products that are of unsuitable quality and get their money back will be abolished.
Furthermore, the consumer would lose their right to decide whether sub-standard merchandise should be repaired or replaced; instead the EU wants this prerogative to be given to the trader. This will reduce the power of the consumer.

MORE EU CONTROL OVER JUSTICE AND HOME AFFAIRS

EU CONTROL OVER CRIMINAL RECORDS DATABASES

The EU proposes to take control over national databases of criminal convictions.
The EU will take possession of the criminal records databases of each member states. And will determine the encryption system and software when sharing the information with other EU member states.

Draft Council Decision on the establishment of the European Criminal Records Information System (ECRIS) COM(08) 332

MORE POWER FOR THE EUROPEAN COURT OF JUSTICE (ECJ)

The ECJ is set to gain more power over issues relating to visas, immigration, asylum, and powers to escalate judicial cooperation in civil matters.
It is proposed to allow all courts the right to appeal directly to the European Court of Justice. This shall mean that its decisions, often politically motivated, are more likely to reach into a greater number of legal cases; bypassing much of the British legal system.

Commission Communication: ensuring more effective judicial cooperation COM(06) 346

EU spends £2bn each year on 'vain PR exercises'

The European Union has been accused of spending £2 billion each year on 'vain PR exercises'.

New research by Open Europe, a think-tank that supports EU reform, has found that so-called European "information" campaigns are one-sided and boast a budget that is bigger than Coca-Cola's total worldwide advertising account.

One publication, entitled How the European Union works, described the EU as "a remarkable success story".

Another English-language "information" pamphlet claimed the EU "is delivering a better life for everyone" and described the single market as "a winning formula."

The researchers also found a European Commission document that admitted: "Neutral factual information is needed of course, but it is not enough on its own. Genuine communication by the EU cannot be reduced to the mere provision of information."

Lorraine Mullally, director of Open Europe, said: "Taxpayers should not be footing the bill for vain PR exercises to make us love the EU. The EU needs urgent and radical reform, not expensive campaigns to improve its image."

The research also found that projects, such as the EU's School Milk Scheme, come with propaganda strings attached.

"The scheme requires schools to display a European school milk poster which must be 'permanently situated at a clearly visible and readable place at the main entrance' of the school," finds the study. "It even specifies that the poster must be 'A3 or bigger, with letters 1cm or bigger'."

Other campaigns target young people. One project in late 2008 was themed "From Shakespeare to Euro Rap". Events included: "Poetry Slam competition - Europe: I have a dream".

Miss Mullally said: "People certainly need to know more about the EU, but the EU has proved unable and unwilling to provide neutral, factual information. This senseless spending on dubious PR projects has got to stop."

EU and European Commission officials have stepped up "information" campaigns following a series of referendum rejections over the last three years.

Recent Brussels polling has also deeply alarmed Euro-MPs by finding that only that only two per cent of Britons are aware that European elections are taking place next year.

A pre-Christmas Eurobarometer opinion survey found that the already low levels of interest in next June's elections were actually declining as the vote gets closer.

"The number of citizens who say they are likely to vote is less than it was six months ago," found polling published last week.

Going down the EU Tube: Brussels videos shunned

Robert Watts and Georgia Warren, Sunday Times 28 Dec 2008

The European Union’s answer to YouTube, the internet video sharing phenomenon, has backfired, with audiences shunning many of the clips intended to promote pet subjects in Brussels.

Eighteen months on from the creation of EU Tube many of the videos posted on the website have attracted only a few dozen viewers.

An EU Tube video entitled Controlling the Use of Chemicals in Europe has been watched 56 times. Another film, Better Rights for Temporary Workers, has attracted 70.

EU Tube’s attempts to adopt street language have also misfired, with ventures such as a three-minute “euro-rap”, which urges young viewers “you gotta be a part of” a united Europe.

“Get on our team, you know what I mean,” the rapper sings, surrounded by teenagers brandishing the EU flag. “It’s the return of the blue. See I’m going to move across from Germany to Paris, oui. We get united and take a stand in solidarity. I speak in all ’hoods.”

One visitor, Opaz, writes: “It’s like Nazi Hitler Youth propaganda with aggressive music. Be a part of what? The destruction of our nations, homelands and security so that the rich can own and control us. Overlords of EU go to hell!”

EU Tube also displays a bizarre 30-second animation featuring an amorous chess piece and a condom to illustrate safe sex. “Chess love – safe sex is a game for two,” the video concludes.

The channel was perhaps seeking to emulate the success of one of its most popular videos: a three-minute series of clips of people having sex, ending with the words “Let’s come together”. The video, intended to promote the Brussels film subsidy, received more than 7.1m hits.

EU Tube is funded out of a €207m (£196m) communication budget from Brussels. So far the channel has attracted 7,391 subscribers. The community has a population of 500m.

The website is one of dozens of examples of EU marketing documented in a 160-page dossier compiled by Open Europe, the eurosceptic think tank.

The report claims the EU is spending €2.4 billion a year on lobbying, press officers, advertising and other types of “propaganda” including scholarships. It also says the EU sends out more than 1m promotional brochures, balloons and pens each year.

— An event for young people on the Isle of Wight, justified on the grounds that students there might have below-average contact with their European peers: “This can make them seem insular and antiEuropean.”

— A film featuring young people waving EU flags to the tune of Breakfast at Tiffany’s, in support of the Young European Federalists.

— Funding of €7m to enhance public awareness of the common agricultural policy.

Lorraine Mullally, director of Open Europe, said: “Taxpayers should not be footing the bill for vain PR exercises to make us love the European Union.”

A spokesman for the European commission in London said: “This is not propaganda, we are simply providing information.” He added that the commission “did not recognise” the €2.4 billion figure.

EU PLAN COSTS UK £25 BILLION

Despite the EU holding the economy back, the latest plan uses the economic crisis to expand its power

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News of the European Union

Greece pays a heavy price as eurozone strives to protect its reckless banks

Further austerity by the Athens government will only serve to hide the catastrophic consequences of irresponsible lending Heather Stewart, The Observer, Sunday 12 June 2011

Why Europe is on the brink

The deepening crisis in Greece and the collapse of the Schengen borders agreement are serious threats to the European utopia of political and economic union. Martin Vander Weyer asks how much longer the dream can last

'Secret, dark debates' fan flames of eurozone turmoil

Political union frays at the edges as tensions and resentments rise ahead of a critical meeting on Monday on the debt crisis in Greece and a bail-out for Portugal.

£300 a year: the cost to each taxpayer of funding EU

British taxpayers contributed an average of more than £300 each to the European Union last year, almost twice as much as in 2009, official figures disclosed yesterday. Taxpayers are being forced to contribute more following Tony Blair?s decision to reduce the size of this country's rebate.

WEBSITE JAMMED AS THOUSANDS JOIN EU POLL CRUSADE

A YouGov poll of 2,436 voters found 61 per cent of voters would support a referendum

You can’t dismiss everyone who rejects the EU

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373,000 SAY NO TO THE EU

Euro crisis: The only way to save the euro is the destruction of its members

EU Demands deeper look at British budget

Britain must submit to “surveillance” of its budget to promote a co-ordinated European Union economic policy, the EU president has said. James Kirkup, Political Correspondent, Telegraph, 13 Jan 2011

EU ORDERS UK TRAWLERS TO DUMP 1M TONS OF FISH

THE GREAT LIE THAT BRITAIN WOULD SUFFER OUTSIDE EU

Britain could flourish as an international trading nation outside the economic shackles of the European Union

EURO MADNESS

EU BAIL-OUT BOMBSHELL

Express, 30 November 2010. By Macer Hall

TAXPAYERS may be forced to pour even more cash into a rescue deal for failing European nations.

GET BRITAIN OUT OF EUROPE: MASSIVE SUPPORT FOR OUR CRUSADE

Better Off Out: Ordinary voters overwhelmingly backed withdrawal

NOW MPS JOIN OUR BATTLE TO FREE BRITAIN FROM BRUSSELS

Daily Express, November 27,2010 By Macer Hall SUPPORT for the Daily Express’s crusade to free Britain from the manacles of EU membership is ­rapidly growing right at the heart of the Government, it emerged last night.

GET BRITAIN OUT OF EUROPE

Those on board the European gravy train have mounted one power grab after another

By The Daily Express, November 25,2010

DEBATE: SHOULD BRITAIN WITHDRAW FROM THE EU?

JOIN OUR CRUSADE TO PULL BRITAIN OUT OF THE EU

Daily Express, November 25,2010 By Macer Hall, Political Editor

A HUGE groundswell of support was last night gathering behind the Daily Express crusade for Britain to quit the European Union.

DEBATE: SHOULD BRITAIN WITHDRAW FROM THE EU?

EUROPEAN UNION: COSTS ARE FIVE TIMES THE BENEFITS

Express: November 25,2010 By Daniel Hannan, Conservative Euro MP for South-East England

HERE’S a nasty coincidence. All the welfare cuts put together will save £7billion: precisely Britain’s share of the Irish bail-out.

Aid will force Ireland to raise corporation tax

Was it for this?

Irish independence is the euro's latest victim

Herman van Rompuy: The man who wants to control your finances

The European president Herman van Rompuy offers a tempting target for jokers. But his call for for the imposition of a common economic policy, backed up with surveillance and punishments, has a decidedly sinister ring .

Europe stumbles blindly towards its 1931 moment

It is the European Central Bank that should be printing money on a mass scale to purchase government debt, not the US Federal Reserve. Unless the ECB takes fast and dramatic action, it risks destroying the currency it is paid to manage, and allowing a political catastrophe to unfold in Europe.

British payments to EU set to rise £900m next year

The European Parliament voted through a budget rise yesterday that will cost Britain an extra £900 million next year – on the day George Osborne announced deep cuts to public spending.

Britain to lose EU rebate as Coalition faces split on treaty changes

Britain would lose a £3 billion annual rebate on payments to Brussels and faces new European taxes under proposals tabled on Tuesday alongside a Franco-German plan for EU treaty change that raises the prospect of a British referendum on Europe.

British households pay £440 a year to be an EU member ... but don't get it back

The average British household paid £440 to be a member of the European Union last year but received only £312 back in direct benefits, according to newly published Brussels accounts. Bruno Waterfield in Brussels, Telegraph, 28 Sep 2010

Five reasons why the EU is more unpopular than ever By Daniel Hannan, Politics, September 2nd, 2010

Why Europe rose, and why it is now declining By Daniel Hannan, Politics, July 1st, 2010

EU Referendum: Now for the most important vote of all

Daniel Hannan and Ruth Lea launch a cross-party campaign for a ballot on whether Britain should stay in the EU.

Britain's EU rebate under threat

Britain's annual £3 billion rebate from the EU budget is facing a fresh threat after the European Commission said that the concession could no longer be justified. By James Kirkup, Political Correspondent, Telegraph, 6 Sep 2010

New EU ambassador in Washington claims transatlantic authority

The new European Union ambassador to Washington has suggested that he will speak for Britain on foreign and security policy in America. Telegraph; James Kirkup and Robert Winnett in Washington, 12 Aug 2010

Germany and France examine 'two-tier' euro

Spain could test the euro to its limit

ECB must buy 'hundred of billions' of bonds to tame Europe's debt crisis

The euro mutiny begins

Beware the Blair who seeks to rule all Europe

Matthew D'Ancona, Evening Standard,19.10.09

Ireland votes Yes as Czech Republic makes final stand against Lisbon Treaty

Open Europe bulletin

Conservatives refuse to elaborate on details of a referendum at Party Conference

Open Europe Bulletin

'President' Blair waits on voters of Ireland

Tony Blair is in line to be proclaimed Europe’s first president within weeks if the Irish vote “yes” in today’s referendum.

Ireland's EU referendum is the last stand against the 'project'

Brussels has pulled out all the stops to get a Yes from the Irish, says Christopher Booker. By Christopher Booker, Sunday Telegraph, 26 Sep 2009

EU president's palace will cost us millions

The new folly in Brussels will cost UK taxpayers millions of pounds, says Christopher Booker. Sunday Telegraph, 26 Sep 2009

Our opinions on Europe have been ignored for too long

Telegraph View: the EU has become a vast, bureaucratic, unaccountable empire whose remit runs way beyond policing the common market.

25 Sep 2009

Further austerity by the Athens government will only serve to hide the catastrophic consequences of irresponsible lending

Heather Stewart, The Observer, Sunday 12 June 2011

Bad judgments and wasted money are calling the value of the whole European project into question, says Alasdair Palmer.

By Alasdair Palmer, Telegraph, 5 Mar 2011

Britain must submit to “surveillance” of its budget to promote a co-ordinated European Union economic policy, the EU president has said.

James Kirkup, Political Correspondent, Telegraph, 13 Jan 2011

Daily Express, November 27,2010
By Macer Hall

SUPPORT for the Daily Express’s crusade to free Britain from the manacles of EU membership is rapidly growing right at the heart of the Government, it emerged last night.

Daily Express, November 25,2010
By Macer Hall, Political Editor

Express: November 25,2010
By Daniel Hannan, Conservative Euro MP for South-East England

It is the European Central Bank that should be printing money on a mass scale to purchase government debt, not the US Federal Reserve.

Unless the ECB takes fast and dramatic action, it risks destroying the currency it is paid to manage, and allowing a political catastrophe to unfold in Europe.

The average British household paid £440 to be a member of the European Union last year but received only £312 back in direct benefits, according to newly published Brussels accounts.

Bruno Waterfield in Brussels, Telegraph, 28 Sep 2010

Five reasons why the EU is more unpopular than ever

By Daniel Hannan, Politics, September 2nd, 2010

Why Europe rose, and why it is now declining

By Daniel Hannan, Politics, July 1st, 2010

Britain's annual £3 billion rebate from the EU budget is facing a fresh threat after the European Commission said that the concession could no longer be justified.

By James Kirkup, Political Correspondent, Telegraph, 6 Sep 2010

The new European Union ambassador to Washington has suggested that he will speak for Britain on foreign and security policy in America.

Telegraph; James Kirkup and Robert Winnett in Washington, 12 Aug 2010

Brussels has pulled out all the stops to get a Yes from the Irish, says Christopher Booker.

By Christopher Booker, Sunday Telegraph, 26 Sep 2009

The new folly in Brussels will cost UK taxpayers millions of pounds, says Christopher Booker.

Sunday Telegraph, 26 Sep 2009

In the final part of our series, William Hague tells Benedict Brogan exactly where the Tories stand on the Lisbon Treaty

By Benedict Brogan, Telegraph, 26 Sep 2009

A disunited continent carries little economic or political clout in the Chinese corridors of power, writes Peter Foster in Beijing.

Telegraph, 23 Sep 2009

Telegraph View: The increase in our contribution to the EU's coffers comes at the worst possible time, when tax receipts are falling and Government spending is increasing.

Telegraph, 22 Aug 2009

Europe has only delayed the pain, says Jeremy Warner.

By Jeremy Warner, Telegraph,14 Aug 2009

Act now to save the NHS

An EU directive is about to cripple the system

Gordon Brown could be forced to call a referendum on the new European "constitution" if faced with a large protest vote in the forthcoming European elections, the Conservatives believe.

By Robert Winnett, Deputy Political Editor, Daily Telegraph, 10 Apr 2009

Fishermen have been ruined and sent to jail thanks to a ruthless war waged by the marine agency, says Christopher Booker.

By Christopher Booker, Sunday Telegraph, 4 Apr 2009

To help fulfil the EU dream, you could end up in a foreign jail, says Alasdair Palmer.

Telegraph, 20 Mar 2009