Europe in the in-tray

Welcome to the Foreign Office, Mr Hague.  And just to ease you in gradually, lets look at two nice juicy little problems, each of them rapidly escalating from ‘irritant’, through ‘concern’ all the way up to the full blown ‘uh-oh’.

First, Europe.  Now, no-one knows better than you that the Tories’ relationship to the European Union is like a chap with eczema.  He knows that scratching only makes it worse, but he just can’t help himself.  A lot of effort has therefore been expended by the leadership to stop talking about Europe at all.  It pretty much worked for the duration of the election – the attempts by Labour (and, ahem, our coalition partners) to make an issue of the ECR grouping failed to make any sort of traction.  In power, however, this is a luxury that no longer exists.  Europe is a constant presence even in domestic politics.  A while back I set out a possible Tory response to European attempts to scupper the hedge fund industry:

So, Cameron should certainly lobby hard to oppose the introduction of disastrous over-regulation of the hedge fund industry.  But, given that may not prevent its introduction, perhaps he should also make it clear that, were such rules to be introduced, the UK would simply not apply them.

Such is my enormous influence in the modern Conservative party that my policy has been endorsed by the mighty Hannan:

There is a chance that, faced with a flinty refusal to back down, the rest of the EU might compromise. But if it doesn’t, if the directive is driven through despite Britain’s citing of essential national interests, we should simply announce our non-compliance.

Job done.  Not that it will happen of course.

Important as this is to the British economy, however, it is all starting to look like a bit of a sideshow.  While we’ve been focusing on such parochial matters as elections and coalitions, the very fabric of European politics has been coming close to rupture.  Now, there’s always been an argument that monetary union is unsustainable without fiscal union – otherwise you get free-loading Greeks retiring at 50 off the backs of hard-working Teutonic geriatrics getting second jobs to pay for them.  But it’s been an academic question for economists – reassuringly remote.  Until now.

There are three ways this could go: full economic union in the Eurozone, with fiscal policy heavily influenced, if not absolutely directed, from the centre; partial or full break-up of the Eurozone itself, with southern Mediterranean economies peeling off, defaulting and devaluing; or (surely most likely…) some form of compromise that is too far for national Governments but not enough for international markets.

And we can’t even afford a sense of schadenfreude.  Europe is too important a market for us to view its struggles with equanimity – the London market lost nearly 3% of value yesterday.  All in all, it’s a bit of a bugger to have in your in-tray.  Still, at least there are no other pressing foreign policy issues.  Right?  Oh.