'David Cameron's euro opt-out was a triumph'

The UK is divided on David Cameron's so-called veto on the EU treaty. But was it a smart stratagem or an act of short-sighted stupidity? Michael Jarman, equities trader at H2O Markets, presents the view from the City.

by Michael Jarman
Last Updated: 06 Nov 2012

Imagine that the Chinese demanded they be given the legal right to override the US budget legislative process. Hu Jintao says that he should have the right impose tax hikes and spending cuts on the American people as and when needed. There would be uproar.

I’m adamant that if Cameron had returned to the UK after agreeing to the treaty his reign as PM would have been short-lived. It’s likely the UK would have called for a referendum on the matter. Cameron has at least avoided this process.

Britain decided to not join the euro for a reason; we are an independent country with independent rules and an independent currency. Allowing the 'Merkozy Treaty' to go ahead would be as good as surrendering all financial power to Europe, a situation that could be catastrophic for the UK. Our already fragile economy would be further hindered and the City of London potentially damaged as a financial hub.

Our economy is heavily dependent on the financial services sector and imposing tougher tax legislation would be akin to overtaxing the German automotive industry. The consequences of this would make our financial centre less competitive, which would likely see our euro counterparts gain a foothold into this market.
If you don’t believe me, ask the markets. The minute Cameron stood firm, UK gilts hit a record low of 2.097% and even today our 10-year debt is yielding 2.10% versus last week’s 2.33%. Yet periphery eurozone debt yields still remain high.

The euro has slumped to a two-month low and numerous credit agencies have got euro sovereigns and banks on downgrade watch and - here’s the rub - all this remains positive for Germany as a depreciating euro actually benefits their exports.
Why should we join in and back policies that have continued to fail both economically and politically? Cameron’s no fool; he knew whether in or out of the vote they would be pressing ahead without him anyway.
Short-term creditors aren’t buying, forcing the ECB into action (which it shouldn’t be doing), yields on the periphery are increasing which means the actual asset price is decreasing. This is putting the banks at even more risk, requiring more capital even as they watch the devaluation of the very assets that are supposedly being stabilised. It’s called a vicious… sorry, an evil circle. One still polluted by toxic debt.

Just pray that the ECB do enough to scare away the vigilantes...

Agree? Disagree? Have your say below.

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