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Bruges Group: Is the Eurozone breaking up?

Tim Congdon and Douglas Carswell. 14 July 6.45. Details from www.brugesgroup.com

News

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

By Ambrose Evans-Pritchard, Telegraph, June 16th, 2010

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.

My rough translation:

“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..

Si, Signori .. Bravissimi.

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.

Euro 'will be dead in five years'

The euro will have broken up before the end of this Parliamentary term, according to the bulk of economists taking part in a wide-ranging economic survey for The Sunday Telegraph.

By Edmund Conway, Telegraph Business, 5 Jun 2010

The survey's findings underline suspicions that the new Chancellor, George Osborne, will have to firefight a full-blown crisis in Britain's biggest trading partner in his first years in office The single currency is in its death throes and may not survive in its current membership for a week, let alone the next five years, according to a selection of responses to the survey – the first major wide-ranging litmus test of economic opinion in the City since the election. The findings underline suspicions that the new Chancellor, George Osborne, will have to firefight a full-blown crisis in Britain's biggest trading partner in his first years in office.

Of the 25 leading City economists who took part in the Telegraph survey, 12 predicted that the euro would not survive in its current form this Parliamentary term, compared with eight who suspected it would. Five declared themselves undecided. The finding is only one of a number of remarkable conclusions, including that:

• The economy will grow by well over a percentage point less next year than the Budget predicted in March.

• The Government will borrow almost £10bn less next year than the Treasury previously forecast, despite this weaker growth.

• Just as many economists think the Bank of England will not raise rates until 2012 or later as think it will lift borrowing costs this year.

But the conclusion on the euro is perhaps the most remarkable finding. A year ago or less, few within the City would have confidently predicted the currency's demise. But the travails of Greece, Spain and Portugal in recent weeks, plus German Chancellor Angela Merkel's acknowledgement that the currency is facing an "existential crisis", have radically shifted opinion.

Two of the eight experts who predicted that the currency would survive said it would do so only at the cost of seeing at least one of its members default on its sovereign debt. Andrew Lilico, chief economist at think tank Policy Exchange, said there was "nearly zero chance" of the euro surviving with its current membership, adding: "Greece will certainly default on its debts, and it is an open question whether Greece will experience some form of revolution or coup – I'd put the likelihood of that over the next five years as around one in four."

Douglas McWilliams of the Centre for Economics and Business Research said the single currency "may not even survive the next week", while David Blanchflower, professor at Dartmouth College and former Bank of England policymaker, added: "The political implications [of euro disintegration] are likely to be far-reaching – Germans are opposed to paying for others and may well quit."

Four of the economists said that despite the wider suspicion that Greece or some of the weaker economies may be forced out of the currency, the most likely country to leave would be Germany.

Peter Warburton of consultancy Economic Perspectives said: "Possibly Germany will leave. Possibly other central and eastern European countries – plus Denmark – will have joined. Possibly, there will be a multi-tier membership of the EU and a mechanism for entering and leaving the single currency. I think the project will survive, but not in its current form."

Tim Congdon of International Monetary Research said: "The eurozone will lose three or four members e_SEnDGreece, Portugal, maybe Ireland e_SEnD and could break up altogether because of the growing friction between France and Germany."

The recent worries about the euro's fate followed the creation last month of a $1 trillion (£691bn) bail-out fund to prevent future collapses. Although the fund boosted confidence initially, investors abandoned the euro after politicians showed reluctance to support it wholeheartedly.

New Open Europe research finds that EU regulation has cost UK economy £124 billion since 1998;

UK laws are on average around 2.5 times more cost effective than EU laws

Open Europe last week published the most comprehensive study to date on the costs of regulation to the UK economy since 1998. Based on over 2,300 of the Government's own impact assessments, Open Europe has found that regulation has cost the UK economy £176 billion since 1998. Of this amount, £124 billion, or 71 percent, had its origin in EU legislation.

The cost of regulation in 2009 stands at £32.8 billion. Of this 59 percent, or £19.3 billion, stems from EU legislation. Since 2005, when the UK Government launched its 'better regulation' agenda, the cost of regulation has doubled - although both the Government and the EU Commission have taken some positive steps to address overly burdensome laws.

The research also estimates the average benefit/cost ratio of EU regulations at 1.02, and UK regulations at 2.35. In other words, for every £1 of cost, EU regulations introduced since 1998 have only delivered £1.02 of benefits, meaning that on average it is 2.5 times more cost effective to regulate nationally than it is to regulate via the EU.

Following the publication of Open Europe's report, some argued that the exercise was futile, because UK and EU laws are not comparable and Whitehall would have regulated some issues anyway in the absence of the EU. (Economist: Charlemagne blog, 31 March)

It is true that the EU often produces regulations, the benefits of which are hard to quantify, such as environmental or health and safety laws. It is also true that the EU and member states sometimes regulate different parts of the economy. However, importantly, there are also a huge number of areas where the EU and UK share power, and where laws are therefore comparable, to a lesser or greater extent.

What's more, the Lisbon Treaty codifies a new category of so-called 'shared competence', further blurring the line between national and EU power, for example in social policy, financial services (via internal market legislation), environment, energy, consumer protection and transport. In these areas, a comparison between UK and EU laws is not only appropriate, but also essential, as one of the central questions when discussing EU policy must always be: at what level of government is it most cost effective and most democratic to legislate?

Crucially, our research reveals that in areas of shared competence, such as environmental policy, financial services and agriculture, EU regulations tend to generate higher costs, relative to the benefits, than UK laws. A discrepancy is not surprising, given that EU laws are one-size-fits all solutions which, by definition, cannot fully account for member states' individual circumstances. In addition, since it is very difficult to change EU laws once they've been agreed - as it requires agreement amongst 27 member states and the European Parliament - these laws can continue to generate heavy and unnecessary costs year after year.

Our research therefore provides further evidence that, when feasible, it is better to legislative as close as possible to the citizen.

To read the report in full see:

http://openeurope.org.uk/research/stilloutofcontrol.pdf

Open Europe quote of the fortnight:

"The biggest member state, which has for so long silently been the guarantee of the EU, has now openly expressed that it is no longer prepared to pay any price for European unification. The present Euro crisis is more than a monetary matter. It changes the political rules of the game in Europe."

Leader article, Frankfurter Allgemeine Zeitung, 24 March 2010

Brussels can keep its economic governance

Telegraph View: We are facing EU plans that could corrode our economy

26 Mar 2010

Alistair Darling has a habit of presenting blindingly obvious facts as manifestations of his canny insight. He did so again in his Budget speech on Wednesday. "As I have said on many occasions, the world economy is still in a period of great uncertainty," he declared. In the next sentence, however, he said something of genuine importance. He warned us that "in the absence of government action to support the economy, the weakness in some of our overseas markets, particularly Europe, could result in a substantial downward revision of our growth prospects".

Those words "particularly Europe" stand out like a sore thumb this weekend. The day after the Budget, France and Germany demanded sweeping new powers to control the economies of EU states, by giving Herman Van Rompuy, the new European Council President, responsibility for the "economic government of Europe". The ostensible reason for doing so was the economic chaos in the eurozone. But you do not have to be a paid-up Euro-sceptic to suspect that this is an excuse for a federalist power-grab.

The truth is that the bail-out of Greece has raised fundamental questions about the viability of the eurozone and the EU. France and Germany have been persuaded to prop up the single currency, but in return they are demanding an even greater degree of centralisation. And we cannot be confident that the new structures of "government" will be confined to the eurozone. At a time when British politicians should be planning unprecedented cuts to British government spending, to be placed before the British electorate, we are once again being forced to confront EU plans that could potentially corrode our economy and sovereignty.

One thing is clear: we must not rely on our current Prime Minister to lead us through the newly laid minefield of the Franco-German bail-out scheme. On Thursday, European leaders were talking grandly about plans that, translated into plain English, referred to the "economic government" of Europe. On Friday, following protests from Gordon Brown, the word "government" was changed to "governance" in English translations of the summit conclusions. True, the resonances of the two words are different; but they will not make the slightest difference to Mr Van Rompuy, who does not appear to believe in national sovereignty. And, as he pointed out, there has been no change to the French translation, which remains gouvernement.

We do not know to what extent this new structure threatens Britain. Certainly we should yet again breathe a sigh of relief that we held off joining the euro (the best decision of Mr Brown's career, taken despite hysterical cheerleading from Europhiles in Labour and BBC). We cannot be forced to pay directly into a European Monetary Fund that will allow the EU to bail out eurozone countries without having to consult voters. We may even think such a fund is necessary, given that the EU has no mechanism for expelling rogue states from the euro. Bail-outs, however, should be the eurozone's problem, not ours. But it would be naive to assume that Brussels will not try to spread the burden of future bail-outs to countries outside the eurozone. After all, Britain will hand over £6.4 billion to the EU this year, more than twice the figure for last year and mysteriously higher than projected.

William Hague, the shadow foreign secretary, said on Thursday that "talk of economic governance should in no way restrict Britain's ability to determine our own economic policies and the Government should make that absolutely clear". Fine words. But, if the Conservatives win the election, Mr Hague will be the foreign secretary who has to make that clear. How will he do so? We do not know, because we do not know what "economic governance" – or "governance" – really means. What we do know is that our next British government will have no money to subsidise panic-stricken rescue packages for the eurozone.

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 View; 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.

Greek saga won't kill the euro but the end may begin here

Could the endgame of this Greek tragedy be a eurozone break-up? The single currency's supporters maintain that such an outcome is mere mythology.

By Liam Halligan, Sunday Telegraph, 13 Feb 2010

Greece accounts for only 3pc of the 16 member states' combined GDP, they say, and has lower debts than some of the banks bailed-out during sub-prime. A loan of €20bn (£17.5bn) would do the trick, we're told. That's less than the British government injected into either Lloyds or the Royal Bank of Scotland.

Such analysis sounds vaguely plausible. But its naïve and politically dishonest. Then again, the single currency was built on political dishonesty. That's because, at the heart of the eurozone project there was always a fundamental contradiction – one that the architects of monetary union never dared to address. Now its being highlighted for them, whether they like it or not.

While the European Central Bank controls eurozone interest rates and the money supply, the size of each country's fiscal deficit results from the spending and taxation decisions of its own sovereign government.

How can you enforce collective fiscal discipline in a currency union of individual sovereign states, each answerable to their own electorate? The truthful answer is you can't – not unless you subjugate the autonomy of democratically-elected politicians and, by proxy, their voters.

Voters don't like that. Neither do politicians. Faced with a choice between seriously annoying their own voters and seriously annoying the ECB, the most ardently "pro-European" lawmakers, even those with years of Brussels trough-nuzzling under their belt, will always side with their own. That's why the eurozone will ultimately break-up – whether Greece is bailed out or not.

The eurocrats blame "speculators" for the single currency's woes. That's a bit like sailors blaming the sea. The eurozone is ultimately doomed because, in the end, economic logic wins and the will of each country's electorate bursts through. This current Greek saga won't end the eurozone – but future historians will identify it, perhaps, as the beginning of the end.

Many have said it's hardly surprising that Greece e_SEnD with its history of financial profligacy and capital flight e_SEnD has emerged as the eurozone's Achilles heel. A more germane observation is that, while fiscally wayward, Greece is also the birthplace of democracy. If the Greek population wants to get upset, throw out its elected politicians and reject austerity, it must be allowed to do so. I think they'd be mad, but it must be their choice.

If Berlin and Brussels try to impose their own view on Greece and the "cuts" come from outside, the situation will become absolutely incendiary. Protests will turn into fully-blown riots. Greece will endure very serious social unrest. Deep-seated rivalries and suspicions between countries will be re-ignited. And for what?

Greece is running a budget deficit of 12.7pc of GDP. The real number could be 15pc or more as Greek politicians have lied for years about the extent of their country's liabilities. They're not the first European leaders to do so and they won't be the last. But Greece was, almost uniquely, assisted in its fiscal cover-up by Brussels – with the usual "convergence criteria" being bent to allow Greek euro entry.

As recently as September 2008, the euro seemed to be going well, despite the massive variation between member states. The five-year Greek credit default swap spread was less than 50 basis points. In other words, buying insurance against Greece reneging on its sovereign debt cost only slightly more than insuring German government bonds. Those, such as this columnist, who continued to warn that the eurozone was "dangerous and inherently unstable" were dismissed as cranks, xenophobes or worse.

Then sub-prime hit in earnest. Insuring against Greek default suddenly became a lot more expensive, the CDS spread rising six-fold in eight weeks. The same risk measure is now around 400 basis points, the cost of insuring against Greek default no less than 20 times higher than it was in January 2008. Default risks are growing in Portugal and Spain too, the eurozone's fourth biggest economy.

The problem is that default dangers in Greece – where €20bn of debt falls due in April and May – are making creditors think twice about lending to other cash-strapped governments. Even if Greece avoids default, this latest crisis means governments everywhere will have to pay more for their finance, which in turn will push up borrowing costs for everyone – right across the eurozone and beyond, including in the UK. This is so-called "contagion".

The Greek government has been desperately trying to convince the rest of the world – the Germans in particular – that it will keep its promise to reduce the deficit in its still-shrinking economy to 8.7pc of GDP next year and less than 3pc by 2012. Yet this would amount to the most severe fiscal contraction in the history of modern Europe. It simply won't happen.

The reality is that Greece has two choices – both disastrous for the eurozone. One is to default, leave the euro and re-establish the drachma at a rate low enough to stimulate exports and growth. To write this is heresy. But with general strikes now in the offing, and the Greek public-sector unions resurgent, such a scenario is possible.

For years, the ECB has set rates low to suit France and Germany. This has made life difficult, causing dangerous debt bubbles, in smaller and more inflation-prone eurozone members. Were Greece to take the exit route, the governments of several other single currency members would come under intense pressure to do the same. The eurozone's vital cohesion would be seriously undermined. Its ultimate break-up - or, at least shrinkage to a Franco-German rump - would only be a matter of time.

The other, more likely, option is that Greece accepts a German-led bail-out and "muddles through". But even that would spark an eventual eurozone split. On extending assistance, Berlin and Brussels would talk tough and Greece would promise to behave. Anything less wouldn't be tolerated by German voters. After the horrors of inter-war hyperinflation, Germany has spent more than 50 years building policy credibility. Backing a Greek bail-out would be a massive step – the first time in decades Germany has departed from its fiscal and monetary hard line.

Yet the German government will do it. Refusing to bail-out Greece would risk being labelled "bad Europeans" – something anathema to Germany's post-war elite. Berlin also has a massive financial stake in the euro's status as the world's second most-used reserve currency.

Although Greece will be presented as a one-off e_SEnD a "very exceptional" case e_SEnD once that line has been crossed there is no going back. Other eurozone countries will want a bail-out. Why should Portuguese, Estonian or Spanish workers endure austerity and unemployment, while those in Greece were spared? Why them and not us? If big banks can compete for bail-outs, walking the line of "moral hazard", political leaders will do so too. A Greek rescue by the Germans would spark repeated bail-outs.

In the end, voters in the big eurozone economies, faced with their own fiscal problems will say enough is enough. Europe's monetary union will collapse, just like every other currency union in the history of man. The exception is America – yet the US, as the eurocrats hate to acknowledge, had been through a century and a half of political union before the Federal Reserve was founded in 1913.

That's the key difference. America is a political union, with a system of explicit inter-regional fiscal transfers, and the eurozone isn't. That's why the single currency will ultimately split and be exposed as what it is – a triumph of European hubris and political vanity over unavoidable economic logic.

Liam Halligan is chief economist at Prosperity Capital Management

The Greeks must be rueing the day they whacked the drachma

If Hellenic pride is currently at a low ebb, just wait until the EU steps in, says Boris Johnson.

By Boris Johnson, Telegraph 15 Feb 2010

It was late last night and I was rifling through the sock drawers for euros to fund the annual half-term skiing. There were all sorts of useless coins – Uzbek som, Iraqi dinars, 2d bits – and there it was, like a sudden Proustian blast from our childhood. It was a 50-drachma piece, with Homer on one side and a boat on the other. It was dull and scuffed and technically as worthless as all the other coins in my hoard. But as I turned it over in my hand it seemed to glow like a pirate's doubloon, radioactive with political meaning. This coin was more than just a memento of beach holidays when 50 drachmas was five ice creams. This was the history of Greece in the palm of my hand. When Socrates asked Crito to buy a cock and kill it for Asclepius; when Sappho bought her Lesbian girlfriend a Lydian hat; when his listeners rewarded old, blind Homer for chanting by the fire – how did they all pay?

They paid in drachmas, a currency that served the people of Greece for at least 3,100 years, until they junked it for the euro. And the object I had in my hand, therefore, was a symbol of the economic freedom the Greeks gave away for the sake of national prestige. When they whacked that drach, they thought they were showing a new economic maturity. They thought they were sitting down at the top table. They thought that by merely using the same currency as the Germans they would somehow imbibe Teutonic habits of thrift and fiscal rigour. Or at least that was what they pretended at the time. By fudging their debt figures and adding income from the black market and prostitution on to their GDP the Greeks brilliantly limbo-danced under the Maastricht criteria – and then got on with borrowing and spending in the time-honoured Greek fashion, blissfully protected by euro membership from the penalty of higher interest rates.

By October last year the deficit had risen to 12.7 per cent of GDP, and the gig was up. The free-riding came to an end. It wasn't enough to be a member of the eurozone. The markets stopped believing that the Greeks were good for their $419 billion debts, and they started charging them extra; and the higher the cost of borrowing, the more dreadful the Greek fiscal position became – until people started warning that the Greeks might actually default, and bilk their creditors. And that, more or less, is where we are now – with other European countries wondering how to throw Greece a lifeline without being pulled under.

There are several possible endings, none of them good. The first is that Greece could simply go bust. Athens could come Acropolis, as they say, and the financial tsunami would move into its second phase. Having taken out the weakest of the banks, the short-sellers would take out the weakest of the states that bailed out the banks, with horrific consequences. Onward the tide of destruction would roll, engulfing not just other heavily indebted eurozone countries – Portugal, Italy, Spain: the group now known as "Pigs".

Do not think Britain would escape. How could we, when British banks have such vast loans outstanding to Greece?

Alternatively, the Greeks could take radical action, slashing spending and raising taxes in so fierce a way that the markets were convinced the budget was really being brought under control. Would that work, or would it send the Greek economy into
a further tailspin? Look at the seething mob on the streets of Athens. Could the government of George Papandreou really make such savage cuts? Could any government?

The final possibility – and the most likely – is that there will be some sort of effort to bail out the Greeks, either by the other EU countries or the IMF or a combination of both. Greece will become a kind of Northern Rock, rescued with vast subsidies from elsewhere in order to stop a general collapse of the system. If and when this rescue happens, we will be in new and extraordinary political territory. By scrapping the Maastricht rules against bail-outs, the EU will have set up a hideous moral hazard.

Profligate countries will have an incentive to be profligate, in the knowledge that they stand to be supported by Uncle Sugar in Brussels. Those who have taken huge pain to cut their own deficits – such as the Irish – will wonder why they bothered. Above all, this bail-out will come at a serious political price. It is absurd to expect the Germans to write out a colossal cheque for Greece, without giving Berlin some say over how that money is spent. I am not saying we are going back to 1941, with German gauleiters in the Athenian finance ministry.

I do not say that there will be some vast German towel all over the Greek beach. But already the EU commission is talking about an "economic government of Europe", and be in no doubt what that means. It means diluting the ability of Greek politicians to set tax and spending priorities. It means the end of the myth that you can have monetary without political union; and at a time of growing electoral disillusion, it means a further erosion of democracy.

There is, finally, one option that will not be pursued. Even though it would give them a vital chance to devalue, even though it is the obvious way to regain competitiveness, the Greeks will not leave the euro. For Athens it would be too big a blow to their pride; for the other euro countries, it would be too big a shock for the still-young single currency. My drachmas will remain in the sock drawer, an unused escape hatch and a reminder of the days when Greece was free. What do we feel in Britain, as we watch this Greek tragedy?

We feel the correct Aristotelian emotions of pity and fear. There but for the grace of God goes Britain, which also has a 13 per cent deficit. Every day that this crisis endures we should give thanks that we avoided that awful Procrustean bed of pain. Thank heavens we stayed out of the euro.

Hubris and why chickens are coming home to roost for the euro's deluded cheerleaders

By Andrew Alexander, Daily Mail, 11th February 2010

Will the Eurozone still be around in five years' time? With Greece, Italy, Portugal and Spain now suffering a severe financial crisis and with the euro seriously weakening, I think the prospect that it survives in its present form is most unlikely.
Indeed, the single currency looks like weakening further as a result of record levels of short-selling - the controversial system in which traders make a killing by 'selling' euros they don't actually own and buying them back at a later date more cheaply.
The crisis has echoes of 1992, when the financier George Soros made $1 billion by selling sterling and drove the pound out of the ERM.

These four so-called 'Club Med' countries have been finding it desperately hard to borrow. Their effective credit ratings are dire.
Of course, there's nothing novel about the causes. The countries' governments have spent too much and borrowed too heavily. This sort of policy, which Gordon Brown characterises so cheekily as providing economic 'support', can only end in disaster.

Germany and France (the core countries in the 16-member Eurozone) are suitably alarmed. In response to their stern demands, the Greek government has instituted tough plans for a freeze of public pay and a reform of taxes. These proposals have not convinced everyone.
Other Club Med governments hope - and, indeed, believe - that the rich and powerful Germany will somehow foot the bill. However, Berlin yesterday refused to countenance a bailout, albeit for the moment.

An economic crisis and soaring state debt in Greece have resulted in tough government measures, including salary freezes and tax hikes
How this crisis is managed over the next few days is vitally important. Here we have the world's second largest currency in real trouble. A double dip in the recovery from the credit crunch has always been probable, certainly for Britain.
But if a currency the size of the euro is no longer trusted, international markets are likely to prove more unstable. A consequent desire to play safe would then prolong the recession.
For some of us writing at the time of the Eurozone's formation just over a decade ago, the current crisis has been all too predictable. Other currency unions, we pointed out, had been tried in history and always fallen apart.

A particular flaw in having a 'one-size-fits-all' currency covering the rich and the poor, the cautious and the feckless, is that no member nation has its own currency which it can devalue or revalue in an attempt to extricate themselves from this crisis.
At least devaluation would, among other things, provide a breathing space while better financial management was gradually put together.
However, the only way a country could devalue would be if it left the Eurozone. This may sound dramatic, but such a move would be no more drastic in administrative terms than joining in the first place.
But if the four Club Med countries were to break free, or even do no more than just threaten to leave, all sorts of questions would be raised about other fringe members of the Eurozone or those expecting to join.
In other words, the whole United Europe project, aiming at one currency, one financial authority, one set of employment polices and one foreign policy would come under threat.
There are other countries, apart from the Club Med four, which are hovering on the fringe of the Eurozone and for whom the current crisis offers a sudden reality check.
For example, the Danes (who are more sensible than their government) have no enthusiasm for the single currency, but their leaders seem intent to try to end the country's opt-out and launch a new bid join the Eurozone.
Meanwhile, the influence of the Eurozone spreads further, with Montenegro using the currency - even though it is not a member. Estonia, Latvia and Lithuania are supposed to join soon. Poland has expressed an interest.
All these countries will be having second thoughts about becoming members of a system which is now fraying at the edges.
Once, it seemed so attractive to countries' leaders to wrap the strength of a world currency around their nation. But not so now.
Victims of hubris, the Eurozone's original cheerleaders deserve this current crisis. When they began to recruit member countries for the single currency, they laid down a set of basic rules about the soundness of national budgets before they could qualify to join. These were sensible enough.
But in their eagerness for enlargement (as part of their pursuit of a United Europe in which they would be the main voices), the founder members allowed these rules to be broken.
The problems were visible from the outset. For example, neither Greece nor Italy's national finances were in a good enough condition to merit joining. But the greater ideal of a Eurozone prevailed over financial common sense. Economics gave way to politics, as it so often does. Proof, also, that creative accounting is not confined to dodgy public companies.
With the euro now under siege and the financial markets betting heavily that Greece's crushing debt could drag down the existing single currency system, it is possible that the world would actually be a better place without the Eurozone.
Just imagine: the main national currencies would still have their independence and command respect.
Admittedly, Italy and Greece would be suffering financial problems - which would have old sages sighing and saying they never much liked the lira or the drachma anyway, nor perhaps the Spanish peseta. But the rest of the world would get on as best it could.
But by having signed up a basket of dubious currencies, the Eurozone provided a classic example of how the weakness of one nation's finances can spread to another.
Of course, all this makes one wonder what sort of position Britain would be in now had we joined the Eurozone, as almost came to pass.
Tony Blair was keen, but Gordon Brown, warned off by some Treasury studies, argued it was a step too far.
Had we become members, we would have lost our financial independence and would now be under the supervision of the European Central Bank.

If the Eurozone is wilting under its first real test, what does it say about the EU in general? No country has ever left, because politicians believe it gives them a much valued seat at the top table.
This explains why the euro has always been popular with politicians. But EU power has always been in proportion to its apparent economic strength. With that now waning as Europe frantically seeks a way out of its debt crisis, the EU will command less unity and less power.
Countries will divide between those who think that any sacrifice - especially a bail-out from Germany rather than their own drastic belt-tightening - is worthwhile to preserve the system and the great European plan.
Meanwhile, for Britain, membership of the EU has done nothing much more than spawn countless regulations which are part of a grand design to have the same laws, however futile, operating throughout all member countries.
I am convinced that no trade or other agreements have been achieved through EU membership which would not have been achieved through normal inter-government agreements.
By contrast, the costs of our EU membership remain both financially and politically high.
The costs would, of course, be even higher had we joined the Eurozone, as the EU enthusiasts wanted, and which would have meant that we, too, would be now involved in rescuing the Club Med and dreading the markets'

Greece under EU protectorate as funds shift fire to Portugal

The European Commission has ordered Greece to slash public spending and spell out details of its austerity plan within "one month", invoking sweeping new EU Treaty powers to impose a radical shake-up of the Greek economy.

By Ambrose Evans-Pritchard, Telegraph Business,3 Feb 2010

Greece's labour federation immediately called a general strike for February 24, dashing hopes that Europe's provisional backing for Greek crisis policies would restore investor confidence.

Joaquin Almunia, the EU economics commissioner, said tough measures were "extremely urgent" to prevent a further flight from Greek debt. "The huge imbalances from which the Greek economy is suffering are not sustainable in the long run. The fact of the matter is that markets are putting on pressure. This pressure cannot be ignored."

Mr Almunia said concerns have spread beyond Greece to other eurozone countries where public finances are spinning out of control, chiefly Spain and Portugal. "In these countries we have seen a constant loss of competitiveness ever since they joined the eurozone. The external financing needs are quite big," he said.

Yields on 10-year Portuguese bonds jumped 21 basis points yesterday as funds switched their fire to the next "domino", questioning whether the government of Jose Socrates can deliver spending cuts without a parliamentary majority. "The lightning rod has been passed to Portugal: who is next – Spain?" asked Marc Chandler, from Brown Brothers Harriman.

George Papandreou, the Greek premier, has agreed to a rise in fuel taxes and a partial freeze in public wages to stop the country "falling off a cliff". Even this will not be enough to satisfy Brussels – itself under pressure from Germany and the European Central Bank. The EU's hard-line faction is afraid that fiscal discipline will break down altogether across "Club Med" nations unless Greece first suffers public flagellation.

Brussels invoked new EU powers under Article 121 of the Lisbon Treaty, allowing it to reshape the structure of pensions, healthcare, labour markets and private commerce – a step-change in the level of EU intrusion.

The EU told Greece to "spell out the implementation calendar of (budget) measures within one month". Athens must be ready to "adopt additional measures if needed" and to submit quarterly updates.

To cap the humiliation, the EU is taking Greece to court over past falsification of budget figures. "This is the first time we have established such an intense and quasi-permanent system of monitoring," said Mr Almunia. The Greek Left said the measures reduce Greece to an economic protectorate

The gap between what EU demands and what ordinary Greeks seem willing to accept is so wide that it may prove extremely hard for Mr Papandreou carry the country. The top union bloc said the government had "succumbed to the will of the markets" but would now have to face the stronger will of the people.

Samir Patel, from the consultancy BH2, said austerity plans will "almost certainly send Greece into a deflationary spiral", and tip its banking system "into the Mediterranean Sea". Greece is being told to carry out IMF-style retrenchment without the IMF cure of devaluation.

One banker described events as eerily similar to market confusion before the failure of Bear Stearns and Lehman Brothers in 2008, this time involving sovereign states rather than banks. It is assumed that Europe must in the end rescue Greece, but Germany is so far sticking to its "no bail-out" mantra and nobody knows for sure how the drama will end.

The legal and political structure is simply not ready to cope with an escalation of the crisis and the problems spreading to Spain, should that occur. Spain's budget deficit reached 11.4pc last year, and is on a worrying trajectory for a country that has lost so much intra-EMU competitiveness and cannot let the currency take the strain. Spanish bank BBVA shocked markets last week with a 94pc fall in profits, largely due to property losses. Spain's mortgage association said days later that the "real estate sector is bankrupt" and threatened the financial system.

Spain's total public and private debt is over 300pc of GDP, much higher than Greek debt. With unemployment already above 4m – or 4.5m including regional jobless schemes – Madrid will not react well to the sort of austerity imposed on Athens. Fears that the slow fuse on Spain's political crisis may soon detonate a timebomb is creeping into the markets.

The DM says: Presumably the EU has the power to impose similar disciplines on Britain if they consider it necessary and we won't fall into line. I don't recall voting to give them this power - do you?

Should Germany bail out Club Med or leave the euro altogether?

Germany faces a terrible dilemma. Either Europe's paymaster agrees to underwrite a Greek bail-out and drops its vehement opposition to a de facto EU economic government, treasury, and debt union, or the euro will start to unravel, and with it Germany's strategic investment in the post-war order.

By Ambrose Evans-Pritchard, Telegraph Business, 31 Jan 2010

The German cabinet met last week in Berlin. It's not clear whether the different parties will all back a bail-out of Greece
The spike in yields on 10-year Greek bonds to 400 basis points above German Bunds has been shockingly swift – a warning to Britain, too, that markets can suddenly strike any country that takes creditors for granted.

We can argue over whether Greece, Portugal, or Spain are at risk of being forced out of the euro. But there is another nagging question: whether events will cause Germany and its satellites to withdraw, bequeathing the legal carcass of EMU to the Club Med bloc.

This is the only break-up scenario that makes much sense. A German exit would allow Club Med to uphold contracts in euros and devalue with least havoc to internal debt markets. The German bloc would enjoy a windfall gain. The D-Mark II would be stronger. Borrowing costs would fall. The North-South gap in competitiveness could be bridged with less disruption for both sides.

To be sure, Germany is happily placed in the current EMU system. By compressing wages for a decade it has stolen a march on EMU. Critics unfairly call this a beggar-thy-neighbour policy. It is simply the way Lutheran society operates, in deep contrast to the way Latin society operates – a cultural clash that should have given pause for thought before Europe's elites launched headlong into their adventure.

German goods are flooding the South. In the 12 months to November, Germany-Benelux had a current account surplus of $211bn: Spain had a deficit of $82bn, Italy $74bn, France $57bn, and Greece $37bn. German industry will not give up this edge lightly. However, the matter will in the end be decided by democracy. German citizens were given a pledge by their leaders in the 1990s that loss of the D-Mark would not lead to monetary disorder, or leave them liable for Club Med debt. That is the sacred contract of EMU.

"Politically," said Bundesbank chief Axel Weber, "it's not possible to tell voters that they are bailing out another country so that it can avoid painful austerity measures that they themselves have gone through. Such aid, whether conditional, or – even worse – unconditional, is counterproductive."

Dr Weber is right on both counts. Fresh loans for Greece can achieve nothing useful at this stage. Greece already has a public debt hurtling towards 138pc of GDP by 2012 (Standard & Poor's). It is already in a debt compound spiral. The EU elites have yet to acknowledge that Greece and much of Club Med need gifts – not loans – akin to transfers paid to East Germany after unification, or North Italian perma-subsidies to the Mezzogiorno.

Athens has promised to slash the budget deficit by 10pc of GDP over three years, though the country is sliding deeper into slump, faces 20pc unemployment by the year's end, has a tottering banking system, and has already lost control of its streets before spending cuts have even begun. Such a policy is economically self-defeating – since it risks tipping the country into depression, and causing tax revenues to collapse – but will it be tolerated by Greek society?

The Papandreou government has craftily invited the European Commission to set up a vice-regal inspectorate in Athens, to become the focus of popular fury. The media talks of "guardianship". Ta Nea, an Athens newspaper, writes of "ultimatums" and "suffocating deadlines" for wage and pension cuts. "Either we obey the commands of unprecedented austerity and face the risk of widespread social unrest or we refuse to implement the orders."

Spain's troubles are less immediate, but it lost as much competitiveness during the early EMU boom, that debt trap of negative real interest rates. External corporate debt is dangerously high. The budget deficit was 11.3pc of GDP last year. Madrid has drawn up €50bn of cuts to sweeten the markets, even though unemployment is already 19pc. The jobless typically receive 50pc to 60pc of former earnings for around 18 months, then the axe falls. The social distress hits with a lag. How much more tightening can Spain endure before Catalan, Basque, and Galician seperatism rocks the Spanish state?

Fiscal austerity in these circumstances without monetary and exchange stimulus to offer a lifeline is incoherent. These policies must fail because they are based on EU wishful thinking that high-debt nations can regain competitiveness within EMU against a zero-inflation Germany. Such a strategy will drive them into a debt-deflation spiral.

Europe will have to embrace "fiscal federalism" if it is to hold monetary union together. That is when we will probe the limits of EMU solidarity. Hedge funds are betting that Berlin will pay to ensure stability. No doubt Chancellor Angela Merkel is of that mind, but the Free Democrats are not, nor are Bavaria's Social Christians, or the Bundestag's finance committee. Economy minister Rainer Bruderle said last week that there would be "no bail-outs" regardless of risks to EMU. Is that just brinkmanship?

EMU architects were warned in the early 1990s that monetary union would prove unworkable as constructed. They scoffed, sure that any crisis could be exploited to force the pace of economic union. Commission chief Romano Prodi later admitted as much. "The euro will oblige us to introduce a new set of economic policy instruments. It is politically impossible now. But some day there will be a crisis and new instruments will be created."

We will soon learn if this gamble will pay off, or prove catastrophically wrong.

Funds flee Greece as Germany warns of "fatal" eurozone crisis

Germany has triggered a near-panic flight from southern European debt markets by warning that there will be no EU bail-outs, even though it fears the region's economic crisis has turned dangerous and could prove "fatal" for the entire eurozone.

By Ambrose Evans-Pritchard, Telegraph Business, 28 Jan 2010

The yield on 10-year Greek bonds blasted upwards by over 40 basis points to 7.15pc in a day of wild trading. Spreads over German Bunds reached almost four percentage points, by far the highest since Greece joined the euro, and close to levels that risk a self-feeding spiral. Contagion hit Portuguese, Spanish, Irish, and Italian bonds.

George Papandreou, the Greek premier, said in Davos that his country had been singled out as the weak link in a "attack on the eurozone" by speculators and political foes. "We are being targeted, particularly by those with an ulterior motive."

Marc Ostwald, from Monument Securities, said the botched syndication of €8bn (£6.9bn) of Greek debt earlier this week has made matters worse. Many of the investors were "hot money" funds that bought on rumours that China was emerging as a buyer, offering them a chance for quick profit. When the China story was denied by Beijing and Athens, these funds rushed for the exit.

However, a key trigger yesterday was testimony in Germany's parliament by economy minister Rainer Brüderle, who said there would be "no bail-outs" for struggling debtors and no move to a "European economic government".

"A few European nations are exhibiting dangerous weaknesses. That could have fatal consequences for all countries in the eurozone," he said. Despite the warning, he said each country must solve its own problems.

"Germany is not in a mood to be the deep pocket for what they consider profligate, southern neighbours," said hedge fund doyen George Soros.

Mr Brüderle's hard line contradicts a report in Le Monde that Franco-German officials are discussing a rescue for Greece in order to keep the International Monetary Fund at bay.

The paper cited a source saying that EMU partners were ready to "help" Greece. "It is a question of credibility for the eurozone. The IMF might want to impose monetary conditions."

Le Monde's story was shot down by Berlin and Paris, but there is little doubt that certain officials have been trying to build momentum for a rescue. It is clear that the EU family is split on the issue. Jean-Claude Juncker, head of the Eurogroup of finance ministers, backs "assistance", with support of EU integrationists hoping to nudge the EU towards full fiscal union.

This is fiercely opposed by Berlin, and the German-led bloc at the European Central Bank. There are reports that Berlin is deliberately bringing the crisis to a head, hoping to lance the boil early and force the Club Med states to reform before it is too late. If so, this is a risky strategy. German banks have huge exposure to Greek, Spanish, and Portuguese debt.

Hans Redeker, currency chief at BNP Paribas, said Greece will face "great trouble" if it has to pay 7pc rates for long. Athens must raise €53bn this year, mostly in the first half. It has a been relying on cheap short-term debt to fund the budget deficit of 13pc of GDP, but this raises "roll-over risk".

Tim Congdon, from International Monetary Research, said the danger is that wealthy Greeks may shift money to bank accounts abroad if they lose confidence (akin to Mexico's Tequila Crisis in 1994-1995). This would set off a banking crisis and become self-fulfilling.

Greece has been financing current account deficits – 15pc of GDP in 2008 – through its banks, which have built up €110bn foreign liabilities. "If foreign creditors want their money back, defaults and/or a macroeconomic catastrophe appear inevitable," Mr Congdon said.

Adding to worries, Moody's has issued an alert on Portugal's "adverse debt dynamics", saying Lisbon needs a "credible plan" to reduce a structural deficit stuck at 7pc of GDP rather than "one-off measures".

The deeper concern is Spain, where youth unemployment has reached 44pc and the housing bust has a long way to run. Nouriel Roubini – the economist known as 'Dr Doom' – said Spain is too big to contain. "If Greece goes under that's a problem for the eurozone. If Spain goes under it's a disaster," he said.

Jose Luis Zapatero, Spain's premier, replied wearily: "Spanish public debt (52pc of GDP) is 20pc lower than Europe's average; our treasury spends 5pc of revenues on debt costs, less than France and Germany. Nobody is going to leave the euro," he said

ECB prepares legal ground for euro rupture as Greek crisis escalates

Fears of a euro break-up have reached the point where the European Central Bank feels compelled to issue a legal analysis of what would happen if a country tried to leave monetary union.

By Ambrose Evans-Pritchard, Telegraph Business, 17 Jan 2010

The economic struggle facing Greece caused riots in December 2008 “Recent developments have, perhaps, increased the risk of secession (however modestly), as well as the urgency of addressing it as a possible scenario,” said the document, entitled Withdrawal and expulsion from the EU and EMU: some reflections.

The author makes a string of vaulting, Jesuitical, and mischievous claims, as EU lawyers often do. Half a century of ever-closer union has created a “new legal order” that transcends a “largely obsolete concept of sovereignty” and imposes a “permanent limitation” on the states’ rights.

Those who suspect that European Court has the power pretensions of the Medieval Papacy will find plenty to validate their fears in this astonishing text.

Crucially, he argues that eurozone exit entails expulsion from the European Union as well. All EU members must take part in EMU (except Britain and Denmark, with opt-outs).

This is a warning shot for Greece, Portugal, Ireland and Spain. If they fail to marshal public support for draconian austerity, they risk being cast into Icelandic oblivion. Or for Greece, back into the clammy embrace of Asia Minor.

ECB chief Jean-Claude Trichet upped the ante, warning that the bank would not bend its collateral rules to support Greek debt. “No state can expect any special treatment,” he said. He might as well daub a death’s cross on the door of Greece’s debt management office.

This euro-brinkmanship must be unnerving for the Hellenic Socialists (PASOK). Last week’s €1.6bn (£1.4bn) auction of Greek debt did not go well. The interest rate on six-month notes rose to 1.38pc, compared to 0.59pc a month ago. The yield on 10-year bonds has touched 6pc, the spreads ballooning to 270 basis points above German Bunds.

Greece cannot afford such a premium for long. The country must raise €54bn this year – front-loaded in the first half. Unless the spreads fall sharply, the deficit cannot be cut from 12.7pc of GDP to 3pc of GDP within three years. As Moody’s put it, Greece (and Portugal) faces the risk of “slow death” from rising interest costs.

Stephen Jen from BlueGold Capital said the design flaws of monetary union are becoming clearer. “I don’t believe Euroland will break up: too much political capital has been spent in the past half century for Euroland to allow an outright breakage. However, severe 'stress-fractures’ are quite likely in the years ahead.”

As Portugal, Italy, Ireland, Greece, and Spain (PIIGS) slide into deflation, their “real” interest rates will rise even higher. “It is tantamount to hiking rates in the already weak PIIGS,” he said. This is the crux. ECB policy will become “pro-cyclical”, too tight for the South, too loose for the North.

The City view is that the North-South split may cause trouble, but that there will always be a bail-out to prevent a domino effect. “If a rescue turns out to be necessary, a rescue will be mounted,” said Marco Annunziata from Unicredit.

It comes down to a bet that Berlin will do for Club Med what it did for East Germany: subsidise forever. It is a judgement on whether EMU is the binding coin of sacred solidarity, or just a fixed exchange rate system like others before it.

Politics will decide, and in Greece it is already proving messy as teams of “inspectors” ruffle feathers. The Orthodox LAOS party is not happy that an EU crew dared to demand an accounting from the colonels. “The Ministry of Defence is sacrosanct,” it said.

Greece alone in Western Europe treats the military budget as a state secret. Rating agencies guess it is a ruinous 5pc of GDP. Does the country really need 1,700 battle tanks, 420 combat jets, and eight submarines? To fight NATO ally Turkey? Merely to pose the question is to enter dangerous waters.

Who knows what the IMF surveillance team made of their mission in Athens. The Fund’s formula for boom-bust countries that squander their competitiveness is to retrench AND devalue. But devaluation is ruled out. Greece must take the pain, without the cure.

The policy is conceptually foolish and arguably cynical. It is to bleed a society in order to uphold the ideology of the European Project. Greece’s national debt will be 120pc of GDP this year. S&P says it will reach 138pc by 2012. A fiscal squeeze – without any offsetting monetary or exchange stimulus – will cause tax revenues to collapse. Debt will rise higher on a shrinking economic base.

Even if Greece can cut wages without setting off mass protest, it lacks the open economy and export sector that may yet save Ireland in similar circumstances. Greece is caught in a textbook deflation trap.

Labour minister Andreas Loverdos says unemployment would reach a million this year – or 22pc, equal to 30m in the US. He broadcast the fact with a hint of menace, as if he wanted Europe to squirm. Two can play brinkmanship.

Why The EU Is Like The Old USSR

Vernon Coleman, on Conservative Home, 19.12.09

Many people now believe that the EU is, in many critical ways, indistinguishable from the old Soviet Union.

In a speech delivered at the House of Commons in 2002, Vladimir Bukovsky noted the following similarities between the old USSR and the EU. I have paraphrased and expanded on his thoughts below:

1. Anyone who opposes or deviates from the socialist system will be ostracised. For example, when the Austrian people had the temerity to elect `the wrong sort of Government' (it was considered too nationalistic and right wing by the EU) the EU pronounced the new Government unacceptable. With apparent magnanimity, the EU announced that it would `accept' an Italian President elected by the Italian people. All sorts of tricks are used to isolate and marginalise those who opposed the EU. Those questioning the EU are often portrayed as insular and parochial.

2. Like the USSR, the EU is governed by a group of people who appoint one another, are unaccountable to the public, enjoy generous salaries, massive perks and huge pensions, are pretty much above the law and cannot be sacked. The EU, like any committed socialist government, operates without any real feedback from the people, and certainly without any concern for what the people think. The state must always come first. The only people who benefit (as with all socialist and fascist organisations - and the two are, of course, interchangeable) are those who have put themselves and their friends in charge. The workers never really benefit from socialism. The profits of the hard working, the creative and the thrifty are redistributed to the bureaucracy: the lazy, the unthinking and the wasteful.

The central planners (in the case of the USSR they were in Moscow, in the case of the EU they are in Brussels) insist on making all the judgements and decisions but their lack of experience means that they get everything wrong so there are constant shortages and black markets.

State socialism in the EU has not led to affluence, equality and freedom but, effectively, to a one-party political system. (All three main parties in Britain support the EU and the destruction of Britain). The fascist EU has,inevitably, created a massive bureaucracy, heavy-handed secret police, government control of the media and endless secrecy and lies.

The socialist bureaucracy of the EU is run by people who arrogantly believe that they are the only ones who need to know and that they always know best.

3. There was one political party in the USSR (and no opposition) and the same is true of the EU. Political parties which don't support the EU are denied the oxygen of financial support. Politicians who do support the EU can look forward to good jobs (when they retire or leave domestic politics they may, like Neil Kinnock or Chris Patten, get jobs as EU commissioners). The system looks after its own. When the EU constitution was being debated, the main sticking point among delegates was not the sovereignty of their individual nations, or the rights of the voters, but the number of delegates each country would be allowed to send to EU meetings. Each nation's individuality was pushed to one side as irrelevant and inconsequential, in favour of the rights of politicians to attend regular, all expenses paid beanos.

4. Like the USSR, the EU was created with little or no respect for normal democratic principles. Much of what has happened within the EU has happened secretly and without the normal principles of democracy being considered or applied. What has happened over the last few decades has happened largely in secret.

5. Instead of information about the EU we have been fed a good deal of propaganda. The bureaucrats organise and control people and they try to control the availability of knowledge. The people are always controlled with lies and misinformation. (Today these are known as `spin'.) Anyone who dares to oppose the EU or to promote England is likely to be described as a `racist'. My book England Our England has proved enormously popular with readers (and was, within the first year, reprinted numerous times) but advertisements for the book were banned by a number of publications. Although the book is one of Britain's bestselling books on politics, it has never been reviewed in any national newspaper.

Very few Britons realise exactly what has already happened, how what has happened has already affected their lives and how things will now develop unless we do something very soon. A poll quietly taken for Britain's Foreign Office showed that a quarter of Britons did not know that their country was already a member of the EU. Astonishingly, 7% of Britons thought that the USA was a member. This ignorance isn't unique to Britain. A poll in Germany showed that 31% of the public had never heard of the European Commission.

The bureaucrats realise that until there is more awareness of and interest in what has happened, and what is happening, there are unlikely to be any protests.

6. The former USSR was renowned for its vast number of laws, rules and regulations. But the USSR was nothing compared to the EU. The EC has become a law factory covering everything imaginable and enabling small petty-minded bureaucrats to hound small businesses and flex their puny muscles. One law on fire regulations alone cost UK businesses £8 billion. New regulations have poured out governing every aspect of our lives, and businessmen have been swamped by an avalanche of red tape.

More details on http://www.vernoncoleman.com/whytheeuisliketheold.htm

The rise of Germany belies the chaos a strong euro is causing

The super-strong euro is having sharply varying effects on the different countries in the eurozone and causing the rift between north and south to widen further, according to a new report by Standard & Poor's (S&P).

By Ambrose Evans-Pritchard, Telegraph Business, 21 Dec 2009

Jean-Michel Six, the agency's Europe economist, said Italy, Spain, Greece and Ireland have all seen sharp deteriorations in their real effective exchange rates since 2005.

This is likely to reach the pain barrier soon if rate rises by the European Central Bank (ECB) push the euro to $1.70 against the dollar by the end of next year, as S&P expects. "Anticipate some lively debates among eurozone policymakers about the level of the euro in 2010," Mr Six said.

The exchange forecast is contentious. BNP Paribas and Morgan Stanley expect the euro to weaken for a while as America's recovery gathers pace, leaving Europe behind with a debt crisis in Greece and hamstrung banks that have yet to come clean on their losses.

The headache for the ECB is that Germany seems well able to cope with a strong currency after screwing down wages and raising productivity, even if Club Med is squealing. German firms have gained some 18pc in labour cost competitiveness against Italy and 15pc against Spain since 2005, and far more going back to the mid-1990s when the exchange rates were set in stone.

Jobs are already telling the story. Unemployment fell slightly to 7.5pc in Germany in October, but continued rising in Spain to 19.3pc. The underlying rate in Greece has jumped to 18pc with the expiry of workfare schemes.

The slow-burn damage of sliding competitiveness in the Club Med bloc was concealed for a long time, at first because Germany entered monetary union at an over-valued rate, then because the credit boom masked all sins.

Mr Six said that weaker EMU states are being hit on every front at once. They face de facto appreciation both within the EMU against Germany and outside against the majority of the world's currencies.

Sterling and Sweden's krona have crashed. So have the Russian rouble, the Turkish lira and a host of East European currencies. China has kept the yuan rigidly tied to the dollar since the crisis began, piggy-backing on Greenback devaluation by intervening massively in the exchange markets.

The weak pound and wage compression in the UK have given British firms a big trading advantage. S&P said UK unit labour costs have fallen more than 35pc against Italy since mid-2007, and by 18pc against Germany.

It typically takes two to three years for the full effects of such currency shifts to become evident. Even so, signs are already emerging in Eurostat industrial data. UK output was down 7.9pc in October from a year earlier, compared to -11pc for the eurozone as a whole.

S&P said that other powerful forces are at work. America is rapidly regaining its edge against Europe. US productivity rose at an 8pc rate in the third quarter of this year, while unit labour costs fell 2.5pc.

Almost exactly the opposite has occurred in Europe, where job support schemes have encouraged firms to hold on to surplus workers, leading to sharp falls in productivity. This prevents the Schumpeterian process of "creative destruction" that clears dead wood with each cycle and nurtures economic dynamism.

EU laws to cost UK £184bn by 2010, think tank says

The top 100 most costly European Union regulations introduced in the UK since 1998 will cost the economy £184bn by 2020, according to Open Europe.

By Angela Monaghan, Telegraph Business,21 Dec 2009

The think tank said that without laws including the working times regulations - the most costly according to Open Europe - the Government could eliminate its entire Budget deficit.

It conceded that some of the regulations in question were beneficial for the UK, but argued that many new laws originating in Brussels were overly prescriptive and burdensome.

UK's payments to EU jump by 60 per cent"Despite some attempts at reform, the cost of EU regulation continues to rise year on year. Some of these regulations might be helpful but far too often the cost of EU rules outweigh the benefits," said Mats Persson, research director at Open Europe.

"The UK is facing a massive public deficit, so the Government should be doing everything it can to save money. Targeting even just a few of the most costly EU regulations could save taxpayers and business billions every year."

Open Europe said that based on the Government's own assessments, the most costly regulations were the climate change act, energy performance certificates for buildings, and temporary agency workers directive.

Mr Persson said 72pc of the total cost of UK regulation now originates in Brussels. "The next UK Government must take a new, radical approach to cutting red tape, and this means getting smarter and tougher when negotiating in Europe," he said.

Eurozone chickens come home to roost

It is far too early to write off the euro as a failed experiment, but only lax accounting is keeping it alive

Telegraph, 14 Dec 2009

These are testing times for the eurozone, the group of 16 EU countries that subscribe to a single currency and the diktats of the European Central Bank. In Ireland, Spain and now Greece, the system is under the greatest strain since it came into being 10 years ago. While Greece is not about to fall out of the euro, its government is putting in place a terrible austerity package to rescue the country's economy, and it is predicted that prolonged civil unrest will follow. This seems an appropriate moment to remember that, for political reasons, the rules governing eurozone membership were bent to facilitate the entry of countries that were unsuited to the financial rigour required.

Advanced accounting and economic jiggery-pokery let countries with weak economies into what, if it was to work at all, should have been an exclusive club with very tough membership criteria. Political imperatives trumped economic common sense, and the consequences are now being felt. There is little clear understanding of what might happen next.

It has taken the eurozone's first recession to make fully apparent the contradictions in the design and implementation of the currency. Fast-growing and immature economies such as Spain, Greece and Ireland gained instant monetary policy credibility when they were admitted. But they needed to be able to set higher interest rates than their mature cousins in Germany and France, in order to deter unsustainable booms. Because they could not do so, their bubbles grew too large; now that these have burst, their crises are worse. Greece, Ireland and Spain need desperately to devalue as part of wider efforts to right their economies, but, again, are unable to do so.

It is far too early to write off the euro as a failed experiment. The costs and risks of a break-up remain considerable and the currency has seen off numerous predictions of its demise. However, yet again it is being forced to rely on accounting laxity. During the current crisis, the European Central Bank has allowed members to break the agreed rules on budget deficits. The Greek deficit is 12 per cent of output, against a benchmark of 3 per cent; there are, doubtless, further unofficial amendments to the rule book to come.

Angela Merkel, the German Chancellor, has been talking about the collective responsibility of euro members, implying a bail-out to prevent Greece from defaulting on its debts. Mrs Merkel, the head of the eurozone's healthiest and largest economy, has recently been returned to office – which may be just as well, since she now faces the tricky task of persuading her countrymen that the price of European unity is one that they will have to pay.

Greece defies Europe as EMU crisis turns deadly serious

Euroland's revolt has begun. Greece has become the first country on the distressed fringes of Europe's monetary union to defy Brussels and reject the Dark Age leech-cure of wage deflation.

By Ambrose Evans-Pritchard, Telegraph, 13 Dec 2009

George Papanderou, the Greek prime minister, faces potential riots if he cuts spending to address the deficit While premier George Papandreou offered pro forma assurances at Friday's EU summit that Greece would not default on its €298bn (£268bn) debt, his words to reporters afterwards had a different flavour.

"Salaried workers will not pay for this situation: we will not proceed with wage freezes or cuts. We did not come to power to tear down the social state," he said.

Were we to believe that a country in the grip anarchist riots and prey to hard-Left unions would risk its democracy to please Brussels?

Mr Papandreou has good reason to throw the gauntlet at Europe's feet. Greece is being told to adopt an IMF-style austerity package, without the devaluation so central to IMF plans. The prescription is ruinous and patently self-defeating. Public debt is already 113pc of GDP. The Commission says it will reach 125pc by late 2010. It may top 140pc by 2012.

If Greece were to impose the draconian pay cuts under way in Ireland (5pc for lower state workers, rising to 20pc for bosses), it would deepen depression and cause tax revenues to collapse further. It is already too late for such crude policies. Greece is past the tipping point of a compound debt spiral.

Ireland may just pull it off. It starts with lower debt. It has flexible labour markets, and has shown a Scandinavian discipline. Mr Papandreou faces circumstances more akin to those of Argentine leaders in 2001, when they tried to cut wages in the mistaken belief that ditching the dollar-peg would prove calamitous. Buenos Aires erupted in riots. The police lost control, killing 27 people. President De la Rua was rescued from the Casa Rosada by an air force helicopter. The peg collapsed, setting in train the biggest sovereign default in history.

Economists waited for the sky to fall. It refused to do so. Argentina achieved Chinese growth for half a decade: 8.8pc in 2003, 9pc in 2004, 9.2pc in 2005, 8.5pc in 2006, and 8.7pc in 2007.

London bankers were soon lining up to lend money (our pension funds?) to the Argentine state – despite the 70pc haircut suffered by earlier creditors.

In theory, Greece could do the same: restore its currency, devalue, pass a law switching internal euro debt into drachmas, and "restructure" foreign contracts. This is the "kitchen-sink" option. Such action would allow Greece to break out of its death loop.

Bondholders would scream, but then they should have delved deeper into the inner workings of EMU. RBS said the UK and Ireland have most exposure, with 23pc of Greek debt between them (mostly for global clients). The French hold 11pc, Italians 6pc.

Remember, Athens holds the whip hand over Brussels, not the other way round. Greek exit from EMU would be dangerous. Quite apart from the instant contagion effects across Club Med and Eastern Europe, it would puncture the aura of manifest destiny that has driven EU integration for half a century.

I don't wish to suggest that Mr Papandreou – an EU insider – is thinking in quite such terms. Full membership of the EU system is imperative for a country dangling off the bottom of Balkans, all too close to its Seljuk nemesis. But Mr Papandreou cannot comply with the EU's deflation diktat.

No doubt, EU institutions will rustle up a rescue. RBS says action by the European Central Bank may be "days away". While the ECB may not bail out states, it may buy Greek bonds in the open market. EU states may club together to keep Greece afloat with loans for a while. That solves nothing. It increases Greece's debt, drawing out the agony. What Greece needs – unless it leaves EMU – is a permanent subsidy from the North. Spain and Portugal will need help too.

The danger point for Greece will come when the Pfennig drops in Berlin that EMU divergence between North and South
has widened to such a point that the system will break up unless: either Germany tolerates inflation of 4pc or 5pc to prevent Club Med tipping into debt deflation; or it pays welfare transfers to the South (not loans) equal to East German subsidies after reunification.

Before we blame Greece for making a hash of the euro, let us not forget how we got here. EMU lured Club Med into a trap. Interest rates were too low for Greece, Portugal, Spain, and Ireland, causing them all to be engulfed in a destructive property and wage boom.

The ECB was complicit. It breached its inflation and M3 money target repeatedly in order to nurse Germany through slump. ECB rates were 2pc until December 2005. This was poison for overheating Southern states.

The deeper truth that few in Euroland are willing to discuss is that EMU is inherently dysfunctional – for Greece, for Germany, for everybody.

Daniel Hannan: EU is 'in a democratic mess'

The European Union is an economic, demographic and democratic mess, writes Daniel Hannan.

Sunday telegraph, 21 Nov 2009

"It's all very well to criticise, Hannan, but what would you do if you were in Van Rompuy's shoes?" So asked a euro-enthusiast friend when I had finished tearing into Thursday night's stitch-up.

It's a fair question, and it won't quite do to answer that I wouldn't be starting from here. The EU is in an economic mess: its share of world GDP will fall from 26 per cent to 15 per cent in 2025. It is in a demographic mess: 40 years of low birth rates have left it with a choice between depopulation and mass immigration. And it is in a democratic mess, with turnouts plummeting.

So what would I do? Step one is easy: I'd abolish the Common Agricultural Policy, thereby giving a greater boost to Europe's economies than any number of bail-outs and stimulus packages. Food prices would fall sharply: the average family would save more than £1,000 a year in grocery bills, with the greatest savings being made by those on the lowest incomes. Scrapping the CAP would also be the single greatest gift Europe could give the Third World. It would remove the main barrier to a full WTO agreement. Oh, and it would take a penny off income tax into the bargain.

With the CAP out of the way, it would be easy enough to dismantle the rest of the Common External Tariff. I'd phase out all structural, cohesion and social funds, releasing armies of consultants and contractors to more productive work. Ditto the staffs of dozens of euro-quangos: the European Monitoring Centre for Drugs, the European Food Safety Authority, the European Chemicals Authority, the European Foundation for the Improvement of Living and Working Conditions and so on.

Now the biggie: deregulation. According to the Commissioner for Enterprise, Gunther Verheugen, the benefits of the single market are worth around 180 billion euros a year, while the cost of complying with Brussels rules is 600 billion euros. In other words, by its own admission, the EU costs more than it's worth. The solution? Heap the bonfire with pages of the acquits communautaire: the EU's amassed regulations. Scrap the directives that tell us what hours we can work, what vitamins we can buy, how long we can sit on tractors, how loudly we can play our music. Return power to national governments or, better, to local authorities – or, best of all, to individual citizens.

I would confine the EU's jurisdiction to matters of a clearly cross-border nature: tariff reduction, environmental pollution, mutual product recognition. The member states would retain control of everything else: agriculture and fisheries, foreign affairs and defence, immigration and criminal justice, and social and employment policy.

The European Commission could then be reduced to a small secretariat, answering to national ministers. The European Court of Justice could be replaced by a tribunal that would arbitrate trade disputes. The European Parliament could be scrapped altogether; instead, seconded national MPs might meet for a few days every month or two to keep an eye on the bureaucracy.

You will, of course, have spotted the flaw in my plan: it would put an awful lot of Eurocrats out of work. Which, sadly, is why it won't happen. For, whatever the motives of its founders, the EU is now chiefly a racket: a massive mechanism to redistribute money to those lucky enough to be on the inside of the system.

Daniel Hannan is Conservative MEP for South East England.

Herman Van Rompuy and Baroness Ashton: the EU's perfect couple of nobodies

The big winners in last week's EU carve-up may not have famous names or stellar CVs – but that's what made them ideal candidates for their new jobs, says William Langley.

By William Langley, Sunday telegraph, 21 Nov 2009

After all the years of doubt and hesitation, the European Union's 490 million inhabitants were finally united last week, if only by the realisation that they were now being ruled by two people they had never heard of.

Herman van Rompuy, a serenely uncontroversial, 63-year-old Belgian centrist, became the EU's first president, but the big winner was Baroness "Cathy" Ashton, an obscure New Labour quangocrat who landed the job of High Representative for Foreign Affairs. From the far corners of the couple's unruly new empire came an encouragingly harmonious chorus of: "Qui?" "Wer?" "Chi?" "Who?"

In any language, this was a tough one to answer. Van Rompuy's year-long stint as Belgium's 66th prime minister has gone unnoticed even by most Belgians, while Lady Ashton's only previous triumph of note was winning the 2006 "Politician of the Year" award from the gay rights group Stonewall. "You would not believe," she said upon receiving it, "how much this means to me."

What her latest elevation might mean for the future of Europe remains anyone's guess. Frantic to shed some light on her trajectoire météoritique, the EU-friendly Brussels daily Le Soir was able only to tell its readers that since arriving in town a year ago, she had signed a trade agreement with South Korea, and was "sur le point" of ending a wrangle over customs duties on South American bananas. "She has no experience of foreign affairs," the paper reassuringly quoted a colleague, "but she probably learns quickly."

Back home, we didn't even know that much. As tends to be the case with those who have risen far and fast under New Labour, Cathy's curriculum vitae is a spirit-sapping recitation of posts held and causes served, far from the rigours of the real world. Born in Lancashire, she has been a "vice chair" of the Campaign for Nuclear Disarmament, founded an organisation to promote equality in the business world, and served as vice president of the National Council of One-Parent Families. Given a life peerage in 1999 by Tony Blair, she was sent to Brussels last year as a replacement for Peter Mandelson. Married to the former journalist Peter Kellner, now head of a polling organisation, she has two children and three stepchildren.

"Baroness Ashton is ideal for her new role," says Nigel Farage, leader of the UK Independence Party. "She has never had a proper job, and has never been elected to public office."

Yet it isn't quite as simple at that. In terms of what the EU was looking for, both the baroness and Van Rompuy are spectacularly well qualified. "Neither has any sort of international profile or background," says Marco Incerti, the communications head of the Brussels-based Centre for European Policy Studies. "It may look like the appointment of two nobodies, but this is what happens when the EU tries to please everyone."

Behind the scenes, the Eurocrat elite had already established a detailed template for the two top jobs. One would be a man, the other a woman; one from the Left, the other from the Right. One would hail from the EU's inner realm, the other from the mutinous outer territories. Above all, both would be relatively unknown, and preferably nonentities, whose new powers – formidable under the terms of the Lisbon Treaty – would not go to their heads.

These parameters were essentially fashioned by the French president Nicolas Sarkozy and the German chancellor Angela Merkel, whose flourishing alliance is founded upon the sharing of real control between Paris and Berlin, and are the reason why Tony Blair, an early front-runner for the top job, never really had a chance. Blair was too big a name, too controversial, too keen to take it on.

So, instead, we have Van Rompuy, known to hardened Eurosceptics as "the Belgian waffler", a mild-mannered economist, consumed with Catholic piety, who spends one day a month in a monastery among an order of silent monks. In an interview earlier this year with Paris Match, he claimed never to lose his temper, but his sang-froid was tested when his sister, Christine, a member of a fringe Maoist party, helped to design a poster showing him dressed as a circus clown. They have not spoken since.

People who have met him in better circumstances, and can still recall the experience, use such words as "modest", "introverted" and "self-effacing", and point to the fact that while his better-known, more glamorous rivals for the job were glad-handing their way around the capitals of Europe, Herman and his wife Geertrui were chugging through the Australian Outback in a battered camper van.

According to Richard Whitman, an associate fellow at Chatham House, the London foreign affairs institute, Van Rompuy's main qualification for the EU job is "being a conciliator, and not being associated with anything that divides the states" – save, perhaps, his recent call for pan-European green taxes.

Certainly, politics would appear to be a secondary calling. Herman studied economics at the Catholic University of Leuven, found a job at Belgium's central bank, and later joined the centre-Right Christian Democrat party, progressing through the next two decades with near-invisibility. According to Geertrui, with whom he has four children, when King Albert II, begged him to become Belgium's prime minister last year, "he did everything he could to get out of it", but felt he had to accept. At the time, the country appeared to be disintegrating, riven by the long-running feud between French and Dutch speakers, and the sense, shared by both, that the EU's host country had no identity of its own.

When he isn't trying to hold the place together, Herman writes Japanese-style haiku poems and an agonised blog wallowing in solitude, pessimism, and mortality, leading Belgian cartoonists to portray him as an elderly black-robed cleric bent beneath the burdens of conscience and duty. "All human beings must, at some point in their lives, choose between mystery and absurdity…" he mused recently.

Happily, the EU combines both qualities in abundance. The mystery flows from its famously opaque workings – and the absurdity, from appointments such as last week's.

Herman Van Rompuy: Europe's first president to push for 'Euro tax'

Herman Van Rompuy, Europe's first president, is to join forces with the European Commission to push for sweeping new tax raising powers for Brussels.

By Bruno Waterfield and Justin Stares in Brussels and Colin Freeman
Sunday Telegraph, 22 Nov 2009

Herman Van Rompuy, Europe's first president, is to join forces with the European Commission to push for sweeping new tax raising powers for Brussels. Photo: REUTERS
Within days of taking office in January, the former Belgian prime minister will put his weight behind controversial proposals already floated by the commission's head, José Manuel Barroso, for a new "Euro tax".

He will add credence to Mr Barroso's plans, to be formally tabled in the New Year, by arguing for a Euro-version of a "Tobin Tax" – a levy on financial transactions already floated by Gordon Brown as a solution to the international banking crisis. It would result in a stream of income direct to Brussels coffers, funding budgets that critics say are already rife with waste and overspending.

Mr Van Rompuy, 62, who was appointed to the newly-created £320,000-a-year post at last week's special EU summit, set out his stall on direct Euro-taxes during a private speech at a recent meeting of the Bilderberg group of top politicians, bankers and businessmen. The group officially meets in secret, but when selected details of his remarks leaked out, his office was forced to issue a public statement on his behalf.

"The financing of the welfare state, irrespective of the social reform we implement, will require new resources," he said. "The possibility of financial levies at European level needs to be seriously reviewed."

Mr Barroso, whose commission acts as the European Union's executive arm and civil service, has set out alternative plans for a Euro tax that would involve Brussels taking directly a fixed percentage of VAT and fuel duties. While these taxes already help to fund EU spending – set at £121 billion next year – they are currently gathered by the treasuries of individual nation states, from which varying sums are paid into EU coffers.

A new Euro tax could appear on all shopping and petrol station receipts, showing the amount of VAT or fuel duty creamed off directly to Brussels. Supporters say it would take a fixed proportion of the existing tax revenue rather than increase it overall, and make the cost to taxpayers of running the EU more transparent. Critics argue this could backfire by increasing anti-Brussels sentiment.

Mr Van Rompuy has not set out in detail exactly which tax raising mechanisms he favours most, but after the Bilderberg meeting his spokesman said he would look favourably on either green taxes or a version of the Tobin Tax, originally proposed in 1972 by the US economist James Tobin as a tax on currency speculation.

Mr Brown floated this earlier this month as a way of financing future bail outs of the banking system, although he meant it for global rather than purely European purposes.

But whichever revenue-raising mechanism was used, the backing of two of Europe's most senior apparatchiks for the idea in principle will give it extra momentum.

Opponents of the idea could also underestimate Mr Van Rompuy's determination to get his own way. Ostensibly chosen for his new job because of his skill as a consensus-builder, he is also known as a skilled and ruthless political operator, who is happy to play rough as well as smooth. Last year he ordered the locks to be changed on a chamber in the Belgian parliament in order to prevent deputies holding a politically disruptive debate. According to Belgian newspaper De Morgen, van Rompuy told colleagues a few weeks ago that to achieve a top EU function you must "not ask for high office, but become a grey mouse, and offers will come."

Mr Barroso, meanwhile, has just been reappointed to his post by member states for a second five year term, freeing him to push his tax agenda in bolder fashion than before. Any move towards Euro taxes, however, will encounter bitter opposition from British Conservatives.

"Any kind of harmonised tax system will remove control over our national tax systems," said Timothy Kirkhope, leader of the Britain's Conservative MEPs. "Competition in Europe depends on member states being allowed to have competitive tax regimes."

In opposing any Euro-tax plans, the Tories will find an unlikely ally in Mr Van Rompuy's sister Christine, 54, a left-wing nurse who joined the Marxist Belgian Workers' Party after witnessing the Belgian government's privatisation of the health service. She is now one of her brother's staunchest political critics, and the brochure used by her party features a picture of her brother dressed as a clown.

"I disagree with my brother's ideas for a green tax," she said. "Any new taxes would be paid by the poor. We need to tax the rich."

We must have a referendum – and not just on the EU

By Daniel Hannan Politics November 4th, 2009

It’s not chiefly about Europe – it’s about democracy. Regular readers will know that I have always seen the repatriation of jurisdiction from Brussels as a means to an end. Having got the powers back, we should pass them down to local authorities or, better yet, to individual citizens. I want decisions to be decentralised, diffused, democratised. I want open primaries, popular initiative procedures, elected sheriffs, self-financing councils, an end to quangos, recall mechanisms and, yes, referendums – lots and lots of referendums.

I have been campaigning since I was 18 years old for a referendum on Britain’s relationship with the EU - the referendum that David Cameron has now ruled out for the duration of the next Parliament. I can see his point of view: he doesn’t want to be distracted from the Herculean task of reducing the budget deficit. (I am sure, by the way, that this is a sincere motive. The assertion, made by some half-clever journalists, that the Tory leader was secretly relieved by the implementation of the European Constitution Lisbon Treaty, is false. I know for a fact that he did his best to retard Lisbon’s ratification until after our general election.)

Then again, as I say, this issue goes beyond Europe. The legitimacy of our representative institutions is at stake. Out of 646 MPs in Westminster, 638 were elected on the a promise of a referendum. True, the Lisbon Treaty is now in force. But there is nothing to prevent us having a referendum on whether we, as a country, participate in its provisions. After all, the 1975 referendum was a retrospective ballot, held to ratify the “better terms” negotiated by the Wilson ministry. I made the case for a referendum on Lisbon in this blog two years ago, and I haven’t changed my mind. (If you’ve forgotten what is so dreadful about the European Constitution Lisbon Treaty, by the way, read this).

We need a broad movement within the Conservative Party that will push for referendums, citizens’ initiatives and the rest of the paraphernalia of direct democracy. I don’t just mean a referendum on Europe - though, naturally, that is the obvious place to start. I mean full-on Helvetic people power, as adumbrated in this best-selling publication. I have returned to the back benches in order to concentrate on building such a movement.

Don’t misunderstand me: I voted for David Cameron as leader, I like him, and I reckon he’d be a million times better than Gordon Brown as Prime Minister. One of his strengths is that, unlike Gordon Brown, he doesn’t mind people disagreeing with him. Well, then. This Conservative is for a referendum: a proper, deep-cleansing referendum that will settle whether our country remains subordinate, or becomes self-governing. Now who will stand on either hand and keep the bridge with me?

The DM says: Good for you, Dan - we will do what we can to support you. It will be an uphill struggle - the quotation from Horatius is apt. David Cameron's behaviour, on the other hand, calls to mind an alternative version of that quotation: "Lo, we will stand on thy right hand, and sell the pass with thee."

David Davis urges Cameron to hold referendum on Europe within three months of coming to power

Conservative Home, 4 Nov 09

Up until now no big beast within the Conservative Party had stood up to demand some sort of new referendum pledge from David Cameron. That changes this morning with David Davis calling on the Tory leadership to hold a 'mandate referendum' even though the former Shadow Home Secretary agrees with Mr Cameron that there's no point in having a vote on the now ratified Lisbon Treaty.

Mr Davis - the man most trusted by the Tory grassroots to lead Britain's negotiations in Europe - makes his case in the Daily Mail:

"Referendums terrify the European Commission and the political elites who run Europe. They are clear statements of the popular will. They force issues to be stated in clear and unambiguous terms. They are impossible to ignore. That is why the European reaction to referendums is to make concessions. Look at the history. After Ireland's first rejection of the Lisbon Treaty, the European Council conceded legally binding protocols pledging to keep the treaty out of taxation policy, family and social issues (such as the right to life, abortion and euthanasia), and Ireland's traditional military neutrality. Denmark has obtained similar opt-outs after a referendum, and the defeat in the French and Dutch referendums led to the rewrite of the original European Constitution."

Mr Davis then goes on to list the range of powers that should be restored to Britain:

"The sort of things we might include are: recovering control over our criminal justice, asylum and immigration policies; a robust opt-out of the European Charter of Fundamental Rights; serious exemptions to the seemingly endless flood of European regulations which cost the UK economy billions of pounds each year; a recovery of our rights to negotiate on trade; exemption from European interference into trade in services and foreign direct investment rules; and an exemption from any restrictions on our foreign policy."

He calls for this 'mandate-to-negotiate referendum' to be "the first piece of legislation in the new parliament, and should be held within three months of the election."

ConHome's poll of grassroots members shows that most agree with David Davis. We found that two-thirds of Tory members want some sort of referendum.

The DM says: David Davis is absolutely right in calling for a "mandate referendum". David Cameron in his statement tried very hard to play it down by using language like "made-up referendum" and "phoney referendum", but that is just avoiding the argument, not refuting it. The point of a referendum is that it would be absolutely clear-cut and it would be overwhelming. We wouldn't be surprised in the support for repatriating powers was around 80%, and the support for just a free-trade relationship wouldn't be much lower. Others may think otherwise, but let's bring it on and see, once and for all, who is right.
A so-called mandate from a general election would be much less clear-cut. People would vote Conservative or Labour for all sorts of different reasons, and it wouldn't be at all clear how strong public feeling about the EU is. Neither Cameron nor the EU could ignore an overwhelming referendum vote against the EU, and that's why we won't be getting one.

EU Lisbon Treaty: David Cameron promises vote on future EU changes

David Cameron, the Conservative leader, has pledged to change the law so that no further powers can be transferred to Brussels without the approval of the British people in a referendum.

Telegraph, 4 Nov 2009

He acknowledged that his campaign for a referendum on the Lisbon Treaty was over after it was signed by all 27 members of the European Union.

But he went on: "We will make sure that this never, ever happens again.

Mr Cameron said that the Tories' campaign for a UK referendum on the Lisbon Treaty was over after the Czech Republic became the final EU member state to sign the document on Tuesday.

"It's no longer a treaty, it's been incorporated into EU law," he said, adding that the new posts of president and foreign minister were now being created.

"We cannot hold a referendum and magically make those posts or the Lisbon Treaty itself disappear, any more than we could hold a referendum to stop the sun rising in the morning," he went on.

He said that people would "resent" the fact that there would not be the referendum that was promised by Tony Blair and Gordon Brown.

A Conservative government would amend the European Communities Act 1972 to prohibit the transfer of power to the EU without a referendum.

That would cover any future attempt to take Britain into the European single currency, he said.

"We will give the British people a referendum lock to which only they should hold the key, a commitment very similar to that which exists in Ireland," Mr Cameron added.

"This is a major constitutional development, but I believe it's now the only way to reassure the British people that powers cannot be given away without their explicit approval in a referendum."

Lisbon ends the 200 year old experiment in democracy

By Janet Daley, Politics, November 4th, 2009

So that’s it then. The Lisbon Treaty passes into law and brings an end to the great two hundred year old experiment in modern western democracy. And you never got to have your say on whether you were prepared to give up on the idea of government of the people, by the people and for the people. We are back to benign oligarchy at last – the condition with which western European elites feel most comfortable: protected from the vulgar impulses of the Mob, unaccountable to anyone but their own peers.

Nobody ever got round to asking if you, like the pliant peoples of European countries whose own democratic history has been – to put it kindly – rather patchy, were happy to cash in your birthright. The right to make that decision was promised by everybody and, in the end, delivered by nobody. (Not that I blame David Cameron and William Hague for making the decision that they have made in the immediate circumstances: what would the post facto referendum question have been: “How would you have voted if this vote had actually mattered?”)

Mr Cameron will make a plausible stab at defending all those precious principles which have been forsaken. I have no doubt that the rhetoric will be quite fine: it had better be. But it will be a funeral oration not a practical policy outline. There will be time later to argue and debate about the possible future. But for the moment, we must pause and grieve.

Lisbon Treaty: power drains to European Union as treaty gets go-ahead

Britain’s power to govern itself is to be increasingly surrendered to Brussels after the European Union’s Lisbon Treaty was finally ratified.

By James Kirkup and Bruno Waterfield, Telegraph,4 Nov 2009

The treaty, which will come into force within weeks, will create the first president of Europe, as well as a European foreign minister, and will end Britain’s right to veto new EU rules in more than 40 areas of policy.

Supporters say it will make the EU more efficient and give it greater influence in world affairs but critics insist it cedes too much further sovereignty to Brussels.

The Czechs are the last of the 27 EU states to sign, and their move forced the Conservatives to abandon a pledge to hold a British referendum on Lisbon.

William Hague, the shadow foreign secretary, called it “a bad day for British democracy”.

David Cameron, the Tory leader, has been accused of breaking his promise on a referendum and betraying the British people. He will today set out plans for an alternative Tory promise to renegotiate parts of Britain’s membership of Europe, to win back control over social and employment laws.

One option will be to guarantee a referendum under a Tory government were any more national powers in danger of being ceded, it is understood.

Gordon Brown hailed the Czech signature as “a historic step” and European leaders said it would create a more powerful EU. Despite the scale of the changes, the British people have never been directly consulted. The document was ratified in a Commons vote and signed by Mr Brown in 2007.

Lisbon is based on the European Constitution, begun at a summit in Brussels in December 2001. Labour won the 2005 election after promising a referendum on the constitution but then argued that Lisbon was a different document.

The Conservatives, however, gave a “cast-iron” guarantee of a vote.

After Mr Klaus signed the text, they admitted they would not offer voters a say on Lisbon after all.

Mr Hague said: “Now that the treaty has become European law and is going to enter into force, that means that a referendum can no longer prevent the creation of the president of the European council, the loss of British national vetoes, these things will already have happened, and a referendum cannot unwind them.”

He attempted to blame Labour for the treaty’s passage, saying: “People have never been consulted or voted in a general election for this.”

Daniel Hannan, a Tory MEP and Eurosceptic, called the signing a step to a superstate. “The boot continues to stamp on the human face,” he said in a reference to George Orwell’s 1984.

Mr Brown insisted it should be celebrated: “Today is a day when Europe looks forward, when it sets aside years of debate on its institutions, and moves to take strong and collective action on the issues that matter most to European citizens: security, climate change, jobs and growth.” Angela Merkel, the German Chancellor, said: “The EU will become stronger and more capable of acting.”

EU leaders will meet this month to pick a first political president of Europe. Mr Brown has backed Tony Blair, his predecessor, but other leaders are leaning towards a low-key “chairman”. Herman Van Rompuy of Belgium and the Dutchman Jan Peter Balkenende are favourites.

The treaty will give the EU its own diplomatic corps and a foreign minister – the “high representative”. David Miliband, the Foreign Secretary, is a candidate.

José Manuel Barroso, the president of the European Commission, said the EU could now start acting as a global player. “The new external profile for the European Union will be felt immediately,” he said.

Twenty Years after the Fall of the Berlin Wall, the EU is a
Reincarnation of the Former Soviet Union

4.11.09 Source: Pravda.Ru
By Hans Vogel

Now that the Czech Republic has announced it will ratify the Lisbon Treaty, the EU will be even closer yet to becoming a unified monster state, with more than half a billion inhabitants. Inhabitants is the correct term, since "citizens" would indicate a set of political rights. The people living in the EU should rather be called "subjects," since they have no influence whatsoever on the
constitution of the centralized European government, the "European Commission." The Europeans are allowed to vote for members of the European Parliament, but this body has about as much political power as the ineffectual German parliament meeting at Frankfurt in 1848. Political power in the EU is firmly in the hands of the European Commission, which is set to obtain even more power under the Lisbon Treaty. This infamous treaty does not hold the peoples of Europe in high regard. As a matter of fact, it is only halfway through the treaty (originally presented as a "Constitution") that one finds the first references to the people.

The first impression one gets while reading through Chapter III of theLisbon Treaty (the so-called reader-friendly text), is a rather
favorable one. This so-called Charter of the Fundamental Rights of the European Union " places the individual at the heart of its activities, by establishing the citizenship of the Union and by creating an area of freedom, security and justice." That really sounds grand and reassuring, does it not? Reading on, one clause seems even more impressive than the other.

For instance, article 1 is wonderful: "Human dignity is inviolable. It
must be respected and protected." So is article 3:1: "Everyone has the right to respect for his or her physical and mental integrity." What about article 6: "Everyone has the right to liberty and security of person." And look at article 8:1 "Everyone has the right to the protection of personal data concerning him or her." Or what did you think of article 11: "Everyone has the right to freedom of expression. This right shall include freedom to hold opinions and to receive and impart information and ideas without interference by public authority and regardless of frontiers."

The list goes on and on. The Lisbon Treaty obviously is an effort to put together the most enlightened elements of all existing European constitutions. Therefore, as far as these "fundamental civil rights" are concerned, the Lisbon Treaty may be regarded as having taken effect already, at least in most of the EU.

It is quite enlightening to take a look at the way the lofty articles
cited above are being put into practice. Take "human dignity," for
instance. As a result of the benefits Neoliberal Capitalism has been showering on Europe since the fall of the Berlin Wall, by day the streets of most European cities have become a living room for
increasing numbers of homeless. At night these streets are transformed into open-air bedrooms, with the homeless making themselves comfortable on mattresses made out of flattened cardboard boxes. The streets seamlessly convert into dining rooms whenever the homeless are hungry. Then they go about scavenging for leftovers among the rubbish in dustbins and garbage containers.

And what about the CIA rendition flights to secret torture centers in EU member states Poland and Romania, with most other EU member states giving clearance for these flights through their sovereign airspace? So far, some 80.000 individuals are believed to have been abducted in this way, many of these with the full collaboration of the EU and its member states.

Clearly in the EU, "human dignity" is not inviolable, nor is it being
respected or protected. The treatment meted out to EU citizens
suspected of terrorism is a violation of articles 3:1 and 6. Their
physical and mental integrity is not respected in any way, and their right to liberty and security of person is trampled on, courtesy of all 27 EU member states.

All talk about human dignity, physical and mental integrity, and
liberty and security of person is empty. It is empty because the
security of the state (the EU and its member states) is deemed to have priority. You can find proof in the Lisbon Treaty, Title II, article 67:2 " The Union shall endeavour to ensure a high level of security through measures to prevent and combat crime, racism and xenophobia, and through measures for coordination and cooperation between police and judicial authorities and other competent authorities, as well as through the mutual recognition of judgments in criminal matters and, if necessary, through the approximation of criminal laws." The clause seems bland, but it means state security (however defined) takes precedence over the rights of individuals.

Article 8 is also very interesting. It would seem to state that one's
personal data are safe. But are they? Under current EU regulations, member states are required to keep records of all e-mail traffic and all telephone conversations. In fact it is as if the government would be reading all your letters. Many EU member states, the government can enter your computer at will and change data and records on your computer without your knowing it. All this snooping and spying is, of course, in the interest of state security, to "fight terrorism!" It all looks as if the Nazi slogan "Du bist nichts, dein Volk ist alles!" (You are nothing, your people is everything) were put into effect in today's EU.

Ah, and then there is, of course, freedom of expression. Article 11
establishes this unequivocally. Currently, all 27 EU member states
have such a provision in their constitutions. Yet on at least two
issues, EU citizens do not enjoy this freedom of speech. In a number of member states (Germany, Belgium, Austria, France, the Czech Republic) it is a criminal offense to publicly wonder whether six million Jews were killed by the Nazis during World War II. Even if you would believe that, say, no more than 4.5 million Jews were
exterminated, this could land you in jail for years. It is effectively
prohibited to conduct research into this topic (to try to establish
how many Jews were killed during WW II), because it makes you a "Holocaust denier."

Nor is it allowed in some states to make any sort of remark
criticizing islam. This will immediately cause you to be prosecuted
for what in the US is called "hate speech." This is happening to Dutch politician Geert Wilders, who will be put on trial next January for making allegedly disparaging remarks about islam, whereas what he really did was assemble a movie using available footage, to demonstrate the violent nature of islamic teachings.

Free speech, or freedom of expression is really a very simple issue, a clear-cut case. Either you have free speech, in which case you may say ANYTHING at all, or you have no free speech. It is like being pregnant: either you are, or you aren't. It is impossible to be a "little bit pregnant," just as it is impossible to have "some free speech."

Thus in the EU today, there is NO free speech. Nor will there be any when the Lisbon Treaty takes effect. The EU crackdown on "illegal" downloads, threatening anyone caught downloading copyrighted items more than three times with lifelong exclusion from internet access, can be interpreted as an indication that a major offensive against one of the few remaining vestiges of freedom is underway.

I am afraid the EU "constitution" (rejected by European voters
wherever it was subjected to an honest, fair referendum) in its warmed over version called "Lisbon Treaty" is no more than a useless piece of paper. It is about as meaningful as the old Soviet and East German (GDR) constitutions which, come to think of it, are surprisingly similar to the Lisbon Treaty.

Article 50 of the 1977 Soviet Constitution granted all citizens
freedom of speech. But whoever dared voice criticism of the system in any coherent, vocal way, was severely punished. Punishments included loss of job, domestic exile (nuclear scientist Andrei Sakharov), and assignment to a mental hospital. There was no free speech in the old Soviet Union, like there is no free speech in Europe today.

Similarities between the Lisbon Treaty and its communist predecessors are quite remarkable, for instance in the clauses on equality before the law.

Article 34 of the 1977 Soviet Constitution proclaimed full legal
equality for all: "citizens of the USSR are equal before the law,
without distinction of origin, social or property status, race or
nationality, sex, education, language, attitude to religion, type and nature of occupation, domicile, or other status." The East German Constitution echoes this. Article 20:1 reads: Independently of his nationality, race, religious ideas, social background and position, every citizen of the German Democratic Republic enjoys the same rights and duties. Freedom of religion and belief are guaranteed. All citizens are equal before the law." Coincidentally, the Lisbon Treaty is strikingly similar: " Everyone is equal before the law " (article 20), and " Any discrimination based on any ground such as sex, race, colour, ethnic or social origin, genetic features, language, religion or belief, political or any other opinion, membership of a national minority, property, birth, disability, age or sexual orientation shall be prohibited" (article 21).

And just to remind you, in the former communist world of Europe, basic human rights such as these were formulated in the Soviet and East German constitutions, were violated on a daily basis. Henckel von Donnersmarck's shocking movie "The Lives of Others" (2006) shows this in a most penetrating way. The Stasi, inheriting brutal, effective Gestapo methods, was keeping tabs on most of the East German population. Under the pretext of fighting terrorism, it listened in on all telephone conversations, opened all envelopes and read all letters. It kept controls on anyone entering or leaving the country. An army of almost 100,000 secret agents, helped by 200,000 civilian collaborators, spied day and night on East Germany's 16 million citizens. Most European governments today are using time-honored Stasi techniques to keep their citizens under surveillance. However, technology has advanced so impressively since the fall of the Berlin wall in 1989, that today's government spooks glean more information on
unwitting civilians than the most fanatical Stasi agent would have
hoped for in his wildest fantasies.

As recently as 2006, a most eloquent and insightful warning against the EU and the Lisbon Treaty's precursor, the ill-fated
"constitution", was given by former Soviet dissident Vladimir
Bukovsky. Traumatized by the experience of living in the Soviet Union, Bukovsky noted the deeply disturbing similarities between the old Soviet Union and the blueprints for the EU super state. The European Commission, he noted, was the exact equivalent of the old Soviet Politbureau, in terms of the secretive way power was exercised, the recruitment and personalities of its members and the scope and reach of its decisions. The "European Parliament" today (and under the terms of the Lisbon Treaty) is a mere rubber stamp institution, just like the "Supreme Soviet" of the old USSR.

As a matter of fact, there are so many similarities between the old Soviet Union and the EU that mere coincidence is unlikely. Bukovsky argues the EU was designed to be like the old USSR. The architects of the EU? Mostly social democrats, whom Stalin quite aptly called "Social Fascists."

Most Europeans have not yet understood this. Most are still
indifferent, but their indifference will soon vanish when the full
weight of repressive EU policies and EU taxation doing its destructive work will be felt.

Sooner than anybody now thinks, the only way to vent criticism of the EU will be in the form of jokes. No doubt many of the characteristic old Soviet jokes will be dusted off and given an anti-European Commission twist.

By that time, all Europeans except for the privileged class of
"eurocrats" will be prisoners in the EU. However, they will certainly have a wonderful Constitution.

Hans Vogel

EU Lisbon Treaty: William Hague confirms Tories will not hold referendum

William Hague, the shadow foreign secretary, has conceded that a Conservative government will not hold a referendum on the EU Lisbon Treaty.

Telegraph, 3 Nov 2009

Mr Hague said it was "no longer possible" to put the treaty to a popular vote after Vaclav Klaus, the Czech president, removed the last obstacle to full ratification.

"Now that the treaty is going to become European law and is going to enter into force, that means a referendum can no longer prevent the creation of the president of the European Council, the loss of British national vetoes," he said.

Mr Hague said David Cameron, the Conservative leader would set out "in detail how we will now go forward in European matters" in a speech to be delivered at 4pm on Wednesday.

He denied that the party had broken any promises by dropping the European Union referendum pledge.

"A British referendum until this very day would have meant that the Lisbon Treaty wouldn't enter into force if people voted no. The position of president of the European Council, the foreign minister of Europe, would never have been implemented," he said.

"We were very clear that our promise applied to those circumstances. After today, those things will come into force and a referendum can't change them, it can't unwind them, it can't prevent those things being created.

"That is why we are now in new circumstances and David Cameron will set out very clearly tomorrow how we now intend to proceed."

Earlier, the deeply Eurosceptic President Klaus announced he had signed the treaty after the Czech Constitutional Court finally rejected an attempt to block its implementation.

The move threatens to throw the Tories into a renewed round of turmoil over Europe after years of relative peace.

The Conservative leadership has been signalling for some weeks that it would not be able to go ahead with a referendum if the treaty was ratified by the time a Tory government came to power.

However, for Tory Eurosceptics it has become an article of faith after Mr Cameron gave a "cast iron guarantee" two years ago that he would give the British people a chance to vote on the treaty.

He is now expected to announce a general election manifesto commitment to "repatriate" powers from Brussels, including control of social and employment policies - a long-standing Tory aim.

David Miliband, the Foreign Secretary, denounced Mr Cameron's position as "false and dangerous" as he would not be able to deliver his promised concessions from Brussels.

"So much for David Cameron's cast iron guarantee to hold a referendum on the Lisbon Treaty," he said.

"But he is still not being honest with people. The fact is you can't simply opt out of treaty obligations because to do so you need the agreement of the 26 other member states.

"David Cameron's position on Europe is false and dangerous. He is willing to risk Britain's standing and the rights of British people because he is still not prepared to stand up to the right of his own party."

UK Independence Party leader Nigel Farage said: "Mr Hague says it is 'no longer possible' to have a referendum.

"Well, to me and millions of others it is apparent that it is no longer possible to trust the Tory party or David Cameron when they make promises about Europe."

Bill Cash, a eurosceptic Conservative MP, said he had written to Mr Cameron urging him to "reconsider" his decision not to hold a referendum, saying the Tory leader had been "badly advised".

Mr Cash said Mr Hague's argument that a referendum could not be held because the Treaty was now law "doesn't stack up", and insisted the issue can still be put to a vote.

"I think a referendum at least gives people a chance to exercise their democratic choice to decide which way they want to go on this matter and I think that is the fundamental question," the MP for Stone told Sky News.

Writing on his Telegraph.co.uk blog before Mr Hague's announcement, Tory MEP Daniel Hannan said : "Alright, a referendum on the Lisbon Treaty might no longer be the most logical option: it's hardly for us to tell the Belgians or the Slovenes what institutions they should work under.

"But a referendum on European integration - ideally on the broad repatriation of powers - is essential."

A black day for Britain

UKIP website, 3rd November 2009

As Czech President Vaclav Klaus finally agreed to sign off on the Lisbon Treaty, UKIP Leader Nigel Farage dubbed today "a black day for Britain and a black day for Europe".

Mr Farage said: "Today the last signature was placed upon the Lisbon Treaty. Today will be marked as the day on which the scales finally started falling from the eyes of the British people.

"Today as we can see from the actions of the big three parties not one of them holds our countries interests at heart.

"Today marks the day in which people will have to start asking themselves what it is they want for the future of their country.

"Do they want a land that is second in the affections of its rulers? A land whose laws are made by those who neither live here nor care about our citizens? A land who is governed by those who, be they ever so decent, have no sympathy for our ways, our traditions, our quirks, our foibles.

"Or do they wish to live in a land of which they can be proud of? One that is a friend to those who wish to be its friends but is prepared to stand up for what it believes is right.

"Today that choice, a choice so long put off comes into focus. Today must be the start of our long haul back to freedom.

"We have known for weeks that Vaclav Klaus would in the end sign the Lisbon Treaty.

"It is truly extraordinary that David Cameron is not able to tell us immediately what he will do. It is incredible that the wannabe Prime Minister of this land was praying that he would be saved by a man in Prague Castle.

"It was never his job. We in this country will only be saved by our own efforts. We cannot and should not rely on the goodwill of others.

"And as we certainly cannot rely upon the good will of our political class. We will have to do it for ourselves."

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.

Telegraph, 26 Sep 2009

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

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