The EU’s confused panic is causing internal divisions, scaring the markets, and ignoring the UK

As predicted by the Slog, EU Central Bank [ECB] boss Jean-Claude Trichet set out strict proposals to prevent further financial crises in the eurozone in a speech to the European Parliament yesterday. The plan involves an independent watchdog. Spain’s Jose Manuel Barosso spoke of

“…a silent revolution in terms of stronger economic governance by small steps. Member States have accepted – and I hope they understood it exactly – to give the European institutions very important powers regarding surveillance, and a much stricter control over public finances”.

Britain of course hasn’t agreed to any of it….and Trichet again displayed the continuing bitterness between France and Germany when he said “I would have loved to see the Germans react to the breaking of the Stability and Growth Pact in 2004 with the same anger they have showed against our decision to purchase sovereign bonds”. But as first revealed in the Slog last month, Trichet is increasingly under fire from German members of the ECB.

The Slog understands that desperation point was reached late last week when the idea of a two-tier Euro was floated jointly by a Franco-German group. This was reported in Open Europe’s newsletter yesterday. Allegedly, the idea was ‘robustly rejected’ by other Council members.

Meanwhile, rumours picked up by The Slog early last week (about Van Rompuy’s task force already working on a Spanish bailout plan) resurfaced in the Daily Telegraph at the weekend. Figures between 200-500 billion euros continue to be bandied about. Slog contacts among currency dealers suggested that the rumours are widely accepted. “Spain is going to go bang” said one simply.

“The EU is adrift” said a London-based credit manager, “There is no end-goal on the table where anyone can say either ‘that’s good’ or ‘that’ll be approved’. They just can’t agree about what to do – and Britain’s red line is being ignored.”

Only Herman van Rompuy is pressing ahead with his hair-brained scheme about budget commissars everywhere and ‘traffic light’ warning systems for weaker countries. The issue is simple to define but desperately difficult to address: there are countries in the eurozone who shouldn’t be there….and one who doesn’t want to be.