The 9th of December EU summit was billed as D-Day for the Euro when a comprehensive plan to save the single currency and sort out the eurozone mess would be announced. In the end all that materialised was a restating of already failed measures and a sideshow in which Britain was cast as the villain standing apart from the rest of Europe. This was a useful diversion for politicians like Nicolas Sarkozy, enabling him to obscure from French voters the fact that a key part of the new accord is the giving up of more sovereignty to the EU. Only the German’s can say that they achieved what they set out for from the summit without having to give up anything in return, that is the restating of members obligations to balance their spending and sovereign debt, but this time with more teeth in the form of penalties imposed from the centre. Crucially there are still no plans to address the key problems of the eurozone, specifically the insolvency of its banks and the southern European states.

 

Despite all the talk before the summit about mounting concerns in the financial markets the key issues were not addressed. With so much at stake why should this be? I believe it is fundamentally because the eurozone politicians don’t understand or trust markets. As Jeremy Warner quipped in the Telegraph recently; “economics is not rocket science; if it was, the Germans would be much better at it.” The Germans, the French, indeed most of the Eurocrats see the markets as being dysfunctional dangerous places, full of nasty Anglo Saxon speculators determined on undermining their good work. They believe they should control markets, hence their eagerness to impose a financial transactions tax on the City of London with the revenue ending up in Brussels.

 

In the absence of a lasting solution to the problems in the eurozone we could very soon see investors pulling funds out of the troubled southern states and its weaker banks. This in turn could start a run on banks, which once it starts will be very difficult to stop, indeed it might end up with capital controls being imposed to stop money leaving the eurozone. The UK government is taking this threat seriously and is drawing up plans to deal with just this sort of crisis.

 

However, in a perverse way perhaps a run on the banks might be the catalyst that is needed to force the politicians to finally act decisively.