TOPICS > Economy

What Would Debt Deal Mean for Euro, European Union, U.K.?

December 9, 2011 at 12:00 AM EST
After marathon talks, the European Union moved closer to a deal to solve the debt crisis. Jeffrey Brown discusses what the agreement might mean for Europe with the EU's Deputy Chief of Mission Francois Rivasseau and Dan McCrum of The Financial Times.
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JEFFREY BROWN: And for more on today’s agreement and what it might mean for the region going forward, I am joined by Francois Rivasseau, deputy chief of mission for the European Union delegation to the United States, and Dan McCrum, a correspondent for the British newspaper The Financial Times. He’s based in New York.

Francois Rivasseau, so Angela Merkel said, this is the breakthrough to the stability union. Now, what exactly does that mean? Is this truly a new kind of union within the European Union?

FRANCOIS RIVASSEAU, European Union Delegation to the United States: It is a historic day for Europe, indeed, because we have made a great step towards more integration as the proper way of answering the crisis we face.

We had two goals, one, to be — to tighten, to watertight the rules of the EU against the problems caused by debts and deficits. That will be the treaty you allude to. The other goal was to strengthen the fire walls to defend the euro. That, we have also achieved. So I think it was a great day for Europe.

JEFFREY BROWN: Well, these changes won’t take hold for some time. Is the expectation now that, because of this deal, the European Central Bank, the IMF, others might step in with greater force to stem the kind of problems we’re talking about?

FRANCOIS RIVASSEAU: We shall see what the effect of the decisions taken yesterday are. But, all in all, if you look at where we were and where we are today, I think we have made a great step in improving all the figures.

There are a number of decisions which have been made, but everybody has to study quietly, serenely, and everybody will realize that very significant decisions have been made, strengthen our crisis funds to defend the euro, and speed up their implementation, but also, and what is important for the market, solving the problem of the association of, the involvement of the private sector decision to be made.

And we have decided — and that was an important point maybe for New York. We have decided that the rules of IMF, the principles and practices will be now followed. The precedent of Greece will not be repeated.

JEFFREY BROWN: Followed by individual nations, and they will be held to it?

FRANCOIS RIVASSEAU: Will be followed by the eurozone countries.

And, also, we have engaged, as Christine Lagarde just said, important cooperation with IMF, and I think all that provides, I hope, an answer which will be seen as satisfactory. Now, nobody can see the future completely, obviously.

JEFFREY BROWN: Now, Dan McCrum, explain the reservations from David Cameron. What exactly is he afraid of if Britain signs on?

DAN MCCRUM, The Financial Times: Well, David Cameron has a very strong and distinct euro-skeptic political party back at home. And so they are very anti-European.

The populace of the U.K. is very euro-skeptic as well. The European Union isn’t particularly popular. So he faced an unpleasant challenge of attempting to sell any treaty to that party back home. And so what he will get is, he will get a short-term political boost from this and he will be able to say that he has protected the financial services industry, which is incredibly important both to the economy of London and to the economy of the U.K. as a whole.

But I think what he has fundamentally come away with is very little in real terms, at a cost of really distancing the U.K. from the rest of the Europe, with some quite dangerous long-term consequences.

JEFFREY BROWN: Well, what would those be? What are the potential repercussions that people are talking about now for Britain and for the EU?

DAN MCCRUM: Well, I think it’s now much more difficult to answer the question, will Britain still be in the European Union in five to 10 times?

And that necessarily will have an effect on the way businesses think about investing or trading in the U.K. And, also, he hasn’t really protected the financial services industry, the supposed reason for this veto, because the European Union can still act to change the rules through majority voting.

It’s — the countries which are forging ahead without the U.K. still can impose different financial regulations. Now they have a…

JEFFREY BROWN: Excuse me.

DAN MCCRUM: Now they have a particular incentive to do so, now that Britain has decided to step away from the negotiating table.

JEFFREY BROWN: Yes, but I was going to say, so it really comes down to — we’re talking about a historic day here, but, in Britain, it seems historic in the sense that Britain may no longer be in the EU within a few years, you’re saying?

DAN MCCRUM: It certainly could feed into that statement.

And I think the important thing to realize about this agreement is that whilst there have been some small steps to help solve the banking crisis and the sovereign debt crisis, I think Europe has potentially opened up the doors to a new political crisis here, which may bring into question the euro and particularly Britain’s role within it in the future.

JEFFREY BROWN: All right, let me ask Mr. Rivasseau. 

Are you concerned about that political rift?

FRANCOIS RIVASSEAU: We, obviously, would have preferred U.K. to be in. Everybody would have.

Now, at a certain point, you have to choose. And the choice has been made by all the other 26 countries, either to go forward with all the countries of the eurozone, either to consider and ask to parliaments of the other countries not member of the eurozone.

In my view, the fundamental choice — we have to respect the British decision — a fundamental choice has been made when the U.K. decided not to take part in the euro. And this is a choice which has been made in 20 years ago almost, 18 years exactly. What we see today is something which is very important, but which is, in my view, a consequence.

And so I’m not sharing, with all due respect, of a pessimistic view…

JEFFREY BROWN: You don’t see a two — potential two-track or…

FRANCOIS RIVASSEAU: No. In the EU, we are used to situation where some — one country or two can stay out, out of the Social Charter, out of the euro, sometimes out of some different dispositions.

There are precedents on that. The European Union can accommodate such situations.

JEFFREY BROWN: Mr. McCrum, Britain aside here, we have had so many ups and downs in the crisis and moments when the markets go up and then they take another look and they go down. What do you look to immediately to see, to know whether enough has been done to stem the immediate problem?

DAN MCCRUM: Well, I think what everybody is going to be concentrating on is the bond yields for these countries, Spain, Italy, whether their borrowing cost starts to go down.

And then looking forward to the New Year, there has to be an awful lot of new debt sold. They have to roll over some of this debt. Italy, in particular, has 300 billion euros worth of debt it has to issue next year. And a lot of that is traditionally done right at the start of the year.

So, in January, we will start to see what the private sector appetite for this government debt is. And that will start to give us an indication of the severity of this crisis, and whether these incremental steps have been enough to avert a continuation.

JEFFREY BROWN: What do you see on that?

He just referred to incremental steps. This is the conundrum that we face every time we talk about this. Some steps are taken. It looks like everything has been solved, and then a few days later, well, no, the markets have said, wait a minute.

FRANCOIS RIVASSEAU: I don’t disagree with the notion of incremental steps, just that yesterday was a particularly important step.

But as it has been said, markets will have their own reaction. But what has also been decided, what we are, all Europeans, confidant that, is that if a situation is not seen as fully satisfactory, there will be the appropriate steps.

The important thing is to restore confidence. To restore confidence, we had to prove to the rest of the world that we were absolutely serious and that we are able to take all measures needed by the countries. Today, we have taken that. If, tomorrow, other measures have to be taken, for example, if the level of the fire walls is seen as not enough, we have already decided that we will come back beginning of the next year to reassess the level of response which are needed.

We are absolutely determined to do all what is needed to make sure that this crisis is over.

JEFFREY BROWN: All right, Francois Rivasseau and Dan McCrum, thank you both very much.

FRANCOIS RIVASSEAU: Thank you.