26 Jan 2012

‘Radical’ Cameron joins in Davos Germany-bashing

It was a far bolder speech than I expected from the PM to the capital of capitalism. He described himself as a “monetary radical”, which is a reference to the £275 billion of QE, and presumably the soon-to-be launched credit easing policy. It was a contrast with the European Central Bank and its lack of bazooka. (though the consensus here is that the ECB has fired its bazooka through dumps of practically free three-year loans to Europe’s banks – the LTRO).

It was pretty radical to propose by name that the Eurozone needs eurobonds, as the PM did today. Angela Merkel was pretty sarcastic about Germany footing the bill for this policy which would treat Eurozone debt as one, and at a stroke collapse excessive debt interest rates, at the cost of raising them for Germany.

Well the PM joined in the not-so-subtle undercurrent of Germany-bashing that is emerging at this Davos. Germany’s approach is being critiqued left, right, and centre- from bankers, respected economists, the IMF and more subtly, other world leaders.

As the PM said of how to make the single currency work:

“You need the support of single currency partners – and as Christine Lagarde has set out, a system of fiscal integration and risk sharing, perhaps through the creation of Euro area bonds to make that support work.

“As Mario Monti has suggested, the flip side of austerity in the deficit countries must be action to put the weight of the surplus countries behind the Euro.

“I’m not pretending any of this is easy. These are radical, difficult steps for any country to take. Knowing how necessary but also how hard they are is why Britain didn’t join the Eurozone.”

The PM also bashed Brussels over the Tobin Tax, also a favourite of Angela Merkel. He said it was “madness” to even think about at a time when the EC itself says it will cost €200bn and 500,000 jobs (importantly the Commission completely denies that it has said this about its current plan, and for the Financial Transaction Tax).

For Number 10, the PM is using economic diplomacy to gently pressurise Berlin to move, going with the grain of pronouncements from the Italian Prime minister and The IMF’s Christine Lagarde.

Will Germany listen? I suspect that they will be sceptical of advice from the leader of an economy which has barely grown in nearly a year and a half. I think Berlin thinks its tough love message is working, and that the actions of the ECB have been underrated.

Mr Cameron was again on strong form in imploring the world’s investors to pour money into Britain. He is always rather good at these things, and would point to the very positive noises being made from China as a tangible example of its success.

But make no mistake, the PM intends to use the Olympics and Diamond Jubilee as a giant trade showcase for Britain in the world economy. Interesting, South Africa did something similar at Davos 2010 ahead of the World Cup. South Africa absolutely blitzed the place with marketing, models, free scarves and ministers.

The UK’s efforts, perhaps mindful of austerity, are a little more modest.