It seems likely that markets around the world are likely to react to the EU agreement towards common fiscal regulations with some relief. Many commentators have noted the UK’s apparent increasing isolation in Europe following David Cameron’s use of the UK veto, but not everyone has fully appreciated that whether the Euro survives or not, its fate will be determined by other countries also acting in their own perceived national interests. The extent to which a country is in favour of saving the euro is generally proportionate to its current involvement and what it hopes to gain from the Euro’s continued existence.
With the subsequent news that individual European banks have preferred to keep money with the Central European Bank at record low interest rates rather than lend to one another, risk-averse behaviour and protective self-interest is in the ascendancy.
The UK Reaction
There are still plenty of people in the UK for whom the Eurozone is, at best, seen as an irrelevance. UK citizens still do not carry the Euro day to day in their purses and wallets, and for many the only perceived advantage to the Eurozone is that they don’t have to change their holiday money from one European currency to another between annual holidays. However, those who take the Eurozone seriously are worried that the ability of the UK to influence capital markets regulation could be undermined by the fact that vetoing the deal in Brussels marginalises the UK in future negotiations, as the rest of Europe struggles with the detail of an agreement. Nevertheless, David Cameron continues to insist that he acted to protect the UK’s financial industry, of which APT is a part.
The German and French Reaction
The Germans and the French, represented by their respective Chancellor, Angela Merkel and President Nicolas Sarcozy are widely perceived as having most to gain financially and politically from a deal to save the euro, or at least they have most to lose from any failure. Mrs Merkel has said she regrets the UK’s decision. What she may live to regret more is the backlash from the German electorate if they find themselves having spent billions supporting other economies, for the Euro to fail further down the line. Meanwhile Nicolas Sarcozy has described David Cameron as an ‘obstinate kid’ and French financial institutions, fearing the downgrading of their country’s credit rating, have been voicing attacks on UK financial policy. Time to get out the risk reporting assessment software.
The Spanish Reaction
The uncertainty still does not help the Spanish who, perceived as one of Europe’s weaker economies, have most to fear from market speculation and abandonment by stronger countries.
The US Reaction
While the US is not in the eurozone, its reaction is an important factor, giving a lead to other countries which look to the US for analysis and a steer on strategic financial relationships. Increasingly the US itself is looking to China and India for alliances to make up its own numbers.