Bailout Fallout: Juncker Lies to Cameron in Revival of EFSM; British Taxpayers Protected in Final Deal

In 2010, Jean-Claude Juncker, current European Commissioner president, made a pledge to UK Prime minister David Cameron, to never again use the EFSM to bail out another eurozone country.

Cameron's concern was that he did not want to put British taxpayers at risk for eurozone sponsored bailouts.

To the shock of Cameron, the ESFM came back into play in the latest Greek bailout deal.

Did Cameron not know that Juncker was a confirmed and self-proclaimed liar? I think not, so any shock display must be fake, for political show only.

British Taxpayers Protected

To smooth over UK concerns, Chancellor of the Exchequer, George Osborne, worked out an EFSM Arrangement to Protect UK Taxpayers, but political damage and mistrust lingers.

British taxpayers will not be left exposed for another Greek bailout, George Osborne hopes, under a compromise struck with Jean-Claude Juncker.

The Chancellor is prepared to back the European Commission president’s controversial plan to revive a mothballed bailout programme that draws in the entire EU, in exchange for guarantees that British liabilities will be underwritten to protect UK taxpayers.

Mr Juncker’s decision to tear up a binding written agreement given to Britain in 2010 that the European Financial Stability Mechanism would never again be used to rescue the Eurozone has further soured relations with David Cameron, who now doubts whether he is able to trust him.

“Of course you can’t trust Juncker. That is why he [Cameron] didn’t vote for him,” a source close to the Prime Minister said. Mr Cameron today endorsed an explosive call from the International Monetary Fund for Greek debt reflief.

Mr Osborne had furiously denounced Mr Juncker’s plan to revive the EFSM, which uses the EU budget as collateral on cash raised on the open market, to provide up to 7 billion euros in bridging loans to Greece to stave off collapse as it is hit with 12 billion euros of debt repayments in the coming weeks. Leaving British taxpayers exposed was a “non-starter,” he said on Tuesday. "The euro zone needs to foot its own bill."

Under a compromise backed by the Commission, the EFSM rescue package still go ahead. But Britain’s £690 million in liabilities, as well of those of other non-eurozone states, will be insured using Greek funds known as SMP profits held by the European Central Bank.

Stephen Booth, of the Open Europe think tank, said Mr Juncker’s decision to toss aside an agreement made by 28 heads of government to mothball the EFSM and to make the Eurozone responsible for its own bailouts raises “fundamental issues of trust”.

EU officials argued the agreement made at a summit in December 2010 was merely “political” and had no legal force.

“Today’s developments are a boon to those who would like to see the UK leave the EU, and for good reason,” said Mr Booth. “This type of political agreement, so readily jettisoned in a moment of Eurozone panic, is precisely the type of agreement Cameron may, at least in part, be relying on to secure his negotiations and sell them to the British public. This episode will only increase the domestic pressure for the UK to secure treaty changes to underpin EU reforms.”

Mr Cameron secured the assurance in exchange for backing greater Eurozone integration. He subsequently told the Commons it was a “black and white, clear and unanimous agreement that from 2013 Britain will not be dragged into bailing out the eurozone.”

Agreements Made to Be Broken

By now, Cameron should know that EU agreements are made to be broken, and broken at a moment's notice for political purposes.

Yet, somehow, Cameron appears to believe things of this nature will not happen again, and again, and again. He even pledged an up-down vote on UK membership in the EU on the stated belief that he can bend the minds of Brussels more to the UK's liking.

Question of the Day

If Cameron really believes what he says, he is a complete fool. This brings us to the question of the day: Does Cameron really believe what he says, or is it just a political act?

Either way, the fallout and collateral damage from the third Greek bailout has just begun.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com