Rivals pounce on Gingrich at last Iowa debate

AS YOU read this, lawyers are busily drafting a European fiscal “compact” designed to restore discipline to the euro zone’s economies. In the new year all but one of the European Union’s 27 members are to start thrashing out this treaty’s details. Meanwhile the British government, having fallen out with all its 26 partners, is promising that it will remain a central part of the union—and that London will remain Europe’s financial capital. All is well.

Except that it isn’t. Merely to set out these purported achievements of the latest EU summit in Brussels is to show how hollow they are (see article). Once again Europe’s leaders have failed to solve the euro crisis. The new treaty could easily be killed by the markets or by its rejection in one or more euro-zone country. The EU has suffered plenty of disappointing summits without the sky falling in—a good many of them in the past year. But unlike the marathon dispute over a new constitution, the euro is in a race against time because markets are pushing countries to insolvency. As investors and voters lose faith, the task of saving the single currency grows harder. Sooner or later, the euro will be beyond saving.
In this section

    »A comedy of euros
    A year of living pigheadedly
    Make a new plan, Stans
    Higgs ahoy!

Reprints
Related topics

    Treaties
    Diplomacy
    Financial markets
    World markets
    European markets

This summit also threatens to change the nature of the EU—and not in a good way. One reason is that it has plotted a misguided course for the euro. The other is that Britain, long ambivalent about its membership, has moved closer towards dropping out, even if that would be more by accident than design. An EU without Britain would be more parochial and less liberal. An EU without the euro might not exist at all.

Is it really that bad?

For all the fuss about Britain, the main failure in Brussels was to draw up a plan to save the euro. That requires a trade-off. Governments need to bind themselves to credible fiscal rules that provide incentives for good behaviour. They need to assume some form of joint liability for debts, with only the well-behaved benefiting from the shelter of Eurobonds. In return the European Central Bank (ECB) needs to give total support to all solvent members. That would leave much to do, especially to unleash growth and to reform the banking system. But investors would at least see a clear path ahead.

Instead there was another fudge, with neither the governments nor the ECB doing enough. In the run-up to the summit, the ECB extended its support for euro-zone banks—in effect lending them unlimited cheap money. That will help the banks and might in theory feed the demand for euro-zone sovereign debt. But it hardly counts as the “big bazooka” investors want, if only because the banks are wary of taking losses on ever larger stashes of government debt. Moreover, the ECB remains adamant that it cannot intervene as the lender of last resort to euro-zone sovereigns.

The governments did even less. True, the leaders pledged extra money in the form of loans to the IMF and left open the possibility of boosting the euro zone’s own rescue fund. But there are already signs that not all the cash will turn up as promised. And the fiscal compact that was the summit’s centrepiece is flawed.

The idea is to write fiscal discipline into national constitutions and harness the EU’s institutions to punish profligacy and excess. But such a compact will not safeguard the euro against future booms and busts. Until financial markets crashed in 2008, Spain and Ireland were hailed as economic stars, with lower public-debt burdens and healthier budgets than Germany. By the time their public finances went visibly wrong, it was too late. Worse, the compact will not resolve today’s troubles. The package dwells too much on austerity, and too little on growth. That risks aggravating the deep Europe-wide recession threatening next year, which could prompt a downgrade of the entire zone’s credit ratings and cause economies to miss their deficit targets—triggering still more austerity.

Although the compact was greeted as the acme of European solidarity, it is more likely to provoke strife. The summit poured cold water on the idea of Eurobonds, in which all members would share some or all of the troubled economies’ burden of debt. Instead the adjustment is being imposed almost entirely on deficit countries, guaranteeing that it will be long and painful. If in the coming years elected governments that impose austerity stir up civil unrest, outside enforcers in the EU will before long become a target for popular rage.

Already governments that agreed to the idea of a compact are warning that its ratification depends upon the detail. The Irish government is under pressure to hold a referendum that it would struggle to win. Parliaments from Slovakia (in the euro) and the Czech Republic (outside) could balk. France’s opposition presidential candidate, who is leading in the polls, says he would renegotiate the deal to get Eurobonds and a more active ECB. All across Europe there are murmurs that Germany, which has benefited so handsomely from the euro, is asking too much of everybody else.

A poor hand misplayed

However did David Cameron, Britain’s prime minister, manage to unite them all? The answer is through a combination of political expediency, inept tactics and fumbled diplomacy. Mr Cameron’s plan was to seek safeguards for the single market and to subject some parts of financial regulation to unanimous approval, in exchange for backing a new treaty. When he failed to get what he wanted, he withheld his support.

In Mr Cameron’s defence, he has to contend not only with Conservative Eurosceptic backbenchers, but also a Eurosceptic public—just as Germany’s Angela Merkel and France’s Nicolas Sarkozy also have domestic political constraints. Furthermore, Britain has real cause to worry about financial regulation. London is host to by far the biggest financial-services industry in Europe—in some areas it has as much as 90% of the EU’s business. The European Commission, egged on by the French and others, has produced many daft proposals to regulate it, as well as suggesting a financial-transactions tax.
Browse all The Economist’s euro crisis covers with our interactive carousel

But if the politics was expedient, the tactics and the diplomacy were not. Mr Cameron knew what he wanted, but went about getting it the wrong way. He presented a last-minute unilateral demand that would have partially overturned the principle of majority voting on single-market rules, which Britain itself first put forward under Margaret Thatcher over 20 years ago. Had he prepared the ground with other governments in advance he might have succeeded. Had he talked to fellow centre-right leaders on the summit’s eve instead of staying out of their political group, he would have known that he could not.

Mr Cameron’s veto was self-defeating. He may have briefly basked in his backbenchers’ praise, but if his aim was to protect the City and the single market, he has failed. Both are threatened more by Britain’s absence from the summits of up to 26 leaders that will now take place than by Britain’s participation in a treaty of 27 that placed no constraints on it. For decades, British diplomacy has been guided by a determination to keep a seat at the table. It has worked: Britain has not been outvoted on a serious piece of financial-services legislation.

Instead of closing the door, mend the fence

If the euro collapses, or the treaty is stillborn, Mr Cameron may yet claim that he was right all along. It would certainly make his veto seem less momentous. However, other European countries will not soon forget Britain’s attempt to hold the summit to ransom at a vital moment—and to protect financial services, which many of them blame for the crisis. And the Tory Eurosceptics and their Liberal Democrat coalition partners are already at each other’s throats (see article).

At its worst, this might be the start of a process by which Britain falls out of the EU (see Bagehot). Yet it does not have to be—so long as Mr Cameron is prepared to mend fences and align his tactics with a strategy to be part of Europe.

He has made a start by withdrawing his futile threat to block the use of the EU’s buildings and institutions by the 26 members of the new treaty. As power shifts in Europe, there will be more opportunities. Britain can help other non-euro countries who gibe at the new treaty’s strictures as well as euro-zone countries that want to resist protectionism or over-regulation—including Germany. At the very least Mr Cameron should make up with Mrs Merkel, who had previously fought hard to keep the British at the table. A compromise that gives Britain some reassurance about the City and thus lets Mr Cameron return to the table may still be possible. Remember, his recalcitrance at the summit means that the new bulldog Cameron is better equipped to face down the Little Englanders. The question is not whether he can recover Britain’s position, but whether he is ready to do what it takes.

Ultimately, the euro zone faces a similar choice. Its members could strike a grand bargain that deploys the ECB’s balance-sheet and some form of Eurobond in exchange for fiscal integration. The question is not whether they can save the currency, but whether enough of them are prepared to pay the price. This summit suggests not.

    Print this
    larger | smaller

World news

    France ·
    Europe

Business

    Eurozone crisis ·
    Ratings agencies ·
    European banks ·
    Economics ·
    Global economy ·
    Financial sector ·
    Banking

UK news

More news

    More on this story

    Man walks past a sign showing a euro coin

    Eurozone crisis live: French AAA downgrade threat lingers ahead of Italian confidence vote

    Christine Lagarde’s warning of a return to the Great Depression continues to alarm the City, as Mario Monti faces a confidence vote over his austerity plans

    IMF warns that world risks sliding into a 1930s-style slump

    Video Christine Lagarde: no economy in the world is immune from this crisis – video

    Note to Noyer: don’t suggest other countries should be downgraded

    France stokes eurozone row with call for UK credit downgrade

    Mark Weisbrot: Europe’s leaders are playing with fire if they follow the Latvian example

    Simon Jenkins: the cause of this recession? Economic pundits ignoring history’s voice

    Eurozone crisis live

    Stock markets slump as euro hits 11-month low against the dollar

    Angela Merkel: Britain is still an important EU member

    The global economic outlook for 2012 isn’t pretty

    IMF slashes growth forecast for Greece

    Why the euro is taking a pounding

    Phillip Blond: Britain can build a Europe outside the euro

Related

    12 Dec 2011

    Italian bond yields soar as strikes raise doubts over Monti’s austerity cuts

    22 Nov 2011

    Global economy risks deflationary spiral, warns Turner

    25 Nov 2011

    Eurozone looks to International Monetary Fund as contagion spreads

    5 Aug 2011

    US credit rating downgraded to AA+ by Standard & Poor’s
Republican presidential candidates pounced on front-runner Newt Gingrich on Thursday to try to blunt his surge at the last debate before Iowa launches the 2012 U.S. election season.

Gingrich is in a tight race with rivals Ron Paul and Mitt Romney in Iowa less than three weeks before the state’s Republicans decide on January 3 who they want as their presidential candidate. It is anybody’s guess at this stage as to who will win.

Gingrich’s main adversary was not former Massachusetts Governor Romney as anticipated, but instead it was Michele Bachmann, the Minnesota congresswoman who won Iowa’s straw poll of Republicans in August and would like to score a surprise victory here.

Bachmann repeatedly tried to raise doubts about Gingrich’s conservative principles and accused him of being a Washington lobbyist for accepting up to $1.6 million in payments from troubled mortgage giant Freddie Mac, which was at the heart of America’s housing crisis.

“We can’t have as our nominee for the Republican Party someone who continues to stand for Freddie Mac and Fannie Mae. They need to be shut down, not built up,” Bachmann said.

In a standoff over whether Gingrich in his congressional past had supported late-term abortion, Gingrich said Bachmann had her facts wrong.

Already, Gingrich is showing signs of fatigue among Republicans in this Midwestern state, an indication that they remain open to voting for someone else as a barrage of negative ads and verbal punches takes a toll on him.

A Public Policy Polling survey in Iowa this week said Gingrich’s support had dropped several percentage points and he was leading Paul narrowly by 22 percent to 21 percent, with 16 percent for Romney and Michele Bachmann at 11 percent.

All told, Gingrich appeared to hold his own at the debate and Romney might have missed a chance to follow up on attacks he has been making against the former speaker in the media all week.

“I’m very concerned about not appearing to be zany,” Gingrich said at one point, breezily making reference to a criticism of him this week by Romney.

A Reuters/Ipsos national poll this week shows Gingrich holds a 10-point lead, but that he would fare worse than Romney against President Barack Obama at next November’s election.

ROMNEY EXPLAINS POSITION CHANGES

At this debate, Romney let his rivals lead the battle against Gingrich, and adopted an above-the-fray stance, trying to establish himself as a credible alternative to Democratic Obama.

Romney gave his best answer yet to questions about why he has changed positions on some key issues during his political career. He denied changing positions on gay and gun rights and said his stance now opposing abortion evolved over time.

“Experience taught me sometime I was wrong. Where I was wrong, I’ve tried to correct myself,” he said.

Paul, who came into the debate with a head of steam and is challenging Gingrich for the lead in Iowa, stumbled in answering a question about Iran’s nuclear ambitions.

He insisted there was no evidence to suggest Iran was attempting to develop a nuclear weapon and enrich uranium. A U.N. nuclear watchdog report last month said Tehran appeared to have worked on designing a nuclear weapon, and that secret research to that end may be continuing.

“There has been no enrichment in Iran,” said Paul, an anti-war libertarian.

Bachmann called him on it.

“We know without a shadow of a doubt that Iran will take a nuclear weapon, they will use it to wipe our ally Israel off the face of the map,” she said.

Texas Governor Rick Perry, who is hoping a 44-city bus tour of Iowa will allow him to rebound after a string of bad debates, compared himself to American football star quarterback Tim Tebow, who has managed to win a string of games for NFL’s Denver Broncos despite some obvious deficiencies.

“I hope I am the Tim Tebow of the Iowa caucuses. There were a lot of folks who said Tim Tebow would not be a very good professional quarterback,” he said.

Gingrich, who has emerged as the lead conservative alternative to the more moderate Romney, compared himself to the Republicans’ iconic President Ronald Reagan. He scoffed at his rivals’ attacks on him as “kind of laughable.”

“I think people have to watch my career and decide,” said Gingrich, ticking off a conservative record he said he built up as House speaker in the 1990s.

The fact that this is the last debate before the Iowa caucuses increased pressure on Gingrich’s rivals to press the attack against him and try to raise doubts about him.

Former Pennsylvania Senator Rick Santorum noted that Gingrich was not well liked as House speaker.

“The speaker had a conservative revolution against him when he was speaker of the House,” said Santorum, who also subtly raised character issues about the thrice-married Gingrich, saying, “We need someone who is strong in the political and personal side.”