Column : Davos delirium

In the midst of this, David Cameron has come out with a clear statement that, if re-elected in 2015 as the governing party, the Conservatives will offer a referendum over EU in or out by 2018. The idea is that since eurozone integration will require a new treaty, this will give the British, who are outside the euro, to renegotiate some competences back to themselves. Of course, if the British get away with it, so can other countries demand repatriation of competences for themselves. This is what is called variable geometry in EU jargon. At this point, even finalising the treaty will become very difficult. The Tory eurosceptics are happy and they can breath easier as their main opponents are the UK Independence Party which wants to withdraw totally, no questions asked. Cameron came out with his speech to unite his fragmented party and to gain strength in the forthcoming negotiations. But this means that, until 2018, the issue of the UK in or out will haunt investors. The markets, however, did not move after the speech and euro/sterling rates remained unchanged. Maybe the markets have seen through this ruse as a device for putting off decision and killing discussion of the topic. I think the markets will wake up soon enough.

The US has better news with the debt-ceiling saga postponed until May. Even so, the battle between the Republican House and the President will not die down. The US, in the meantime, has the legally-binding sequestration which is the only way the US politicians will bite the bullet on budget cuts. Obama won the first round on the fiscal cliff but he may not win much more. In any other country, a simple tax like VAT would be agreed upon and stave off the threat of debt explosion, but not in the US.

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