Euro crisis forces tempo. Human contact softens ideology.
[UPDATE 1245: European Commission finalising proposal right now. Britain's position: no contribution to 60bn stabilisation fund, but not opposed. Opposed to EMF says Treasury. Not clear whether the 600bn proposal equivalent to quantitative easing is in the Commission draft]
As I write, a helicopter is buzzing overhead filming a crowd of journalists on Whitehall. But the real action is going on elsewhere. Europe's 27 finance ministers have been summoned to Brussels to vote on a deal to protect the Eurozone from fragmentation and its weakest economies from fiscal meltdown.
On Friday the EU leaders agreed that a comprehensive bailout was needed by 6pm today, when the Asian markets open.
The bailout needs to do two things:
- Provide a permanent and stable bailout mechanism for those south European economies whose borrowing costs are rocketing and are threatened with default: Greece, Portugal and Spain.
- Provide a mechanism to pump money into the banking system in the case that contagion crosses over, via bad sovereign debts, into the very banks that hold the debts.
It is not clear what the mechanism is or where the money will come from.
On Thursday the ECB ruled out a European version of quantitative easing, whereby the ECB would print money and use it to buy up bad debt. The reason is that overnight the image of the ECB, and the Euro as a currency, would have collapsed from rock solid orthodoxy to tactical, politically-driven status. The Euro, already 5% down on the week versus other currencies, would have been damaged as a global reserve currency.
Now it is being mooted that the European Commission - the de facto government of Europe - raises about E60bn for a "European stabilisation mechanism". Markets were awash on Friday with rumours of an E600bn loan facility to the banks - one year money at 1% - backed by money guaranteed by states.
On top of that, Merkel, Sarkozy and ECB boss Trichet are pushing for the creation of a European Monetary Fund - an EU version of the IMF - where governments commit significant sums to bail out any ailing countries.
Alistair Darling is in Brussels and has consulted with Vince Cable and George Osborne. There's some briefing coming to the Sunday papers about Britain "not committing taxpayers' money". But the short term 60bn facility could be decided on by qualified majority voting; the bigger issue of an EMF would be a 110mph arm ball skimming straight at the cricket box of David Cameron, should he become PM tomorrow. Because the Tories were getting ready to put the brakes on Britain's relationship with Europe.
If the EU leaders get their act together tonight, and launch something meaningful, it will necessarily accelerate the creation of an EU fiscal authority: in plain English, the Eurozone will enforce sound public finance in a way it never did before. But the price will be that, instead of the Gucci lifestyle that came with Euro entry, for southern Europe there will be a decade of recession and slow growth. Germany and France will impose the cost of financial stability on the populations of southern Europe.
For this reason all decisive outcomes are unpalatable. Today German voters are going to the polls along the Rhine and will most likely deliver a negative verdict on the idea of Germany bailing out southern Europe. Meanwhile the negative verdict on the same deal will be passed on the streets of Athens, to the soundtrack of breaking glass and tear gas grenades. European democracy is passing its opinion on the Euro arrangements and it is negative, on both sides of the coin.
When our whey-faced, sleep-deprived politicians say "we need stable government in the national interest", bear in mind that they have all now seen the papers, heard the briefings. I don't know what the outcome of the Brussels meeting will be - nor what the market response will be. But if it spirals in a negative direction over Sunday night/Monday morning it will light a fire under the politicians weighing their options for coalition government.
One other thing: my discussions with the politicians and their hangers-on over the past 36 hours have convinced me minds are changing.
As they speak to each other they are beginning to go beyond the tactical manouvering - which was the main tone on Saturday morning ("How can we do a deal and shaft our main rivals for a decade?"). They are beginning to move towards an understanding that they will have to give up some of their ideological commitments in exchange for power. It is "looking likely" says one source close to the Conservative negotiating team.
Tantalisingly, the "Plan A" of George Osborne - an emergency inquiry into the public finances, the inevitable finding that they are worse than imagined, and a draconian emergency budget with an even bigger scale of fiscal austerity - may have to happen under scrutiny of a LibDem Chief Secretary to the Treasury. Though the numbers may come out just as tough, the option for an "ideological" emergency budget is now gone.
Last night I was convinced most Conservative activists and politicians were minded, for these reasons and others, to go for minority government. Right now, with Alistair Darling just off the plane in Brussels, I am thinking the global situation may reinforce the hand of those in the Conservative negotiating team who want to "do a Disraeli" - accepting a social liberal economic programme and some realistic path that allows the Libdems to get a referendum on PR in return for stable government.
Thus, in the space of 48 hours, we may see the completion of the Conservatives' political transformation - even as the papers supporting the Tory right try to put the whole thing into reverse. Or we may not. That's the nature of a historic crisis.