Eurozone differences are still unresolved

This week Ireland had a very successful bond auction. The fact that there were €44.5bn worth of offers for €5bn worth of bonds suggests that investors have rediscovered their faith in the Irish economy, but unfortunately things are not that simple. Ireland's bonds were so popular because they are supported by the EU's new bailout fund, the EFSF (European Financial Stability Fund). And not only is this fund backed by 13 of the Eurozone members, but well over half of the €440bn that makes up the fund comes from European states which have AAA credit ratings: indeed €119bn, or 27%, comes from Germany alone. So the markets weren't really buying Irish debt – they were buying German. And they were doing it at a discount rate, for less than it costs to buy real German debt.

These problems are at the heart of the big struggle between Eurozone powerhouse Germany and the European Commission. Angela Merkel and Commission President Jose Manuel Barroso are at loggerheads over Barroso's desire to get the EFSF reformed at next Friday's EU Heads of State summit. Merkel wants to wait for two reasons: First, as the Irish bond auction illustrated, Germany is being put in a difficult position through the EFSF. It wants to wait until the next EU Heads of State summit in March to look at the issue and prepare a broader set of measures which force struggling states to agree to strict, standardised, fiscal controls. Secondly, parts of Germany are going to the polls in the upcoming months, and Merkel cannot afford to be seen to be bailing out the rest of the Eurozone and getting nothing in return.

The fundamental differences in Eurozone economies and the divide between the fiscally 'responsible' northern states like the Netherlands and Germany and the indebted southern states like Italy and Portugal have yet to be resolved. The recession and the creation of a permanent bailout fund have just brought them to the fore.

Cameron's EU-Turn

Europe just never brings good news for the Tories, and many of their grass-roots members will be as unhappy as Tim Montgomerie is over on Conservative Home. Last week the government was aiming to keep the EU's budget at exactly the same level in 2011: a zero per cent increase. This week, David Cameron announced that he has 'succeeded spectacularly' by preventing a 6 per cent increase. Instead, he's got agreement from eleven states to support a 2.9 per cent increase. 

That's a definite U-turn. It's not that 2.9 per cent is good or bad (which I'll discuss later), it's just that you can't say you've 'succeeded spectacularly' when you've changed your position as obviously as he has. It's awful politics. His narrative is shot to pieces. Indeed, so obvious is this that I'm genuinely amazed that the PM has used such strong language. Because he knows that there is no group that will accept this decision. 

So Labour will attack him for his U-turn - which is an easy story to sell to the press because 2.9 is so obviously not zero let alone the 25 per cent cuts our domestic budget is facing. Which is why Yvette Cooper has pointed out that Labour made it clear at the election they would not support a rise and said that the PM was 'grandstanding' over a 'complete failure'. And Tory Euro-sceptics will complain that he abandoned them and was weak because he promised a zero per cent rise last week. So we heard Norman Tebbit saying that anything other then zero per cent was a 'Vichy-style surrender'. 

Even if it was a negotiating tactic - the EU wants 6 per cent, we want zero per cent, lets meet in the middle at 2.9 per cent - the fact that Cameron publicly went for zero per cent when 2.9 per cent was already on the table was a tactical error. Because that 2.9 per cent rise is the same 2.9 per cent rise that was agreed months ago by a larger number of EU states. And this group includes Germany and France, whose leaders carry a lot more weight in Europe than Cameron does, which makes it hard for him to claim that this is his success. Even the supposed panacea to the right, Cameron's claim that from 2012 onwards the EU's budget will be linked to the budget's of member states that are planning austerity measures, looks weak. Why 2012? Why not now? And how will that work when states have very different budgets and benefit from EU spending in different ways?

As for whether or not 2.9 per cent is a good deal, it both is and isn't. Because in so far as the EU wanted a 6 per cent rise and it does need a rise if it is to fulfil its ambitions and keep up its development then yes, 2.9 per cent is a good deal for Britain. But in so far as the fact that the ambitions the EU has and the goals it sets are totally inappropriate and lacking in democratic legitimacy from the British people, it is obviously not a good deal. 

But in reality, Cameron is in a coalition with a Liberal Democrat party that is pretty pro-European. He is not from the right-wing of his party and is, at heart, a moderniser and pragmatist. It is possible he moved from zero per cent because he had to give concessions to the Lib Dems, but it's unlikely because the Lib Dems are facing a local election nightmare and more money for the EU isn't really going to help them very much. 

Frankly I think the coalition would be happy if the EU would just keep quiet for the next five years so they won't have to deal with it. Yet if Cameron hadn't made such a simple political error in driving for a zero per cent rise he could never get then things would be looking a lot better for the PM right now. 

Atomkraft, Ja!

Angela Merkel's coalition government has agreed to extend the lifespans of Germany's nuclear power plants. We should be doing the same.

Nuclear power is not perfect, obviously, but then no power source is. Given the rate that we are using up our gas reserves and the volatility of imported Russian and Central Asian gas, we cannot afford to risk our energy security relying on countries we do not trust. Coal is just too dirty, and we are already over reliant on it as it is. Wind power is a great idea, and we need to seriously invest in large scale off-shore wind farms, but to pretend that this will be able to replace our reliance on gas or coal is to overestimate its current potential. Other renewables like tidal power and solar power are great but just won't generate enough power in their current forms. Oil, like coal, is dirty, and we are again faced with energy security issues not just in that it comes from unreliable and unstable areas but also in that its cost can be prohibitive.

Merkel has increased the amount of money the government invests in renewable energy sources, which is great news as huge investment is needed to turn these useful concepts into real sources of power. For the moment, however, nuclear power is the best way forward. It is very important that in acknowledging the problems of nuclear power and striving to improve the viability of renewables that we don't prematurely decommission our nuclear power stations. Securing energy is one of the fundamental priorities for any government, and it's vital not to put all your resources into one technology.

England 1-4 Germany

So, England lost to Germany. Were we surprised? I was, as I had them down to win 2-1. Yet it wasn't the worst performance I've ever seen from England, and I don't quite know why the pundits were saying that it was.

Clearly the first goal was an awful piece of defending. To concede like that at such a high level is unbelievable. Terry, who was watching the German midfield rather than the flight of the ball, ran right under the goal kick and then - given that pace isn't his best attribute - was never going to catch up once he'd actually looked up and seen the ball fly over his head.

The defence was weak again for the second goal, but to be frank they were pulled apart by some wonderful movement from the German forwards. Sometimes a team just beats you, and that was the case with this goal.

Upson's goal was good, and for a 15-minute period we were the better team. The mistake by the officials was obviously unfortunate, but sometimes these things happen. Great teams rise above things like that. Poor sides can't. England didn't. I suspect Germany would have, if it had happened to them in that game.

The rest of it was an attempt by a team totally lacking drive and determination to break down a confident young side with a good defence. It wasn't a great surprise that Germany were able to counter-attack so well.

I'm not really sure that we knew what we were doing, at any point in the game. Germany played much better, changing the way they played to suit the phases of the game beautifully. In the end they more than deserved it.