Charlemagne's notebook

IS Germany becoming Eurosceptic? That is the charge in Brussels and other EU capitals, as politicians and senior officials grumble about Chancellor Angela Merkel and her reluctance to join bail outs of first Greece and now, potentially, the whole eurozone.

I am not sure Eurosceptic is the right word. I think fed up is a better term. And that is not a small development. A fed up Germany could have big consequences for Europe.

I am in Berlin right now with a clutch of EU correspondents invited by the German government, and the message from ministers and politicians is that Germany still wants the European Union to work, and would like to see deeper integration of the EU. But, and it is a big but, Germany has changed. The days of France having all the ideas and Germany meekly paying the bills are over, we have heard.

Germany is fed up of paying more than any other country into the EU budget, and being taken for granted. Germany feels unfairly attacked in this euro crisis. Mrs Merkel's government thinks it is outrageous that it is taxed with euroscepticism for insisting on tough conditions before bailing out members of the euro who caused their own problems. Germany is just trying to defend the law, monetary stability and taxpayers across the union, we keep hearing.

Germany's position on bailing out eurozone countries has changed since the former finance minister Peer Steinbrück said that Germany would not allow any member of the single currency club to go bust. That was an unconditional guarantee.

Germany's guarantee of help is now conditional on countries accepting ferocious budget discipline, backed by the threat of having all EU funding withheld from the most profligate countries. Senior figures keep saying this is necessary to preserve monetary stability. Alas, their position is not coherent: because punishing horribly indebted countries by publicly cutting their EU funds would surely push them into a messy default. And it is hard to see how that is good for monetary stability.

Oh, after a country has all its funding frozen, we would send EU emergency aid, said one senior figure. I fear to me that sounded like a new system of justice in which we stone misbehaving members of the club half to death, then send them an ambulance.

The problem is that Germany is stuck, I think. Discipline failed to keep the eurozone stable, so now they want to try really, really tough discipline. Others, like France, think the answer is transfers from the rich to the poor, either directly or by pooling EU credit ratings to lower the union's overall borrowing costs. The German government is convinced that Germany's parliament and taxpayers will not wear that.

Instead of making the positive case for the euro, the German government has got stuck in a loop of blaming everything on speculators (hence their startling decision to ban naked short selling of government bonds this week, which will achieve precisely nothing beyond reducing liquidity in German markets), and on profligate countries who lack budget discipline. Meanwhile they talk about how the rich will be ok even if the euro is unstable, because they can always move their money overseas or buy gold, in the words of one senior figure. It may be, I think, the world's first sighting of populist monetarism.

Most of our meetings have been off the record, but one was entirely on the record. It was with a close ally of Mrs Merkel, Thomas de Maizière, who is currently the interior minister but was head of her chancellery for a long time. German ministers are often frustratingly cautious, in my experience. To his great credit, Mr de Maizière was extraordinarily candid with our group of visiting reporters.

As this is a blog, I think I will put a long (very long) transcript here so you can judge for yourselves. Just wait till you get to the bit where he compares Germany to a fed-up adult, fighting off demands from small children because that only leads to still more demands later.

[Q: have DE attitudes to EU changed?]

TDM: After 1990, Germany underwent a fundamental change. Until 1990, Germany was a divided country. It was economically strong but politically weak, and not really a fully sovereign state. This political weakness was comfortable for many others, even for many Germans who did not have to shoulder big international responsibilities.
It was convenient for many of our partners, as our foreign policy was partly replaced by money: we called this chequebook diplomacy.
After 1990, not only the map of Germany but the map of Europe changed dramatically. And American views of Europe changed. At least under President Obama, it is clear that America does not look first to Europe any more.
We now send troops all round the world.
All this has positive and negative effects for the German government and the German people. This change of mentality is only now taking root among our population. Maybe it is not coincidence that this is happening around the time of the 20th anniversary of German reunification: it takes 20 years for a generation of young people to grow up.

It may be new for Europe that Germany is representing its interests with new vigour. But for Britain, France or Italy, it was always a matter of course. We are also using new language in putting our arguments. We have to get used to this. The biggest net payer into the EU budget has to defend its interests.
And we have a very strong federal constitutional court, as became clear with respect to its ruling on the Lisbon Treaty. The idea that German law can be interpreted strictly on the one hand, but that EU law can somehow be more political than legal, on the other, is not acceptable to Germany. It is not Euroscepticism when a German chancellor has to check that a new EU law is compatible with German law. It serves the cause of building law and justice in Europe. You cannot just say the law does not matter, and we have to take a decision quickly.

As for public opinion in Germany, for the majority of Germans the EU was fairly remote, apart from the Common Agricultural Policy, and Brussels was fairly remote. Germans are now just slowly understanding that the EU affects their lives.
Just a year ago, we had major demonstrations against globalisation, as if you could stop globalisation. Now, people have understood that you can only shape globalisation. In a way, an era of looking at things in a purely national way is coming to an end.

When I meet German journalists here in Berlin, they say to me: you are the largest net payer, you should simply tell small countries what to do. Then I go to Brussels and meet German journalists based there. They say to me: Germany is just one country, you have to be more pro-European. Part of striking a balance between those two positions is to tell Germans, we now have to assume our international responsibilities.

When it comes to the financial crisis in Europe or sending troops overseas, this was new for us, and we had to learn very quickly. Perhaps our first reaction was to hide. But this is a learning curve and will lead to changes on all sides. Germans will have to learn that Germany is the most important part of the European Union, but is also only one part of the European Union.
Germany is going to have to act just as other countries do in Brussels, that does not make Germany anti-European.

[At this point, it was impossible not to ask about the Franco-German alliance. Because when he talked about German chequebook diplomacy, it was so clearly a reference to the old model of the French having the political ideas in Europe, and expecting the Germans meekly to pay the bills. And in the current crisis, his talk of countries pushing Germany to take decisions quickly and put politics ahead of the law, was unmistakeably a reference to President Nicolas Sarkozy of France. The minister did not demur from either of these suggestions.]

TDM: For Germany, it is and remains true that Franco-German relations are the most important we have. This is reflected by the number of preliminary talks we have with France [before EU meetings], which far exceeds the number of talks we have with other countries.
That also means we don’t always agree, there are some differences. Firstly, the French sometimes feel that if Germany and France agree, everyone else should fall into line. But Germany feels—and it is a long established tradition of ours, even if Chancellor Schröder did not always follow it—that we should take into account the interests of smaller countries, and since 1990, the interests of smaller countries in central and eastern Europe especially.

So we think about central and eastern Europe, while France often asks: what does this mean for the Mediterranean? We have different interests. But this can be a wonderful alliance, if it does not impose its views on Europe.

Secondly, regarding industrial policy and [monetary] stability, we have traditions that diverge. Sometimes these differences come to the surface: this is true of Airbus, it also applies to the stability and growth pact.

Finally, the Chancellor and the French president have their own approaches based on their personalities. And the combination of being quick and thorough is of value for Europe, for the G20 and also for the crisis in the eurozone.

If Germany and France get on too well, other countries say: we don’t want a Franco-German axis. If Germany and France disagree, everyone asks what happened to Franco-German friendship. As so often, the truth is somewhere in between.

[Q. What about Britain’s new government?]

TDM: Without referring to the financial crisis, in general the UK has always added a dash of pragmatic Euroscepticism. Sometimes that is a problem for us, but sometimes it is a good thing. And when British ministers come to Brussels, they are often more positive than they sound at home.
Now, with regard to the financial crisis, we now have a real disagreement. We are in the process of drawing certain lessons from this crisis, that certain forms of financial market activity have to be changed. And there the UK and America are the most hesitant, there is real disagreement. Yesterday [May 18th] you saw a disagreement on hedge funds. These disagreements will continue.
But my assumption is the new British government will maybe start off by being a little more Eurosceptic and will become more and more Euro-friendly. It is usually the way.”

[Q. on euro zone bailout]

TDM: The philosophy of Europe is based on everyone doing their homework, so there are no bailouts.

Article 122 [the emergency aid article of the Lisbon Treaty invoked by the European Commission to launch a rapid-reaction €60 billion loans mechanism for eurozone members, which Germany said could not be used as the legal basis for a much larger €440 billion eurozone defence fund] is an article intended to cover natural disasters. It is not a legal basis for helping countries that have caused their own problems by overspending.

What reasons can there be for deviating from this principle? One is if the euro is in danger. A second precondition is that countries being helped must do everything to help themselves. Those two preconditions have now been met, and [the eurozone defence fund] is in line with German law:  we are providing loan guarantees under strict conditions, including conditions set by the International Monetary Fund.

[on French calls for the eurozone defence loan mechanism to use a common interest rate, and the European Commission's suggestion, rejected by Germany, that countries should extend unlimited loan guarantees to the fund]

TDM: Germany wants to provide its loan guarantees on the basis of its own credit worthiness, and not to take on some unlimited liability. All Germans have worked hard to achieve better financing conditions [than others]. If we provide loan guarantees for a country that is in trouble, we want to provide those guarantees on the same conditions that we encounter, as Germany, on the markets.

We don’t want to turn the EU into a transfer union. France is not as strict as us. The French said it would send a strong signal to the market and facilitate French financing possibilities if we used an average European financing rate. That was not our position, and that is why the negotiations went on so late into the night.

Now, the Chancellor has said we have to make use of the crisis to develop a stability culture in Europe. The basis of the EU is that everyone does their own homework, not that we share an average of our homework.

[on the Greek bailout]

TDM: Ok, we have now assisted Greece. The German position is as follows, and has led to a lot of criticism in Europe, but was a precondition for the German parliament. The assistance came with a budget consolidation programme with IMF and EU reports every three months and sanctions if consolidation requirements are not met, and not just promises.

We no longer provide unconditional assistance, but conditional assistance.

[on charges that Germany cost the EU billions by delaying the eurozone bailout]

TDM: Spending money too early would have been too expensive. In the banking crisis and now with the euro, it is a difficult decision to know when an individual case has become a systemic problem. And if you take the decision too early, it leads to more speculation.

If someone says: the situation is serious and we need taxpayers’ money, the first reaction of a politician is to ask if the situation is really so serious. Companies come to us every day and ask for help. If we gave money to all of them, we would all be bust by now.

The basic principle of capitalism is that companies are liable [for losses] but reap benefits [when there are profits].

The basic principle of democracy is that nation states are liable [for losses] but reap benefits [in good times].

We feel that if we had acted earlier, without conditions, it would have led to even higher demands later on. Look at the example of the Americans. They have a 12% deficit, we have a deficit of 5.3%, that is not bad news for taxpayers.

Wilhelm Busch, a famous German children’s writer, said that every wish granted gives birth to new wishes. Everyone here who has raised children knows that if you give in too early it will be more expensive later, especially if giving in violates all your principles. And our principle was that we are not going to bail out all those who caused their own problems.
You could say that we violated our own principle. Our philosophy was to do it as late as possible and only as a last resort. That was cumbersome, it was not popular, but it was necessary.”

IT CAN be a surreal business, journalism. On the one hand, there is the universe of news stories that you can hear and see, and information that you verify for yourself. Then on the other, there is the virtual reality of the news that is being reported by other press outlets.

Today, the new British chancellor of the exchequer, George Osborne, visited Brussels for his first ever meeting of EU finance ministers. The British press has been filled for days with stories about Mr Osborne facing his first EU defeat over a protectionist directive "muzzling" hedge funds. The typical story has implied that hedge funds face a new restriction, known as an EU passport, if they wish to operate across the whole of the EU.

Here is the Guardian's take from this morning, headlined "George Osborne heads for defeat on hedge funds regulation":

Under the new rules, hedge funds will be forced to hold more capital and non-European hedge funds will have to gain a "passport" to operate within the EU.

Here is a not-very-detailed attempt to explain the story from today's Daily Mail:

One particularly controversial pillar would place onerous restrictions on non-EU firms hoping to operate in Europe. Britain, which is home to 80pc of Europe's hedge-fund industry, fears it could lose lucrative business.

And here is a rather muddled report from the Daily Telegraph, which reports the third country rule twice:

a European Parliament committee last night voted in favour of a version of the Alternative Investment Fund Managers Directive that could lead to stricter regulation of the hedge fund industry.

The vote came ahead of a meeting of European Finance Ministers on Tuesday where they will vote on their own version. The two sides will then work in 'trilogue' to agree final legislation.

Critics believe both versions will harm the City, curtail investment opportunities, and lead to an exodus of hedge funds and private equity firms from the UK.

The MEP committee was expected to approve a proposal to force non-EU hedge funds to agree to transparency standards in exchange for a so-called passport to market to European investors.

[EU commissioner Michel Barnier] Mr Barnier backed that proposal, calling for "equal treatment". However, his calls were given short shrift by market insiders who slammed the passporting system. "How is a US fund going to prove that it meets the requirements?" one source said. "The SEC [US market regulator] is going to say it's not our job to do that."

Finance ministers are expected to vote through rules requiring funds to register separately in each EU country, a proposal which has also come in for heavy criticism

The thing is, though it is an attractively simple story to say the beastly EU is trying to grab centralised control of the hedge fund industry by creating a new "passport" registration scheme, it is not right.

Under the status quo, a typical hedge fund (based in the Cayman Islands, but managed from London) needs to register with national authorities each time it wishes to operate in a different EU state. The offer of a passport is actually an innovation that could be of benefit to hedge funds: because for the first time they could obtain approval from authorities in one EU member country and use that to operate automatically across the whole block. The objection from the British government is not to passports. The British like passports (while the French, for example, hate passports and want to keep national authorisation). The worry from the British government has always been that the benefits of passports will be outweighed by the regulations imposed by the EU in terms of transparency, disclosure and what have you.

Regular readers will know that I am not usually a slavish fan of the European Parliament, but in the interests of honesty it is my duty to report that the version of this regulation that came out of the economic affairs committee of the parliament on Monday night was actually friendlier to the British hedge fund industry than the version agreed by national governments, precisely because the parliament version includes the concept of passports.

I am also rarely mistaken for a foamingly lefty market-basher, but I have had long, long conversations with diplomats from countries that are normally allies of the British on financial regulation, and they assure me that the current version of the directive is not protectionist (though earlier drafts were highly protectionist). And these are countries that welcome private equity and hedge funds, and see a strong City as in Europe's interests. That said, the hedge fund industry is right to suspect that it is being scapegoated to some extent. The focus on alternative investments is justified around Brussels by the argument that unregulated hedge funds are in some way responsible for the financial crisis, which is not really true: regulated banks and insurance companies bear much more of the blame for the credit crunch. The jibe that leading EU politicians are taking advantage of the crisis to punish financiers for being financiers is justified.

Yet the power of the British press over British ministers is such that when Mr Osborne arrived in Brussels, he was obliged to explain away why he had been "defeated" in the vote that everyone was reporting (if you want to get really technical there was no vote, the ministers merely agreed a general approach). He had arrived to face "a challenging position bequeathed to me by the previous government," he told us, in which Britain had "close to no allies round the table". However, after activating relationships built up with finance ministers such as Christine Lagarde of France, Wolfgang Schäuble of Germany and Anders Borg of Sweden, Britain had secured agreement to take British concerns into account, when a final version of the directive was being thrashed out.

Then Mr Osborne offered us a nice, easy-to-grasp alternative news line, about Britain opposing wasteful EU spending. Reuters duly picked this up, reporting:

He also made it clear that Britain would not back proposals for a 6 percent increase in the European Union's budget. "I put to Ecofin there should be a cash freeze in the budget," he said, adding that he had found several allies.

There is a bit less to this story than meets the eye. What was being discussed was next year's spending by the EU, within tight perameters set by the overall five year budget of the EU. Thankfully the invaluable Geoff Meade of the Press Association, doyen of the British press corps in Brussels, puts everyone straight, reporting:

Chancellor George Osborne has demanded a freeze in EU spending next year in the midst of the economic recession.

On a self-proclaimed mission of "positive engagement" with Europe in the wake of the Tory election victory, he told fellow EU finance ministers in Brussels that a planned 6% rise in the £100 billion-a-year budget was unacceptable when national treasuries were tightening their belts.

"There should be a cash freeze in the EU budget, given what many member states are having to do," he insisted.

Mr Osborne said that if the increase went through it would mean a £600 million rise in the size of the UK's gross contribution to the EU kitty, currently put at £10-£12 billion a year.

"We had a lively discussion on the proposal for the 2011 EU budget, for which the European Commission has proposed a 6% increase, including a 4.5% increase in administration costs" said Mr Osborne.

What did not come up at all was the story that really matters this week in Brussels, and which dominated the meeting of the EU finance ministers: the crisis in the eurozone. "We are not in the eurozone," Mr Osborne noted. He "respected" the decision taken by his predecessor, Alistair Darling, to stay out of a €440 billion eurozone defence fund, and the new government was not proposing to unpick that in any way. And that was that. For all that the British daily press cares, Britain and the eurozone might as well be on different planets. I wonder if everyone in the City is quite so sanguine.

I HAVE a piece in the latest issue of E!Sharp, a Brussels-based policy magazine that would certainly be on my recommended reading list, were it not for the fact that I write for it regularly, raising a conflict of interest. Anyway, here is my piece:

ARE the English unusually keen on free markets because - for nearly a
thousand years - they have reared unusually small families? This
suggestion can be extracted from The Pinch, a new book by David
Willetts, a British politician.

Willetts's book is about the power and wealth accrued by the "baby
boomer" generation born between 1945 to 1965.

But an early chapter, "Who We Are", draws on medieval records to portray
the English (not the British) as outliers in Europe. Across the
continent, the book argues, many lived in extended peasant families,
struggling to survive under a feudal seigneur who could tax them,
impress them into his army or subject them to his local laws.

The English were different, Willetts says. They were individualists, who
lived on wages earned by hiring out their labour. Once they had amassed
savings, they married late (hence those small families).

Medieval English property was routinely bought and sold to strangers,
rather than kept jealously within extended families. Market forces were
part of life: as were contracts, mortgages, insurance and other
financial services.

A consistent body of case law, the Common Law, enforced by an unusually
strong central government, protected individuals by making it harder for
local courts to nod through special favours for extended clan members.
Because the English were not tied to family networks, they were more
mobile. Small, mobile families needed an advanced civil society, in
which voluntary bodies like guilds provided protections offered by blood
relatives elsewhere.

Willetts draws a contrast with bits of Asia where even today "helping
relatives with contracts and jobs is not seen as corruption but as a
moral obligation." In Europe, only the Danes and Dutch developed in
similar ways, he writes.

By this point, continental Europeans may start smelling a rat. For all
that Willetts, a Conservative, politely insists "it is not that England
is better or that foreigners are wrong," his text rings with praise for
an open, market-facing, flexible and mobile "Anglosphere" of
English-speaking countries, which generate more wealth and grow faster
than regions with, for example, "the southern Italian family form".

Though Willetts does not come to a Eurosceptic conclusion, such
arguments can quickly become ammunition for a case that Britain is an
outlier in Europe, closer to the open societies of North America,
Australasia or even the Commonwealth than the murky, cosy
blood-brotherhoods of the Mediterranean basin, or post-feudal,
ex-revolutionary France.

There are reasons to quibble with Willetts. For instance, was
thirteenth-century English justice really so uniform, or free from
corruption? If you want to talk about Asia, China's one-child policy has
produced small families by the bushel, but the country suffers from
endemic corruption.

And yet, there is a case to be made that England is different, and has
been different for a long time. Here is a suggestion. Even without
agreeing to the moral superiority of the English (or small families),
perhaps Willetts has touched on something else: a divide between
societies with higher and lower levels of trust?

Travel to areas of Europe where bad government is an acknowledged
problem, and distrust quickly comes up, along with the related questions
of inequality and powerlessness. In ex-communist countries, you will
hear that corruption became a national habit during times of
dictatorship: nobody trusted society to look after their interests (and
cheating the system felt like resistance). Ask in Greece why tax evasion
is so prevalent, and people will talk about the corruption of the elite
and the corrosive suspicion bred by years of foreign occupation, whether
Ottoman or more modern.

I once asked Johan Norberg, a Swedish think-tanker, why his home country
was so squeaky-clean. History, was his answer. Instead of feudal
overlords owning the land, Sweden had long been a country of
smallholdings, where local government was run by equally modest sorts.
That equality bred a sense of civic duty: cheating the government meant
cheating your own kind.

A final irony looms. Thanks to things like parliamentary expenses
scandals and bank bailouts, the English (indeed the British) seethe with
unusual suspicion of their rulers. What does that mean for the England
described by David Willetts, with its centuries-old trust in the rule of
law, free markets and civic society? Time will tell, but this time
round, family size may not be the key to very much.

AT two in the morning on May 10th, European Union finance ministers agreed a huge increase in their political will to defend Europe's single currency, backed by a stunning €750 billion in aid for weak links in the 16 member eurozone. Simultaneously, the European Central Bank took a revolutionary shift away from its inflation-fighting mission, announcing a scheme to buy up government bonds on the financial markets.

That new sense of resolve is good news. The more troubling news is that it took 11 hours of bitter wrangling to get the ministers to that point, and—thanks to continued German anxiety about undermining eurozone discipline by bailing out the profligate—there will be three separate mechanisms to deliver that €750 billion, of such fiendish complexity that EU officials are still not quite sure how it will all work. In a nice irony, the ministers—who have spent weeks denouncing financial markets as wicked speculators—only stopped arguing and agreed a plan in the early hours of this morning because they knew markets were about to open in Asia, well-informed sources say.

Does the good news trump the troubling news? Yes: as long as lingering disagreements and uncertainties do not hold up the rescue plan. Europe is building its own financial bazooka to warn off the markets, to borrow Hank Paulson's image. If it is ready to fire when needed, then complexity probably does not matter for now.

What has been agreed?

First off, a €60 billion rapid reaction stabilisation fund, controlled by the European Commission, and able to send ready money to eurozone countries that are in a financing crunch. The mechanism is modelled on an existing scheme for non-euro economies, the "balance of payments facility". The money is borrowed by the commission on the markets, using the EU budget as collateral. Because the EU budget cannot legally go into the red, that means that all 27 EU members are on the hook if money from this €60 billion pot is disbursed and not paid back: to simplify, all members would have to pay extra into the budget to top it up. Britain, for instance, would be on the hook for 12% of any losses: Alistair Darling, still the British chancellor of the exchequer, approved this after consulting his Tory counterpart, George Osborne, by telephone.

Secondly, a "special purpose vehicle" (don't call it a fund or Eurobonds, or the Germans will be very cross), which will be created in the next few days by an intergovernmental agreement among eurozone members, and which will raise up to €440 billion euro on the markets using a blend of loans and loan guarantees from the 16 members of the single currency club. The European Commission wanted formal control of this warchest, using a clause of the Lisbon Treaty, Article 122 that allows the commission to rush emergency aid to countries hit by natural disasters or exceptional crises beyond their control (Article 122 will be used for the €60 billion pot).

The Germans, Dutch, Finns, Austrians and others, backed by the British, said no, and in the end won this argument: the commission may be invited to manage the warchest, which is also described as a temporary three year creation. The Germans were also insistent that the fund should work in the same way as the €110 billion rescue package just agreed for Greece: meaning it should involve money and budget discipline measures from the International Monetary Fund, and meaning that it should be a package of bilateral loans from each of the 16, rather than open-ended loan guarantees. The French, in particular, dreamed of open-ended loan guarantees and an EU-only structure: ie, something very close to a permanent Eurobond bailout instrument. Germany said no, but that may or may not look in the future like a victory on process, not on the substance.

Thirdly, the finance ministers demanded that Spain and Portugal should work harder on consolidating their budgets this year and next: that was politically very hard for the Spanish (who were nominally chairing the meeting). The Spanish have asked to come back with a plan next week.

Fourthly, there was a stunning announcement that the IMF would match every two euros of EU rescue money with one of its own. That could take the IMF contribution up to €220 or €250 billion, depending on whether they are matching the €60 billion too. In a slightly surreal moment, the Spanish economy minister Elena Salgado could not decide whether that extra €30 billion was part of the deal. Some of us are old enough (ie, we were alive three weeks ago) to remember when the EU as a whole thought €30 billion was enough money on its own to put on the table and order markets to back off.

Finally, and perhaps most importantly, the European Central Bank went off and agreed exactly the thing that banks and politicians had been urging it to do: ie, start buying up government bonds on the financial markets. Where does that leave ECB independence? In a tricky place, not to mention the ECB's central mission to fight inflation, which is in danger of being trumped by political demands from the national governments of the eurozone.

One of the gripping stories of this crisis has been the roller-coaster fortunes of the ECB boss, Jean-Claude Trichet. About nine months ago, Mr Trichet was one of the undisputed winners of the meltdown, hailed for his calm and decisive management of the banking crisis. The last few months have been brutal for this urbane Frenchman. First he said it would be a "humiliation" for the IMF to be involved in rescuing Greece, only to have to eat his words. Then he said it was as clear as a mountain stream that the ECB could not make an exception for Greece alone, when it came to accepting Greek debt as collateral even if it was downgraded to junk by credit rating agencies. Then he had to eat his words on that too.

So, what does this all mean politically? Is it the birth of Eurobonds, and a fiscal transfer union, in which the rich and strong pay for the weak? A sneaky way out of that question is to say that we have effectively had Eurobonds for ages, in the form of the balance of payments mechanism (which was used only recently for Hungary and Latvia) and that we have had transfers from rich to poor in the form of structural and cohesion funds (ie, aid for poorer regions).

But that would be a cowardly answer. I have been saying for ages that I did not believe that the political will was there to move to the sort of political or economic union that some in Brussels have always said was needed to make the euro work. Do I still think I am right?

I think that the politics have shifted dramatically in the last few days, and that the euro is looking less German and more French, even if Angela Merkel has won some late victories on process by insisting that national governments should not give open-ended loan guarantees to the European Commission to play with. I think that the EU has developed a much stronger external narrative, telling markets that they should treat the eurozone as a single whole, which is strong and solvent, and not try to pick off weaker members because they will get their fingers burned.

But, and I think this is still a big but, the political narrative inside the eurozone is still lagging way behind. If the markets outside are being told to treat the eurozone as a single fortress, defended by unlimited budgetary firepower from the rich members of the club, voters in places like Germany, the Netherlands or Finland are absolutely not being told that they now inhabit a single economic entity, in which big chunks of the budget are pooled.

Instead, the political messages being delivered internally are heading in quite different directions.

One, the Germans and co are still insisting that the point of constructing a vast bazooka is to avoid ever having to fire it. In other words, whether or not you think the leaders are stumbling backwards into a fiscal transfer union, that is certainly not their purported intention: the intention is for none of this money ever to be needed.

Two, the political ground is not being prepared for a fiscal union: Angela Merkel has not gone on German television to tell German voters that the euro is incredibly important to their way of life and their prosperity, and that defending it may cost painful amounts of money.

Instead, the anti-market rhetoric is being stepped up to fever pitch. Markets are wicked speculators, or "wolf packs" if you listen to the Swedish finance minister. there is an international conspiracy to destroy the euro, says Jean-Claude Juncker, prime minister of Luxembourg.

In concrete terms, leaders like Mrs Merkel have yet to make the positive case for saving the euro, instead preferring to make the negative case for punishing speculators (though, I note, those evil speculators magically turn back into "international markets" when the EU wants to raise €440 billion in a short space of time).

A political quid pro quo is being prepared to buy off voters furious at the idea of sending money to weak or profligate members of the club, involving much tougher regulation of those wicked markets. Mrs Salgado last night talked of probing the role played by credit ratings agencies, and much tougher regulation of derivatives. There is constant talk of financial transaction taxes. Nobody is denying that regulation will not need to change in the future, but the suggestions so far have much more to do with populism than common sense.

The idea of a publicly funded European Credit Rating Agency, supported by France and Germany, is particularly asinine: if the ECRA is much more bullish about EU sovereign debt than the commercial ratings agencies, markets will assume it is no more than a man next to a fax machine, taking orders from Paris and Berlin. In which case it is not obvious what good it will do. On the other hand, if its ratings match those of the commercial ratings agencies, it will change nothing in the markets, and it is not obvious what good it will do.

I think this bellicose talk of fighting battles with markets and being at war with perfidious bankers (to quote Mrs Merkel) may point to a useful analogy for what is going on in terms of political integration here, at least at this point. I wonder if this new intergovernmental warchest of €440 billion, working with the intergovernmental IMF, is a bit like the mutual defence clause, Article 5, in the NATO treaty, that says an attack on one member of NATO is an attack on all. That is hugely important, and commits each member government to big and serious things. But it is not the same as those member countries agreeing to pool their militaries.

A wise colleague makes the point that the oddity for years was that markets gave all eurozone countries almost the same rates, ie assumed (wrongly) that default risk had gone. In many ways the past few months have been healthy as that assumption no longer holds. But the corollary is indeed the discovery that heavy borrowers can lose some of their independence. But, he points out, big borrowers often lose some sovereignty, because markets set limits on debts. Greece has lost fiscal independence not because it is moving towards being a part of a federal state but because it cannot any longer raise money in the markets.

BRUSSELS witnessed a pretty startling display of relative political power tonight. Standing alone on a stage bathed in the glow of artfully placed uplighters, and flanked by the 16 flags of the countries that share the single currency, President Nicolas Sarkozy declared that politicians had agreed to "fight speculators" and beat back their "attack on the whole euro zone." The zone was going through the worst crisis since its creation, said Mr Sarkozy, grim-faced and dressed in his darkest suit and tie. That is what had led him, Mr Sarkozy, to head to Brussels ahead of a summit of eurozone leaders and meet the heads of the EU's institutions, plus key national leaders. Speculators were now going to "pay for" their attacks, he declared, thanks to a plan whose details had to remain secret for the moment, to avoid giving away the EU's "lines of defence". Oh, and by the way, "95%" of the final agreement was based on ideas from France.

Leave aside the shameless bid to grab the political limelight (the official host of the meeting, Herman Van Rompuy was all but being ignored downstairs, and Mr Sarkozy is not in any sense the boss or spokesman for the 16 countries of the zone), something interesting is up. On a rather sketchy legal basis, the leaders have told the European Commission to meet on Sunday and draw up plans for a "mechanism to preserve financial stability in Europe". The body that met today has no legal status, though Mr Sarkozy kept talking about "the council of the eurozone", which I have never heard of before. When the European Commission has finished drafting proposals for this secret weapon on Sunday morning, it will be approved by the finance ministers of the EU's 27 member countries on Sunday afternoon, and the new mechanism will be in force on Monday morning, in time for market opening, Mr Sarkozy said.

Would the 27 governments agree to the mechanism, he was asked. Mr Sarkozy permitted himself a little smile. The decision would be taken by qualified majority vote, he said. His meaning was clear: the 16 countries of the eurozone had already agreed this, and between them they represent a qualified majority. [see correction below] In other words, countries not in the euro, such as Britain, Sweden or new members from east Europe, would be powerless to stop any of this.

This is a first take on the blog, so bear with me if the details are sketchy still. It is 1.30 in the morning, and diplomats are still running around trying to work out what is going on. In simple terms, there has been a push to agree emergency support mechanisms for eurozone countries that get into difficulties with the markets. There was, I am told, a push by France, Spain, Italy, Portugal and a few others to suggest the European Central Bank start buying government bonds from wobbly countries on the secondary markets. This was resisted strongly by Germany, and at one point we were told the summit had been suspended for bilateral meetings: usually a sign of a big political row.

French officials denied any row or any suspension, and later in the evening the focus of attention turned to talk of the EU borrowing money on the markets to fund emergency operations inside the eurozone. The European Commission already has a modest borrowing mechanism which it uses to help out members who are not in the euro who face balance-of-payments difficulties. The idea seems to be to use that mechanism as the model for an EU system of emergency support, with the borrowing guaranteed by national governments.

The legal basis appears to be Article 122 of the Lisbon Treaty, which says financial assistance can be given in exceptional circumstances. British officials have always suggested the article was meant for natural disasters and the like. It says, to be precise, that when a country is:

"in difficulties or is seriously threatened with severe difficulties caused by natural disasters or exceptional occurrences beyond its control, the Council [of national governments], on a proposal from the Commission, may grant, under certain conditions, Union financial assistance to the member-state concerned.”

There are other ideas floating around, some of them more sensible than others. What you need to know in terms of politics is that the usual Franco-German alliance is in bad shape. The German chancellor, Angela Merkel, did not want this summit to be held today, two days ahead of important regional elections, initially wanting it held on Monday. She did not want talk of centralised EU borrowing, and does not like the idea of the ECB buying debt on the financial markets. France has long pushed for summits of leaders from the eurozone, seeing that smaller group as a potential "hard core" that could form the kernel of a two speed Europe, built around a "European economic government". Germany has traditionally resisted that idea, insisting that economic governance should be decided by all 27 members of the union.

But after slowing the bailout process for three months, Germany is now rather isolated, diplomats said. It was striking that Mrs Merkel did not hold a press conference but headed straight home, even as Mr Sarkozy was performing for the cameras. Britain is nowhere, of course: it is neither in the euro, nor does it have a government with a functioning political mandate this weekend.

Some very odd briefing was going on in Brussels. A spokesman for the Spanish prime minister said his boss, José Luis Rodríguez Zapatero, had called Gordon Brown today to discuss British help stabilising eurozone economies. The spokesman seems to have hinted that the Bank of England might be involved, though Spanish colleagues suggest his hint was not entirely serious. It certainly seems far-fetched.

How does all this fit with the current treaties, and how does it fit with German constitutional bars on anything that smacks of bail outs for eurozone members? If Mr Sarkozy is right, by the end of Sunday we could have a centralised EU bail out mechanism, borrowing on the markets in the name of the EU budget and controlled by the European Commission.

Deep divisions still exist within the eurozone. At least leaders seem to have agreed on one line: that this is all the fault of wicked speculators. Mrs Merkel, under pressure from German voters who dislike the idea of sending money to Greece, has talked of fighting "perfidious" bankers. Jean-Claude Juncker, the prime minister of Luxembourg and head of the Eurogroup of eurozone finance ministers, told German television there was "a worldwide conspiracy to destroy the euro".

Things are not likely to become any clearer tonight. More will be known on Sunday. Until then.

Correction, May 8th. My apologies to readers. A helpful European Commission official telephoned today to note that the 16 countries of the eurozone do not, between them, have enough votes to form a qualified majority (a qualified majority is a complex beast, involving voting weights, a minimum number of countries and a minimum share of the overall EU population). I still think that Mr Sarkozy's intention was to hint that this was a done deal: even though this package was moving from 16 countries to 27, he twice pointed out it would be decided by QMV, not by unanimity. To defend my schoolboy error, at the time of writing the above blog I had had three and a half hours sleep in the previous 42 hours.

For what it is worth, I think I have a little more clarity on what this emergency mechanism might be. The idea is for the European Commission to have the power and the ability to send ready money to any member of the eurozone that is facing a dangerous financing crunch, borrowing on the markets at low rates using the credit rating of the EU. The key for the commission is to craft something big enough and fast enough that it will be a real tool to fight off speculative attacks or help countries through an unusually dangerous moment, for example if they need to roll over a big chunk of government debt amid ugly market conditions. But at the same time the mechanism must not be over-large, or offer long-term financing: the legal base for the whole thing rests on the idea of a real emergency. If it looks like a way to start issuing euro-bonds (a long-time dream of some countries), then Germany and the Dutch, for instance, are very likely to say no. Can this circle be squared, ie can a mechanism be found that is not too large and not too small? Can it be agreed fast enough? We will learn soon enough.  

WHAT with the euro crisis and a British election, I seem to have spent today scrambling from one television and radio studio to the next. In interviews about the British election (RTL+ television and Bel RTL radio so far), I have faced questions about British-EU relations, and whether a Conservative government will pick a huge fight with Brussels. I have dutifully answered what I have heard from senior Tories, namely that with a nasty economic crisis to manage, the last thing a new Conservative government will look for is a time-consuming fight with the EU.

Then I have headed to interviews about the euro crisis (BBC News Channel, Radio Netherlands and, hurry, hurry BBC World Service TV at 1800 GMT tonight). There people have broadly wanted to know if this crisis is about to get worse. Could be, I have answered. The Greek bail out is not the end of it.

Halfway between interviews, a horrible thought dawned on me, that the two themes could end up linked. For the moment, Britain has sat firmly on the sidelines of the Greek bailout. Only the 16 members of the eurozone have been involved in discussing the €110 billion to be loaned to Greece over the next two and a bit years, and only the 15 non-Greek members of the club have been asked to dig deep. (Though some British money will be going to Greece indirectly, thanks to British membership of the International Monetary Fund, which is stumping up an extra €40 billion in lending).

Other EU governments have a lot on their plates right now, so I have not heard ministers or senior officials grumbling about Britain's folded arms and nothing-to-do-with-us stance. But what if contagion does spread, and bailouts are needed for other countries, such as Portugal or Spain. As mentioned before, Spain is a much bigger economy, and the bill for a bailout there could be huge.

I am prepared to wager that at that point, the next British government might find weary eurozone governments asking why, exactly, one of the big four countries of the EU was so unwilling to spend a single cent on securing the future of the EU.

In my mind, I can even hear someone like President Nicolas Sarkozy asking why some countries seem not to understand the word solidarity and seem to think they should be allowed cost-free access to the single market.

Should that happen, a British government, whoever it is, could face calls to match France or Italy (which have similar sized economies) and stump up huge sums: tens of billions of euros if not more. At that point, pious Tory pledges to avoid a bust-up with Brussels might start to sound rather moot.

IN THE European Union, there are few more effective catch-all slurs than "nationalist". Thus, in this euro crisis, a popular accusation against Germany is that it has dragged its feet over a bailout for Greece because Germans are in danger of becoming nationalist again. This is gleefully picked up by those who do not like it when Germany disagrees with them, and so are on the look out for reasons to deny that German arguments might have some legitimacy.

This makes me quite cross, for reasons I am still turning over in my mind. This is a blog entry not a finished column. Bear with me while I puzzle this through. As ever, I would like to hear what you think.

As I have written recently on this blog, I think that German foot-dragging over a Greek bailout, while undoubtedly harmful, is caused by something else: by the fact that this euro crisis is turning into a clash between different social contracts, and democratic preferences.

To simplify greatly, German voters have one social contract with their government: based on thrift, economic and monetary stability and a consensual form of capitalism tempered by a generous welfare state and lots of consultations between employers, employees and trade unions. Greece has a very different social contract in which a happy consensus is painfully absent, and trust and consultation are replaced by a "grab and hold" scramble for advantages (whether in the form of secure jobs, tax breaks or perks) between rival interest groups. Unfortunately, the Greek model is not economically sustainable, it turns out, so the country is now turning to neighbouring democracies and asking for them to subsidise the Greek social contract. Which is politically toxic in the context of the prevailing German social contract.

I have only paid reporting trips to Germany and never lived there, but I know the country reasonably well and certainly have a lot of contact with German officials, politicians and journalists here in Brussels. To me, it is grossly unfair to say that mainstream German political debate is nationalist. It is true that German tabloids have said harsh things about Greeks in recent weeks, and leading German politicians have made intemperate remarks about throwing Greece out of the euro zone against their will. But I think this is about clashing political cultures, not a clash between one volk and another.

But for those who believe this euro crisis can only be fixed by the deep, EU-level integration of economic and budgetary policies, it is a neat intellectual trick to say that those who disagree are are acting out of nationalism, selfishness and—oh, go on—heartlessness.

The Financial Times carried a long interview with the German philosopher Jürgen Habermas at the weekend. In 2008, his interviewer noted, Mr Habermas published a book called Ach Europa, in which:

"he argues that the “monstrous mass crimes of the twentieth century” mean that nations can no longer be presumed to be innocents and thus immune to international law.

There is a lot in the piece, and I am not going to try to offer you my summary of it, which would not be fair. But I was struck by the way that the interview conflated economic liberalism with nationalism, by characterising economic liberals as "market Europeans" and those who wanted a much deeper European union as "integrationists". Here are some extracts, touching on the Greek crisis, in which Mr Habermas is fully in line with the "beneficial crisis" school I wrote about yesterday, who think that a crisis of this severity can and must lead to a great leap forward for the EU. Note the loaded question at the beginning:

Q.Germany’s finance minister, Wolfgang Schäuble, has advocated the creation of a European Monetary Fund that could provide aid in future crises. Is that feasible or desirable? Can Europe effectively resist the depredations of speculative capitalism that have threatened to bankrupt Greece and destroy the eurozone?

A. The current threat throws light on a fundamental problem because it affects the deeper conflict within the EU between integrationists and, let me say, market Europeans. At its most recent sitting, the European Council established a “task force” under the leadership of its president Herman Van Rompuy, which is expected to develop proposals for avoiding future state bankruptcies. Schäuble’s plan for a European Monetary Fund will play a role in this process, just as will the insistence of the European Commission on greater influence over the budget planning of the member states. It is important to recognise the ambiguity of both initiatives. In each case the declared intention is only to create instruments within the framework of the treaties to ensure more effective compliance with the stability pact. On the other hand, the enhanced inspection and control rights that would either be attached to loans or permanently exercised by the Commission can also be understood as a starter drug for developing an economic government, at least in the eurozone. The EU finance commissioner would like to inspect the draft budgets of the national governments even before they are submitted to the national parliaments. Since budgetary law is the core of parliamentary democracy, such a prior right of inspection of the Commission would be far from harmless and require a further shift of competences towards the European Parliament.

Mr Habermas has harsh things to say about Angela Merkel:

Merkel is a good example of the phenomenon that “gut politicians who were ready to take domestic political risks for Europe are a dying breed”. This is a quotation from Jean-Claude Juncker, himself one of the last pro-European dinosaurs. Admittedly, Angela Merkel grew up in East Germany and the Rhinelander Jürgen Rüttgers [another CDU politician] would not speak like her. But German intransigence has deeper roots. Apart from Joschka Fischer, who ran out of steam too quickly, the generation of rulers in Germany since the chancellorship of Gerhard Schröder has pursued an inward-looking national policy.

and about economic liberalism:

Q. What is abhorrent to you about a neo-liberal network of European states, each just one selfish player in a capitalistic world?

A. I am no expert concerning the economic controversies over the doctrine of the Chicago School. But what annoys me – aside from the insensitivity of neo-liberal policy to the external costs of the social upheavals that it callously takes for granted – is the lack of a historical understanding of the shifts in the relationship between the market and political power... Since the beginning of the modern period, expanding markets and communications networks had an explosive force, with individualising and liberating impacts on individual citizens; but each such opening was followed by a reorganisation of the old relations of solidarity within an expanded institutional framework.

There is a lot here, and too much for a blog posting. Do read the whole thing and make up your own minds. Here, though, is just one objection. Your blogger, indeed much more importantly this newspaper, stand above all for economic liberalism and the freedom of the individual. That is a democratic preference, and in the context of the European Union that makes me sceptical about deep economic and political integration as proposed by leading pro-Europeans. But that is not a scepticism born out of nationalism.

Liberal sceptics disagree profoundly with nationalist Eurosceptics when it comes to enlargement, which we strongly support, including membership for Turkey (just try selling that at a nationalist European political meeting). I support the opening of rich European labour markets to immigrants within the European Union and beyond: that is a liberal position but not a nationalist position. In Britain, liberal sceptics are wary of Britain joining the single currency for economic reasons alone: talk about saving the pound and the Queen's head on the banknotes is so much fluff and irrelevance.

Liberals and nationalists disagree about globalisation. I do not support the single market because I want to further the interests of wealthy capitalists and crush the poor. I think that economic liberalisation and competition amount to Europe's best chance of growing economically, lifting millions out of poverty and maintaining welfare states and health services that have done much to soften the harshest edges of capitalism in Europe. I am proud to be a "market European": markets integrated east and west Europe, healing the divisions of the Cold War. I support integration in the EU where it brings added value and where it enjoys a democratic mandate.

(For that matter, I personally believe that globalisation is not just a good idea for economic reasons. Though globalisation can and does cause suffering, I have also seen it lift Chinese peasants out of poverty to factory jobs that allow them to send money home to rural families, paying for health care, house-building or the schooling of younger siblings and cousins. I have never seen why a Chinese citizen has less right to a decent job than a European citizen.)

No, the democratic deficit is the main problem I have with much deeper economic integration, including the central oversight at the EU-level of budget policies, taxing, spending, and welfare systems. If everyone in Europe wanted more or less the same things, I would have no theological problem with technocratic oversight of that consensus. But travelling round Europe for the past five years has taught me that we want very different things. To return to my point at the start, we have different social contracts and democratic preferences.

My worries turn on those democratic preferences, and not on questions of national sovereignty. I think we ignore national characteristics at our peril. I do think there is a sufficient democratic mandate out there for the level of integration implied by the single market. I do not see a democratic mandate for a European economic government, any time soon.

It would make the euro much stronger if the Greeks thought like Finns or Dutchmen. But they do not. We Europeans all have radically different views of the proper role of the state, the size of the state, the correct role for competition, whether to favour individual liberty of choice over social solidarity, where to place the cursor when trading welfare protections against dynamism, you name it. Europeans differ when it comes to trusting one another, and trusting civil society. Some are pretty trusting that society is broadly fair, others see life as a zero sum game.

For all these reasons, I do not see how you can realistically forge a consensus between different corners of Europe deep enough to allow for the close co-ordination of taxing and spending. You could try to force it through by majority vote, by reaching some sort of compromise, and I suspect that is why pro-Europeans in places like Brussels dream of a European economic government as soon as possible: they sense that they inhabit something close to the European centre of gravity when it comes to all those economic and political trade-offs. They sense there is a compromise centred somewhere around a high-spending social market model out there for the grabbing, if they can only deny veto powers to outliers who disagree with them.

It is telling, I would argue finally, that Mr Habermas says that budgetary law is the core of parliamentary democracy, and so a shift to EU-level inspection of draft budgets would require a "further shift of competences towards the European Parliament." As regular readers will know, I strongly disagree that the European Parliament is the answer to the EU's democratic deficit. The European Parliament is an effective machine for generating compromises between different factions from Europe. Those factions are made up of elected representatives. But it is not a machine for generating democratic mandates: the distance between voters and MEPs is too large, and the parliament's style of coalition politics too opaque. The real reason the pro-integration Euro-elite loves the European Parliament is because most of its members see the world the same way they do. It is a tool for endorsing elite continental Euro-opinions.

A DECADE or two late, your blogger finally saw the filmed version of Evelyn Waugh's novel A Handful of Dust the other night. It was a pretty good adaptation, if a bit startling on the nostalgia front ("Good Lord, James Wilby, whatever happened to him?"). The plot—haplessly decent English toff loses shallow wife to sleazily social-climbing pipsqueak—rotates around a pivotal moment. The hero's code of honour is shown surviving all manner of horrors: the adultery of his wife, the death of his young son etc, to the point that he volunteers to fake an affair so that divorce can be blamed on his adultery. Finally, however, he snaps. The moment comes when his horrid wife's horrid brother explains that there is a clever new plan: our hero has to bankrupt himself and sell his beloved country house to provide his wife with sufficient money to keep her in caviar and furs after she marries her feckless young lover. I see, says our hero, referring to the horrid young man: "you want me to buy Mr Beaver for Brenda." At which point he rebels and the divorce is off.

I think Germany is having a Mr Beaver moment, when it comes to the Greek bailout.

By which I mean that the ruling elite in Greece, for reasons that this blog has tried to explore before, spent years buying social peace and electoral support from the Greek public with a torrent of unsustainable public spending. The whole package—civil servants with jobs for life, endemic corruption, generous pension schemes, weak enforcement of tax laws, special tax exemptions for hundreds of politically favoured groups, the abuse of EU funds to bankroll farmers—was a social contract, albeit not a very impressive one.

Germany, being a sovereign state and a democracy like Greece, has over the years developed its own social contract with voters. In comparison with the Greek version, it sets more store by thrift and budgetary rigour, paying taxes and monetary stability. Pensions have become less generous, but there is still lots of welfare spending on working age voters who fall through the cracks of the employment market. The German government worked over the years to secure voter consent for all sorts of things: for agreeing to work in a capitalist system, agreeing to wage moderation or sending money to the eastern half of the country after reunification.

The contrast between those two social contracts lies at the heart of the ill-feeling between Germany and Greece. Back in February, I thought that "it is the pensions, stupid" ie, the fact that Greeks get to retire earlier than Germans on more generous terms is politically dynamite, because it is painful and so easy to grasp.

I still think that, but I now wonder if there is another way to explain the same ill-feeling.

Thinking of Evelyn Waugh, I think that what we have here is a sovereign democracy, Germany, learning that there is a clever new plan. Greece is going to need three times more money than previously admitted, and it might not all be paid back on time. This is necessary because Greek politicians spent more money than they had, in order to secure voter consent for today's Greek social model.

Yes, if you are Angela Merkel, you know all the sensible arguments about Germany benefitting from the ability to export goods to southern European countries that were captive markets because they could not devalue. You know that German banks hold Greek government debt worth tens of billions of euros, and will take a beating if Greece defaults. You know that contagion is spreading to Portugal and Spain. But deep down, you hear the plan outlined to you, and you must think: here I am, a democratic leader whose own voters hate this bailout, having to bail out a Greek government that needs the money to keep its own voters onside.

One democratic government, in other words, is being asked to fund another democratic government's social contract, at the expense of its own. I see, Mrs Merkel must feel like saying: you want me to buy Greek voters for the Greek government. That is politically toxic.

Perhaps George Papandreou, the Greek prime minister, should send a warning copy of Waugh to Mrs Merkel, so she can see what the poor, cuckolded hero gains from his rebellion. After leaving the country to flee his horrid in-laws, he ends up the captive of a mad, illiterate half-English settler in the Amazon jungle, who forces him to spend his days reading the collected works of Dickens aloud.

I do recommend the novel if you have never got round to it before. Greece and the eurozone will still be in a mess when you have finished it, but at least you will have read a jolly good book.

IN THE Asia section of this week's print edition, I take a look at a corner of history that has fascinated me since I lived in Beijing some years ago: China's little-known involvement in the first world war. The first big exhibition on this subject opened on Saturday in Ypres/Ieper, the Flemish town near the border with France that was the scene of some of the worst fighting of the war. It is a temporary show at the town's excellent permanent war museum, In Flander's Fields. They have done a good job with a tricky subject: few physical artefacts survive to commemorate the Chinese who served in the mud and horror of the trenches, and only one personal account by a Chinese veteran of the war exists.

I confess that when I lived in Beijing, I knew little of the young Chinese republic's role in the war, beyond the story of the astronomical instruments told below. I also recall visiting a small first world war cemetery in northern France where a relative is buried, and seeing Chinese graves tucked away in one corner, their names in carved and gilded Chinese characters. I had no idea what they were doing there. I am glad to have rectified my ignorance.

Below is an expanded version of the article that appeared in print:

FEW European visitors to Beijing visit the city’s ancient astronomical observatory, perched on a grey stone tower amid smoggy snarls of traffic. Yet the instruments on the observatory’s roof offer a rare physical link to one of China’s least-known historical adventures: its ill-fated involvement in the first world war.

China sent some 140,000 labourers to France and Belgium, and the mud and barbed wire of the Western Front. They dug trenches, carried ammunition, toiled in docks and railway yards or worked in arms factories. After years of near-silence, their part in the war is finally attracting a flurry of academic attention, both in China and in Europe. A first first big exhibition will open on April 24th in Ypres, a Belgian town all but razed from the map by the war that has become a centre for historical pilgrimage.

The young Chinese republic—founded just three years before the outbreak of war—gained little from its status as an ally. After the war, the victorious powers imposed painful reparations on Germany at the Treaty of Versailles: China’s share of the spoils was derisory. The Treaty of Versailles gave Japan control of Germany’s colonial possessions in China, notably in the coastal province of Shandong. In humiliating contrast, one of China’s few tangible rewards involved the set of Qing-dynasty instruments for observing the heavens—among them a Jesuit-designed quadrant, celestial globe and armilla—mentioned above. They had been taken by German troops from Beijing after the Boxer Uprising of 1900, and installed in a park in Potsdam. These instruments, the Treaty of Versailles briskly declared in its Article 131, were to be restored to China within twelve months. Moreover, Germany was to pay the bill for their “dismounting, packing, transporting, insurance and installation”.

China’s humbling at Versailles had dramatic echoes back home, triggering the May Fourth student protests that grew into a movement for national renewal and modernisation.

Nearly 100,000 Chinese labourers served near the front lines in Flanders, together with a few hundred Chinese students recruited as interpreters (another 40,000 Chinese were scattered across France, working in factories and the like). They were volunteers, poor farmers from coastal provinces like Shandong and Hebei, attracted by high pay and contracts promising (falsely) that they would be kept safely away from the fighting. Paid four times more than a labourer back in China, they were neutrals until China declared war on Germany in 1917, then paid volunteers in a nominally civilian “Chinese Labour Corps”. In fact they endured military discipline and served under British officers: a motley assortment of invalids and ex-China hands, some of them missionaries on the look-out for converts.

The Chinese lived in camps behind the front lines, but death found them anyway. Two thousand are buried in Belgium and northern France, killed in bombardments, air raids or of disease. Their gravestones, neatly incised with Chinese names by fellow labourers, can still be seen in the immaculate war cemeteries that dot the Flemish landscape.

The story ended bitterly for survivors, too. After the war, returning locals were shocked to find Chinese in the shattered, treeless moonscape of Flanders. The Chinese were blamed for many crimes in the lawless months after the Armistice. Hundreds died of the influenza that swept post-war Europe. The last were shipped home in 1920, amid loud demands for their removal from Belgium’s government.

A handful of decorated shell cases, finely incised with dragons, flowers and inscriptions, are almost the only artefacts they left behind. One of several displayed at the “In Flanders Fields” museum in Ypres bears a lovingly carved poem, points out Dominiek Dendooven, the exhibition curator. It is about homesickness.

SO there we all were—Brussels policy wonks, London think-tankers and assorted foreign policy obsessives—on our respective sofas, wine and olives to hand, ready for the Big One. The second of three televised British prime ministerial debates, and the only one devoted to foreign policy and Europe (the other two are about domestic policy and next week the economy). This was our night, the night for saddos like Charlemagne who have no idea which football teams are leading the British premiership, but who got really excited about the opposition takeover in Kyrgyzstan.

And what happened? There was a bit of a set-to about Europe, which was logical because the three parties have very different rhetorical positions on the EU, even if their final policies are probably not as far apart as all that. There was a mini flurry about Britain's nuclear deterrent, then a chance for all of them to say how brave our soldiers in Afghanistan are, a chance for Gordon Brown to call the Liberal Democrat leader Nick Clegg "anti-American", and that was about it. After that, the questions veered straight back to domestic politics: a question about immigration (which came up in the first domestic debate at length), a question about pensions and one about coalition government. Even a question on climate change was dumbed-down, asking the candidates what they had done personally in the past six months to cut their carbon footprints, like taking the train or riding a bicycle.

There was no disguising the disappointment of foreign policy types this morning. Robin Niblett, boss of Chatham House, London's grandest foreign policy outfit, put out an impassioned yelp of pain by email, saying:

From an interesting start, this ended up being a very disappointing, even bewildering 45-minute half debate on ‘foreign affairs’. The visit of the Pope to Britain as a question of national security? Roof insulation and roof solar panels as the answers to climate change? At times, it sounded like the leaders were indeed living in Little Britain. To be sure, Britain’s position in the European Union brought out some passionate disagreement, as expected. And British engagement in Afghanistan correctly drew some sustained discussion.

But, to re-use the over-used phrase of the debate, let’s ‘get real’. Which country is driving the most profound structural political and economic change in the world today? China, and this was not discussed. Where are the principal external terrorist threats to Britain emerging from? Pakistan, and it did not get more than a passing mention. Which country might present the most difficult national security choice to a future British Prime Minister? Iran, and its only mention was in the context of Trident modernisation – hardly the first option the next Prime Minister will reach for should Iran’s nuclear enrichment programme continue apace or even emerge into a nuclear weapons programme in the next parliament. And what of the Arab-Israeli conflict, which continues to poison politics and security in the Middle East as well as relations between much of the Muslim world and the West? Not worth a question.

I have a couple of explanations. The first is that the candidates themselves bear some of the blame: when they were asked about important questions of foreign policy, they did not make the most of them. Gordon Brown, who has long struggled with the empathy thing, veered from Euro-jargon to wild populism when attacking David Cameron, the Conservative leader. I half-choked on an olive as I heard him say:

Imagine a European Council meeting if David Cameron was in in charge two months from now. He'd have to go along as he said and say he wanted to repatriate the social chapter.

That must have meant nothing to most watching in Britain. As if conscious of this, Mr Brown then decided to explain what the social chapter was, claiming: "That's what gives us paid holidays." Which is odd, because statutory paid holidays were granted in Britain 20 years before the EU was even invented.

Mr Brown also tackled Mr Cameron for pulling his MEPs out of the "European People's Party," helpfully adding: "which is an alliance of the centre, progressive parties in Europe". Crikey. I mean, I agree with him about the EPP pull-out, as regular readers will know. But "European People's Party", on prime-time telly?

To be fair, I thought Mr Brown made some good points elsewhere on Europe, telling "Christopher", a builder in the audience who said he could not see any advantage in EU membership:

Three million jobs depend on our membership of the European Union. Half our trade is with the European Union. 750,000 businesses - I'm sorry it's not your business, raising the question about the building trade - but 750,000 businesses trade with Europe. The idea that we should again be isolated and on the margins and not in the mainstream of Europe would be a terrible, terrible mistake.

I thought Mr Cameron made some good points and some bad points on Europe. A strong debating point, simply put, was to say:

I understand why people like Christopher are frustrated about the European Union and some of the things that have happened. I think one of the reasons that people are so angry is that politicians at Westminster have given away powers to Brussels without asking us, the people, first. I think people felt particularly cheated when the European constitution came forward and we were told we were going to get a referendum and Gordon Brown and Labour stopped that from happening and Nick Clegg and the Liberal Democrats didn't vote with us to get that referendum. We should have had one. People feel cheated by that. As a result, one of the things I would do if I was your Prime Minister is straightaway pass a law through parliament that says if ever there's a future occasion when laws are being proposed to pass power from Westminster to Brussels, there will be a guarantee of a referendum held in our country.

I happen to think that a blanket promise of a referendum on new treaties is likely to come back and bite future British governments. But, leaving aside my qualms, many British people are angry about the way the constitutional treaty was turned into the Lisbon treaty and rammed through parliament. And ignoring pent-up anger is one of the more dangerous things the EU does. And Mr Cameron expressed his policy clearly.

Nick Clegg, the Lib Dem leader, was on his weakest ground here: he is an ex-Eurocrat and MEP and his party's views on Europe are out of line with those of most British voters. Elsewhere, I thought he was walking away with the debate, notably in his response to question from a woman who asked:

Having brought up five children, worked most of my life, reached the age of 84, do all of you think that a state pension of £59 per week is a just reward?

By now, the watching foreign policy wonks were cruelly aware that this was not their big night. Indeed, the presenter made clear the debate was in two halves, with only the first 45 minutes devoted to foreign affairs and Europe. Then it was back to MPs' expenses, bus passes, eye tests and the like.

I could get all depressed about this, seeing as I make a living from foreign politics. I could say something snippy about the hosts of this second debate, Sky News, who chose the questions after all. Sky News is a pretty bad channel, that often seems like an afterthought for its parent company, News International, whose main television business is beaming pay-to-view satellite sports and films to British homes.

But maybe voters are shrewder than the wonks, though we might hate to admit it. In truth, what influence will the next British prime minister have on Pakistan, Iran or China? Not so much, is the blunt answer. But on pensions and bus passes, they have clout.

A Labour MP I know tells a story about the young Tony Blair, campaigning in a tough council housing estate years before he was famous and powerful. At the time, Labour was still promoting a platform of more cordial relations with the Soviet Union, and nuclear disarmament. According to this (supposedly true) story, the young Mr Blair began explaining to an elderly woman that only Labour could avert nuclear armageddon. "Can Labour stop the yobs peeing in the lift?" she replied. Mr Blair waffled, sticking to his lines about disarmament. "Young man," said the voter severely. "If Labour can't stop them peeing in the lifts, how are they going to stop a nuclear war?"

A BIG American news organisation just called, seeking a comment on the mounting accusations that the European Union has bungled the crisis caused by clouds of volcanic ash drifting around the skies over northern Europe. Given that I am paid to have opinions about the EU, I felt a bit wet saying that I had no idea, really.

Or rather, I am perfectly prepared to believe the EU could have been quicker to summon a teleconference of transport ministers to talk about co-ordinating national flight bans. There have been no flights since last week, and the ministers only spoke to each other today. (Though in fact, the agencies that run the skies over Europe, including Eurocontrol, are not in fact part of the EU but intergovernmental and national).

But I confess to being slightly taken aback by the ferocity of the ideological ding-dong now underway in the press and blogosphere, arguing that the whole flight ban is (a) proof of European risk aversion and (b) will be totally unsustainable if it lasts much longer, so must be rethought.

It seems to me that both (a) and (b) are less important questions than (c): is it safe to fly planes around when the air is full of volcanic ash?

And because I am not a vulcanologist, nor a geologist, nor an aeronautical engineer, I am singularly ill-equipped to answer (c). Which makes me wary of sounding off about (a) and a bit baffled by the argument implicit in (b).

Because either it is reasonably safe to fly around Europe right now, in which case the flight ban should be lifted. Or it is not safe, in which case the flight ban should stay in place until it is safe. And if the volcano keeps erupting for a month or a year, I can see that is a very big problem. That makes it sensible to start looking much more closely at which bits of the sky are safe and not safe and spending much more time, effort and money analysing what is going on. But if it were concluded that airlines cannot fly safely, then they would have to be grounded, no?

I am also not really sure about (a): this idea that Europe has shown itself to be hopelessly risk-averse. There is a lot of this about: Jean-Dominique Giuliani, a big wheel in French Euro-politics, has written a piece blaming the "precautionary principle", which is certainly a very important part of the philosophical underpinning of EU regulation:

Four days of a total ban on air travel in Europe have brought chaos to the lives and free movement of several million people, already cost more than a billion euros and cast doubt on a decision justified more by the "precautionary principle" than by precise technical analyses. We cannot imagine, in fact, the same sort of situation arising in America, in Asia or elsewhere. The Russian president, for one, managed to dodge the ash cloud to fly to Krakow. Airlines have been allowed to fly their planes around empty to get them back to their home airfields, without any damage being caused, and if the Eyjafjöll volcano eruption carries on, it seems safe to bet that we will find a way to restart commercial flights, given the degree to which the ban seems out of all proportion.

And moments after I had read Mr Giuliani's column, I heard him on the BBC radio this morning. The Guardian had a go at the same argument, too.

As it happens, I once wrote a whole column about the precautionary principle (you don't want to be placed next to me at dinner parties, let me tell you). I wrote then:

The American model turns on cost-benefit analysis, with regulators weighing the effects of new rules on jobs and growth, as well as testing the significance of any risks. Companies enjoy a presumption of innocence for their products: should this prove mistaken, punishment is provided by the market (and a barrage of lawsuits). The European model rests more on the “precautionary principle”, which underpins most environmental and health directives. This calls for pre-emptive action if scientists spot a credible hazard, even before the level of risk can be measured. Such a principle sparks many transatlantic disputes: over genetically modified organisms or climate change, for example.

In Europe corporate innocence is not assumed. Indeed, a vast slab of EU laws evaluating the safety of tens of thousands of chemicals, known as REACH, reverses the burden of proof, asking industry to demonstrate that substances are harmless. Some Eurocrats suggest that the philosophical gap reflects the American constitutional tradition that everything is allowed unless it is forbidden, against the Napoleonic tradition codifying what the state allows and banning everything else.

I stand by that. But it just seems early to be saying that this flight ban is an example of a uniquely European approach to regulating things. It is inconvenient. As I write this I am in my office in Brussels rather than on a plane to Tallinn, which is where I was supposed to be tonight. As a foreign correspondent, I have flown on average once a week, every week, for the past 12 years (though I do take more trains now that I used to, being based in Europe). And though I am not claiming any medals, I am willing to put work ahead of five star aviation safety (another reason to avoid me at dinner parties, in case I wheel out memories of flying on North Korea's Koryo Air, Air Uzbekistan or "Tragic Tajik" as the airline of Tajikistan is fondly known in foreign news circles).

But so far the flights have been disrupted for less than a week. Are we not all being a little impatient here? Could it not be that this is a really hard call to get right? And the consequences of getting it wrong are pretty serious? Air engines have been damaged by this new cloud (eg, a Finnish air force fighter) and planes have lost engine power by flying through ash in the past (eg, a British Airways jumbo in 1982).

I know that pilots have been zooming around Europe on test flights, the airlines have been saying that the European response is an "embarrassment" and the top European Commission transport official, Matthias Ruete, said today that such test flights should be taken seriously, rather than just relying on a single source of scientific advice, namely mathematical modelling by a British government agency. The same EU official even said that the Americans have a totally different attitude to the risks of volcanic ash, saying:

In the long term, Mr Ruete signalled that Europe should move to a United States style system for dealing with volcanic ash. He said that America was used to dealing with volcanoes and allowed airlines to decide whether to fly based on scientific evidence. Under the European system, national and European authorities are compelled to act on the VAAC’s advice, even if it is limited to mathematical modelling. “If you had the situation across the Atlantic, the advice would probably be ‘don’t fly over the volcano otherwise it’s up to you,” he said.“The US model is not less safe, you just have to look at the statistics.”

So why I am resisting the urge to side with the political attacks on Europe's way of handling this crisis? Well for one thing the airlines have a vested interest in saying this has been a policy failure, because they would like to be compensated by the EU for their economic losses, which will not happen if this is just an act of God.

And for another volcanic eruptions that blow ash all over busy air lanes are very rare events (indeed this volcano last erupted before mass air transport existed), and each eruption is different in terms of the sort of ash they spew out. So easy comparisons are hard, and the pool of available data on successful volcano reactions is small.

So why all the ideological certainties flying around? I have a hunch the current fuss is a proxy for the coming legislative fights about climate change. Mr Giuliani gives the game away here, writing:

If, in the future, we find ourselves confronted by less and less predictable natural phenomena, we will above all have to fight against the overdramatisation represented by the precautionary principle.

And from a more sceptical standpoint, Bruno Waterfield of the Daily Telegraph, in his EU blog, makes the same link:

A big part of the problem is the powerful, deeply conservative and risk averse environmentalist strain (or should it be stain?) in European politics.

This political development has catapulted the expert – especially the climate scientist – to the top of a hierarchy that tells us how to run our lives based on the principle that human activity, if it is not downright negative, carries huge risks.

Naturally, these crazy green anti-humanist types have celebrated the volcano as scoring a long overdue victory by nature over us horrible humans, with all our nasty civilisation and progress such as air travel, a particular bug bear for environmentalists.

Here’s the intro from a British newspaper, the Observer: “The eruption in Iceland and the ash cloud that has brought our airlines to a standstill give us a true picture of our standing in nature. [...] By colonising the space above our heads and above much of our continent, the eruption provides a reminder of our status in relation to our planet and over which we have arrogantly seized stewardship. We imagine ourselves its master and yet with one modest belch it hems us into our little island, sweeping instantly from the skies the aeroplane, which we consider to be an example of the irrepressible genius of our species.”

Science, politics and big economic interests, it is a tricky combination. And me? I am staying clear, just this once.