German and French leaders went into the meeting last night with the UK Prime Minister knowing full well that their measures to destroy the City of London’s economic activity would lead to a veto and yet it seems very clear that the Germans and French did not even have a plan B and so they have dragged 23 EU member states into an agreement that is nothing less than a prescription for economic contraction.
It is afudge though and could be the final blow before the break-up of the Euro as senior EU officials have already acknowledged in public that it would be difficult to give Brussels new powers over eurozone national budgets outside of an EU treaty. Therefore in short, the 23 states have no binding mandate and any state at any time can in fact just pull from the new block forming. Under EU law the whole thing is nothing more than a club with no legal basis. So expect Italy, Spain and Belgium to come under immediate pressure from the markets. Poor Hungary has all but had it economically. The first effect of the fudge was a downgrade of France’s sovereign rating by Chinese rating agency Dagong, which is significant when all EU eyes have been fixed on Chinese help. The Chinese now see a Greek exit from the Euro as inevitable.
What has happened over the past 12 hours is that Ireland – forced to take a silent back seat through their current bailout – may now be forced to give up their impressive corporation tax breaks. Irish corporation tax breaks have been close to the top of the agenda for the Germans and French for some time. So where does this leave the Irish aviation community, especially its leasing backbone? Ireland, far from being in a forced marriage to the Euro, is actually actively planning for a return to the Irish Pound should the need arise and the agreement reached last night, which includes Ireland , actually gives the nation an easier path to the exit door should it decide to reach for the same.
In the immediate term, all companies must now question the prudence of making forward deals in Euro denomination. They must plan for the worst, which means that either way more funds will be whittled away planning for something that might not happen all the while the EU rolls on with ETS at the worst possible time.
2012 will be a rollercoaster ride for aviation as the sector remains caught in the political headlights of governments across the globe (other than the UAE where this is a benefit). As Middle East carriers further benefit from good regulatory help, we have to wonder if there will be a protectionist backlash against the likes of Etihad and Qatar as they move into new markets.
EU sticky plaster is a shocker – prepare for the worst
