Merkel To Cameron: Maintain Open Door On Immigration Or Take The EU Exit

Among the core principles of the EU are the free movement of goods, capital, and people. Member States have benefitted to varying degrees. Britain – or rather the City of London – has benefited more than any other Member State from the free movement of capital. That speck of land within London has become one of the largest and murkiest financial centers in the world.

The institutions located there have been involved in nearly every major financial scandal and market rigging scheme discovered over the last few years. It’s so big that the British economy has become dependent on it. Any measures that other Member States suggest that might in anyway reduce the bonuses, wealth, and power of those involved in the Square Mile has been opposed with religious fervor by successive UK governments. For the UK, the free movement of capital rules.

But the free movement of people?

Prime Minister David Cameron is under pressure at home, particularly from the UK Independence Party (UKIP). He is struggling to come out ahead in the Lower House elections in May. To mollify his detractors, he vowed last month at the Tory Party conference to push the EU to reform its principle of freedom of movement. There was talk that he wants to introduce a quota system to restrict the number of people from Member States who come to live and work in the UK. And this would come even before the “in/out referendum” in 2017 that he is dangling in front of voters if they keep him in power that long.

Cameron’s battle is best carried out on TV. So when the cameras were trained on him at the last EU summit a little over a week ago, he threw an epic anti-EU hissy-fit. The European Commission, after taking a second statistical look at national income figures, had just handed him – surprise, surprise – a bill for €2.1 billion, payable by December 1, while some other countries would get a credit.

Cameron blew up in front of the cameras. This was “completely unacceptable,” he blustered. It was an “appalling way to behave,” he said. “I’m not paying that bill on December 1. If people think I am, they’ve got another thing coming. It is not going to happen.”

Chancellor Angela Merkel showed her empathy but then added that in private meetings with her and others, he’d never said that he wouldn’t pay at all. “He just had concerns about the short deadline.”

When it comes to money, the EU has always found a way around any disagreements, as the slew of wildly unpopular bailouts of banks, bondholders, and entire governments in the Eurozone’s periphery have shown. There would be some TV drama. Politicians and Eurocrats would fling pungent sound bites in every direction. They’d step on toes and sensibilities. But in the end, a deal would be made behind closed doors, and the dust would settle. Then taxpayer money would change hands. Bondholders would get bailed out. Taxpayers would be shanghaied into guaranteeing iffy debt of other countries. And the show of building this European mega-construct would go on.

But this time, it’s different. This time, it’s not about money.

Aunt Merkel threw down the gauntlet. If Cameron insists on quotas to restrict the free movement of people from Member States and limit the number of these folks who want to live and work in the UK, in clear violation of a core principle, well then, according to unnamed sources of the Spiegel, Merkel would end her efforts to keep Britain in the EU and would accept an exit.

That’s what she told him in a private meeting at the same summit where all the media circus had been about Cameron’s hissy-fit. The principle of free movement of people was a red line for the Federal Foreign Ministry and the Chancellery. Stepping over it would mark the “point of no return,” these sources explained. And Merkel made sure Cameron understood this.

Britain would have to fall in line or get out – that was the ultimatum. The subtext? Other prime ministers who’d refused to fall in line during the heat of the debt crisis had been pushed out of their jobs.

Harmony is hard to come by in the EU. In the end, it’s an arrangement about money and power, and how to divvy them up. Merkel is the ultimate politician. She came out of the debt crisis smelling like a rose, while most of her counterparts lost their jobs. She’s still immensely popular at home. And she is no longer shy about throwing Germany’s heft around.

Already rumors are swirling that Cameron would cave, that he’d try to appease Merkel and her ilk, and that he’d drop his idea of quotas, that he’d come up with something else that would go down better in Germany but would still allow him to claim victory at home, or something.

But Britain is pushing the envelope. Frankfurt is competing with the City of London. Britain’s exit from the EU could be catastrophic for the bonuses and schemes of the City of London. And a boon for Frankfurt. Bankers usually win. But this time, they’re lined up on both sides: if Britain leaves the EU, there will be some big winners in Germany’s financial sector. But it would also chop a big chunk off the largest market in the world. And no one would be ready for the consequences.

“Punishment Interest” is what the new phenomenon is lovingly called in Germany, whose savers the ECB intends to flog until their mood improves. Read… The Wrath of Draghi: First German Bank Hits Savers with ‘Negative Interest Rates’

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