So what a momentus few days. A summit. A veto. A new treaty. Where does this leave everyone and in particular what does this mean for the UK?

Cameron said no because he felt the new treaty did not have enough safeguards for the city of London. He was right to do this. Why?

First the city of London is one of our few centres of excellence we have and generates enormous tax revenues for the treasury. To let France in particular run riot and pass legislation that would have certainly made London less competitive than New York, Hong Kong, or Singapore would have been political suicide as well as guaranteed London lose even more of its status as the finance centre of the world.

Second I guess Cameron has made a tactical gambit here that he believes the eurocrisis has much further to run. He may well have come to the conclusion that in 6-12 months there will be no large core euro group and any idea that its 26 against 1 will have been long gone. Yes if this comes to pass we may not all care as employment, the economy and the markets would have tanked long before the conclusion is reached but Cameron can rightly stand proud and say “nothing to do with me – I saw it and didn’t get Britain involved”. I think he is totally correct in this assessment incidentally.

Finally I suspect he said no because he knew that even if he said yes he would be unable to come back to the UK and ratify it in parliament without a referendum – which surely would have said “hell no”. This would have been the worst outcome for everyone. He would be humiliated, the summit resolutions would be made instantly irrelevant and it would have taken even more time.

So what of the summit itself? Success? Failure? Well predictably neither. For all the talk of a “few days to save the euro” precious little was decided upon that can make a serious impact on this crisis. The most important news came not from the summit but rather the ECB which has made it clear now that it will do whatever it takes to save the banks but won’t (or can’t) do anything to help sovereigns. This message has now been delivered so many times I really do get the feeling that the big bazooka the market is hoping for will never ever happen. Germany simply isn’t ready to do it. I think the other most striking thing about the summit was that it is doing almost nothing to deal with the huge debts that are currently out there. Ok so you have budgetary discipline (which won’t work btw) and you restrict future debt growth but what about the trillions of euros due next year? Whats to be done about that? And if you really are capping budgets to deficits of 0.5% per year then where is the growth coming from? Austerity will _never_ provide growth.

All in all I’m quite pessimistic now this is going to end remotely well and I think Cameron will be shown to have, in Boris’ words, played a blinder here. Banks are clearly already on the edge and all it will take is a mass ratings downgrade (threatened by S&P last week), and a few more weeks or months of no credit then a major bank will fail – probably German by the way – and at that point the system will crumble. The outcome? Well money printing by BoE, Fed and, perversely, the ECB, mass unemployment combines with business failures and a return to protectionist trade measures. While the UK will suffer from this I suspect being out of the core eurozone that it will suffer orders of magnitude better than Germany itself.

Its going to be an interesting two weeks up to Christmas and then in the new year – well… happy new year.

A fairly quiet day on the markets today. The real news was Mario Draghi’s comments on the role of the ECB, Merkel issuing yet another “nein”, and the BOE making some truly stupid statements. Lets look at each.

First up super Mario talking today to 25, yes 25, members of the european parliament. The fact only 25 MP’s bothered to turn up is truly extraordinary it itself. Do EU MP’s truely have that lack of respect for the one person who can seriously affect this crisis? Once again I say the politicians must do better. Not for me, not for them but for the millions of people who will be catestrophically affected by a true euro collapse. Mario did offer the vaguest hints however that the lady is indeed for turning and the ECB could be pursaded to bolder action in return for tighter fiscal union. I still think fiscal union is a great idea but the idea 17 member states can get around a table and agree to sign away their budgetary controls to a central body is so absurd it almost makes me laugh. It will never ever happen. Ever. Can you imagine? Germans imposing austerity on the French? We are back to world war territory for sure.

So what was next. Ah yes Merkel saying no yet again to eurobonds and insisting, as per above, the answer is fiscal union. It is not amazing that she said it, its truely amazing the lack of respect she has for anything beyond Germanys borders. By showing absolutely no flexibility she is giving two fingers up to the central banks who attempted to show willing yesterday, two fingers up to just about every world leader and is missing the most blatant point which is either Germany pays through the bailout of its insolvent cousins or it pays ever more when they default taking the worlds banking systems with it. Germany will pay. Mark my words.

Finally we have the BOE saying banks should “preserve capital by not paying bonus’ or dividends” at the same time as saying “the priority must be to keep up lending to businesses” and finally they should be looking to raise capital buffers. These are totally contradictory statements. You can’t on the one hand ask a person for a loan at the same time as telling a person to save more. You do one or the other. Besides the idea there will be any bank bonus’ anywhere this year is, in my opinion, highly dubious. Banks know most won’t be paying much if anything so by default none are worried that by paying very little they are risking key employees leaving. In my experience most bank workers are more happy they still have jobs than worrying about what they’ll be paid at end of year. And all this is before the absolute fury they will invoke with the public at large if they pay a cent amidst global austerity . No bank is that stupid. Surely. Well GS probably is but the less I say about them probably the better.

So i haven’t posted for a few days as… well.. frankly it seemed to just be more of the same. Markets diving, politicians procrastinating and dropping the ball, Germany saying “nein” to just about everything and, of course, the obligatory eurozone finance ministers meeting that resulted in absolutely nothing (or actually to be fair even worse as they seemed to manage undermine every part of the so called grand solution they had put together just over a month earlier).

Things all in all were not looking good.

And to be fair they still aren’t. However what we have had today is the first sign of a global response to this crisis with the 50bp cut by the ECB, Fed, BOE and BOJ. It seems the situation was so bad, money markets so frozen and close to massive systemic collapse that only a coordinated liquidity injection by every major central bank was enough to kick start the system back into life. If this doesn’t scare you into considering how bad things have got then well.. nothing will.

So will this work? Well the exact analogy to what has happened today is that you’ve had a man who has had a heart attack and the doctor is now administering CPR. The first shock he is given (austerity) didn’t work. A second shot (EFSF) didn’t result in any meaningful improvement so a final massive shock is applied – and the patient shows sign of life. But the key question is will this final shock revive the patient onto a path of recovery or is the final death throw before he finally expires. On the basis of the markets reaction today the patient is at least still alive. What I suspect markets will want to see now though is a meaningful follow through from the major eurozone countries and the ECB to back it up. Apart from anything else if the leaders once again try to muddle through, ignoring the obvious signs they are leading the world into a second great depression, then Obama, China and the rest of the world would be perfectly in their right to throw up their hands and say “you know what – you can just default and to hell with it – we’ve tried everything else”.

What do I think will happen? Well I am quietly optimistic this might be the first sign people have at last understood what is at stake here. I expect the ECB to start lending to the IMF, and then the IMF lend directly to countries in trouble (Spain, Italy etc). Its a bit of fudge as the ECB might as well just give the money direct to the countries but if it gets around the German “nein” issue then as the route of least resistance I expect it will be taken. I next expect some serious further steps will be taken to create a true fiscal union (what Germany really wants) to be announced at the next EZ leaders meeting. Finally I expect even more austerity to be imposed in just about every major western economy combined with massive QE by central banks in the new year.

The one thing I would say though is that if what I say above comes to pass and this is the genuine start for the recovery for the eurozone then what today has done is shown very clearly that governments will adopt ultra loose monetary policies well into next year to try to , effectively, print their way out of the situation. And what does liquidity and more money mean people? Liquidity means inflation and inflation if you’re not careful will _kill_ savings and create massive social unrest (you didn’t think more money would mean higher wages did you?).  So what to do? Well the best traditional hedges against this are gold, commodities in general, and physical assets such as property or art. Why? Well if there are only a finite number of resources and the money supply has massively increased (i.e. people have more of it) then each will be able to bid higher and higher sums to acquire said resource. I’m just saying….

We live in interesting financial times.