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The French Central Bank Chief Christian Noyer kicked off the cross channel row with a vicious unprecedented attack on the British economy which was then conveniently followed by the French Finance Minister Francois Baroin.  The French Premier Francois Fillon echoed his Finance Minister’s thoughts even Europhile Liberal Democrat Deputy Prime Minister Nick Clegg had to publicly denounce those comments as “simply unacceptable”.

According to the French troika, profligate Britain with a similar level of debt as France but with higher deficit and higher inflation should be in the cross-hairs of the credit rating agencies and not their beloved republic.  Well, there is some logic to that argument.  But when the facts are analysed there are enough reasons for Britain to retain the faith of the investors when it comes to sovereign debt.

First and foremost, Britain’s sovereign debts are guaranteed by the lender of the last resort the Bank of England, which by the way has been practising a far more aggressive monetary policy than the European Central Bank.   Unfortunately, Mr. Noyer, although the head of his country’s Central Bank does not have the power to stand by his country’s sovereign debt and no wonder he is angry and desperate.

Second, the Prime Minister and Chancellor of any British Government has the right to spend more money, if they see fit, to kickstart economic recovery when confidence is low and also if one take the cynical approach to fit the electoral cycle.  But French politicians are slowly starting to realise they simply do not have the powers to do so and the new “fiscal compact” would further reduce their control over economic policy.

What is worse, the French electorate is slowly but surely waking up to the loss of sovereignty and the signs are not good for Mr. Sarkozy and his UMP party.  Their opponents are leading in all polls in both Presidential and parliamentary elections next year.  What is worse for Elysee Palace, Marie Le Pen is stealing voters from Sarkozy’s camp and somehow her anti-EU rhetoric is striking a chord although much of her policies are despicable.  

The politicians thought a bit of Brit bashing especially so soon after Cameron’s veto should do the trick and it might pull off a coup.  If Britain was downgraded along with France then Sarkozy and his party save some face and that could be a brilliant political move.  So they threw the kitchen sink at it.

But alas, it backfired. Even French newspapers such as Le Monde which is no friend of Britain has questioned the motives of the unprecedented coordinated attacks on the UK.  And it had another unintended consequence – instead of marginalising David Cameron it has bolstered his support in the country and suddenly there are more member states wondering whether its worth signing up to the Fiscal Compact.

The Fiscal Compact, which the Prime Minister refused to sign, would impose nothing but austerity while many tools to make economies competitive again would be taken away.  And what is worse there is no guarantee that the European Central Bank would be allowed to step in and guarantee sovereign bonds.  

The whole treaty could be a poison pill which ensures a prolonged recession with an uncompetitive economy and no ability for national governments and central banks to do anything until an unelected eurocrats in Brussels approve.  No wonder the French politicians are angry because they realise their President has agreed to sign over French sovereignty to Berlin.  But we didn’t sign up to it.

And Britain, thanks to Gordon Brown, did not join the futile exercise called euro which would have to be reconfigured sooner or later.   For the sake of the global economy and to avoid bloodshed on European streets, the Eurozone leaders and the unelected eurocrats must wake up from their delusional dreams and get the debt crisis sorted with a lender of last resort.

But Merkel does not want to antagonise the Bundesbank and the German taxpayer.  What is bizarre that Merkel’s inactions are directly hurting the French economic situation and investor confidence yet Paris continues to attack Britain?  

One wonders why….