Reich Kanzler Merkel and her diminutive side kick Sarkozy got a shock.
They had assumed that British Prime Minister Cameron could be bullied into surrender.
Merkel had gambled that all EU Member states would buckle under her bullying and agree to pass the right to draw their own budgets to unelected Eurocrats under the German Reich Kanzler.
After all, the German coup in Greece and Italy was followed by the Irish having to pass their budget to Merkel for approval before they submitted it to their own Parliament in apparent defiance of the Irish Constitution. It seemed such an easy step to force all EU members to submit to Germany.
What Merkel did not consider was the steel joist hammered up Cameron by the Quiet Man of British Politics, Ian Duncan Smith. In defence of British interests IDS gave Cameron the backbone that he has so obviously lacked. It now seems likely that Cameron will have the RSJ welded in to avoid any back sliding.
Even the opportunist LibDems have decided that Britain had to fight for its own interests and were also keen to retain their Ministerial salaries and cars.
The question now is – “Where does this all leave Europe and Britain?”
What was agreed by the surrender talks was that all other EU Members will agree outside the EU rules to allow Germany to set their budgets. There is no agreement that Germany will in any way underwrite the debts of EU Members even within the EuroZone. Negotiations will now start and aim to conclude in March 2012. Merkel assumes that the markets will do as she tells them and sit quietly until the end of March, buying her time that might see some miracle fly in from nowhere.
The deal gives Germany much and Europe little. It keeps the Germany Euro undervalued by around 17% which has helped German exports. It will also allow Germany to force Greece, Italy, Spain, Portugal and Ireland to take all the pain for decades by making them follow the German economic program. In effect, it is transferring wealth from the southern European countries to Germany, along with sovereignty.
For Britain it may offer a whole new set of opportunities and lead to a divorce from the EU.
Britain is a much bigger market for Europe than Europe is for Britain. Growth of trade to the EU has remained stagnant at a time when the EU share of world markets has been shrinking at the same rate that British trade outside the EU has been growing. Sarkozy is demanding Europe becomes increasingly protectionist and centrally controlled which is likely to speed the loss of world market share and provide new opportunities for Britain.
As the little Europeans huddle together, there is no guarantee that the markets will show any patience.
Greece, Spain and Ireland are already desperately trying to find printing capacity to print new bank notes in their own currency as it becomes increasingly likely that they will be forced out of the Euro and also have their voting rights in the EU suspended by Germany as punishment.
If those countries revert to their own currencies, they will be free to apply for IMF support as truly sovereign economies and have the chance to emulate Iceland and bounce back to growth and prosperity. That will then place great pressure on the remaining EuroZone members and perhaps force more of them out of the Euro. It will also mean the remaining EuroZone members will see the Euro value rise and threaten remaining exports.
The other implications are that the US and the UK as the major IMF shareholders may respond to Franco German demands for loans by calculating the EuroZone as a single sovereign area and force Germany to start underwriting Euro debt before any loans are provides.
Increasing times ahead and the Euro looks even more likely to implode, possibly even before Christmas.