Sean O'Grady: Economic crisis has created unlikely alliances for Cameron

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These must be heady days for Conservatives, and especially for David Cameron. Not so long ago the easy prediction was that a Tory election victory would mean a new cold war between Downing Street and Brussels.

And yet a combination of deft economic diplomacy and events have conspired to turn Mr Cameron into a natural, and valuable, ally of the German and French governments. Mr Cameron is not only from the same centre-right tradition as Chancellor Merkel and President Sarkozy, he is also a staunch supporter of their hawkish fiscal conservatism. Meanwhile, the euro is looking less like a cause worth fighting for than it ever has. If the currency does split up, it will be the ultimate vindication of Mrs Thatcher, who argued 25 years ago that the Delors plan for a single currency was a bad idea for all in Europe.

George Osborne used the first G20 meeting of finance ministers to enshrine the doctrine into the text of the communiqué: "Those countries with serious fiscal challenges need to accelerate the pace of consolidation. We welcome the recent announcements by some countries to reduce their deficits in 2010 and strengthen their fiscal frameworks and institutions." It was carefully worded; you can argue about whether Germany needs to do that, but if she thinks she does – in order to pay for bailing out the rest of Europe – then who can argue with her?

Hence the Americans' annoyance. Not only do they have stubborn Chancellor Merkel to deal with, their old ally Gordon Brown has disappeared; the election of David Cameron tipped the balance in the G8 and G20 against continuing the fiscal stimulus and towards a simultaneous and accelerated withdrawal of that stimulus. Japan is the latest to announce tax hikes and cutbacks. The risk is the world plunges into a double-dip recession, a repeat of the 1930s and 1990s Japan, as Mr Obama, obliquely, explains in a letter to G20 leaders. Yet the risks on the other side are frightening too; a banking system that can no longer be rescued because governments have themselves run out of credibility and cash. Germany's frankly generous help to save the euro is piling up enormous contingent liabilities on to her economy. The Americans are almost alone in their support for Keynesian answers. That may be because, uniquely, they can borrow without limit. Such is the resilience of American financial prestige that investors regard the US as a "safe haven". They are more than happy to hold US Treasury bills with virtually no interest paid on them. For now.

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