So here we go again!
Yet another ‘last chance saloon’ Eurozone crisis conference. Maybe, just maybe, this Friday’s summit will be the game changer that financial markets so earnestly desire. In truth, I am still not convinced, in spite of coverage to the contrary, that Angela Merkel has the domestic political capital to drive forward fiscal union. Her electors may warm to the imposition of Germanic economic discipline on southern Europe, but the inflationary consequences of ECB money-printing provide a profound psychological road block. I also suspect her view of ‘fiscal union’ may be markedly different to that of Nicolas Sarkozy.
A brake on this headlong rush towards fiscal Eurozone union, however, may not be such a bad thing for the UK’s national interest. It also stands to make life easier for the coalition government, which is already trying to finesse demands for holding a referendum insofar as these Eurozone developments necessitate the drawing up of a new EU treaty. A fiscal union amongst the seventeen Eurozone nations, even if created at a time of crisis, would almost certainly impose radical economic reform throughout the EU. The skirmishes between the UK and the Franco-German axis over the proposed financial transaction tax would be merely the foretaste to a long battle over London’s pre-eminence in European financial markets.
Moreover, the bypassing of national democratic safeguards implicit in making the Eurozone a single economic unit would surely act as the genesis of severe future strains on the whole structure. Indeed the clear democratic deficit with what is being proposed as the quick-fire solution to the EU’s economic travails unarguably represents the seeds of its future destruction.
More pertinent for the UK in the near term would be the prospect of a superficially more stable Eurozone becoming an apparently safer haven for investors. This would almost certainly lead to a consequent and substantial rise in the cost of UK government borrowing on our ever increasing public debt as this decade proceeds.
The stark fact is that the UK’s craving for stability in the Eurozone is probably better served by an orderly and relatively rapid realignment of the Eurozone. Naturally neither of these essential conditions can be easily achieved. However, the departure of Greece and Portugal – to name two – from the Eurozone (presumably accompanied by an ongoing commitment to support the sale of their gilts for a future period) would send us into unchartered territory in the immediate term. The optimistic scenario is that the Eurozone as a whole would then become more stable, whilst the economies of the departing nations would, courtesy of a massive devaluation, be allowed to become competitive once again. Elusive economic growth returns quickly throughout the EU.
Adopting this path would certainly not come without risk; nevertheless I suspect that opponents of a break-up are considerably exaggerating the Armageddon scenario that might follow from a relatively orderly fracturing of the seventeen-strong Eurozone.
Sadly the frenzied continental summitry this week is unlikely seriously to turn its mind to options other than fiscal union (whatever that term may mean). It is not the first time we on this side of the Channel should be uneasy that the activities of core Eurozone members are so manifestly at odds with the British national interest.