Even as Ireland is rescued by the European Union and the International Monetary Fund to the tune of £70billion, economists and market makers are warning that the euro crisis is far from over. Indeed, it could be just beginning.
Portugal is the next indebted eurozone economy which the markets believe is vulnerable, and may have to be bailed out as Ireland and Greece have been. Spain could then be targeted. Its economy is roughly seven times larger than Ireland’s.
Rescuing a country as big as Spain would put enormous pressure on the EU’s bailout fund. It would entail the European Central Bank taking on the country’s debt, which would dramatically undermine the markets’ confidence in the euro.
Against the euro: Margaret Thatcher and Gordon Brown. They understood the single currency's flaws
No one can say what would then happen. The euro might just conceivably collapse, though the German and French governments will fight very hard to save it because it is the centrepiece of the project for a united Europe. A more likely outcome might be a two-tier euro in which weaker economies such as Portugal, Greece, Spain and Ireland were allowed to devalue their currencies. That would entail the end of the euro as we know it.
What do such seismic shocks mean for Britain? It would obviously not be in our short-term interests for the euro to go under in a way that created economic mayhem in the 16 eurozone countries, which account for a large proportion of our trade. That has been the Coalition’s justification for providing some £10billion to Ireland in loans and guarantees as part of the bailout, since the country, though small, is one of our largest trading partners.
A bankrupt Spanish government could have repercussions even on the British high street. Spanish-owned Santander, which has ambitions to be Britain’s biggest bank, is thought to be sound. But it could hardly remain unaffected were the Spanish economy to collapse.
As further upheavals and more bailouts loom, we should be asking ourselves some fundamental questions. Is it in the interests of the United Kingdom to be spending billions of pounds shoring up a failing currency? Is it to the benefit of ‘basket cases’ such as Greece and Ireland to be rescued in this way? And is the long-term survival of the euro in the interests of this country?
The euro, never forget, is first and foremost a political project. Its architects believed that Europe could be bound together in a fledgling superstate only if its countries ceded economic sovereignty and adopted a common currency.
Here is the moment to doff our caps at the two leaders who understood the essentially political nature of the project as well as its economic flaws. It was above all Margaret Thatcher’s suspicions of what was then the European Community, as well as of the proposal for a single currency, which led to her downfall. And, although it pains me to say so, Gordon Brown was responsible as Chancellor for keeping us out of the euro when Tony Blair was an enthusiastic advocate for joining it.
The euro is defective because it seeks to bind together disparate countries which run their economies in very different ways. Germany, at one extreme, is generally a tight ship. Greece, at the other, has been spending money on a scale it could not afford. In good economic times, the differences could just about be accommodated but the tensions became unsustainable when the Great Recession hit.
Ireland, Greece and Portugal have significantly lost competitiveness against the eurozone’s strongest member, Germany, since the launch of the single currency. Without the ability to devalue their currency, they will be unable to stage an economic recovery.
The EU rescue countries are like doctors pressing drugs on a patient when the only real cure is an entirely new lifestyle. A single currency for a group of countries that can run up huge deficits is a flawed concept. If it is difficult now to see how the euro can survive in its present form, it will be impossible when – or if – Spain is taken into intensive care, not inconceivably followed by Italy. Although undoubtedly a cause for concern in the short term, the euro’s tribulations should be a cause for some rejoicing in the longer term.
If the euro is the engine for European integration, it follows, if the engine misfires and threatens to go dead, that those who believe in the sovereign nation state should be relieved. The lesson of the past 20 years is that the European elites, Britain’s included, have high-handedly committed their peoples to ever greater integration.
The Labour government broke its promise to call a referendum on the Lisbon Treaty, which would have almost certainly been rejected.
The juggernaut rolls on even under this government, led by a supposedly Eurosceptic Prime Minister who has recently declared that he will not call a referendum on another European treaty, on the questionable grounds that it will not affect this country because we are not part of the eurozone.
In other words, the possible demise, or at least the radical curtailment, of the euro project is the only realistic means by which the European superstate can be stopped in its tracks. That is why I was so surprised to hear the Chancellor, George Osborne – allegedly a Eurosceptic – say on the BBC yesterday that ‘we have got to make the single currency work’. Why, if its successful operation would strengthen the movement towards European integration?
The balance of probabilities is that the euro cannot be made to work in its existing form, but do not underestimate the determination of those who will defend it in the last ditch. The new treaty, which Mr Cameron says he will rubber-stamp, is intended to increase the powers of the European Central Bank and the European Commission over ‘miscreant’ countries such as Greece, Ireland and Portugal. What has just been done to Ireland – the country has been stripped of its economic self-determination – may be a foretaste of what is to come.
The euro crisis should provide the British government with an excuse to put a check on the European project, and present its vision of Europe as a loose coalition of friendly sovereign states trading with one another. Instead, we see – through its loan to Ireland and Mr Osborne’s disarmingly pro-euro rhetoric – the Government propping up the very thing that most threatens what remains of British sovereignty.
No one should be fooled by the Chancellor’s assertion that the loan to Ireland is ‘bilateral’ and thus has nothing to do with Britain’s obligations under an EU bailout agreement.
Mr Osborne was less than robust in suggesting that Britain will try to exempt itself from this ‘stability mechanism’ to which Alastair Darling foolishly signed up when he was Chancellor.
As things stand, if Portugal and Spain go down, hard-pressed Britain will have no option but to lend them billions of pounds – and again shore up a failing currency – whether it wants to or not.
The euro is not good for many of its members. It is the motor of European integration. Why, then, does this government, supposedly led by Eurosceptic Tories rather than Europhile Lib Dems, regard the difficulties of the single currency as merely a crisis – and not also as an opportunity?
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