Britain and the Eurozone: on the outside looking in

British pub­lic and polit­i­cal reac­tions to the cri­sis of the Euro­zone aris­ing from the indebt­ed­ness of the sin­gle currency’s mem­ber states have been almost uni­form­ly neg­a­tive.11Finan­cial Times pas­sim in 2010, par­tic­u­lar­ly W. Mun­chau: The Euro­zone must take respon­si­bil­i­ty or it will split, Finan­cial Times, 9 May 2010; W. Mun­chau: To save the Euro­zone, reform its gov­er­nance, Finan­cial Times, 16 May 2010; M Wolf: Euro­zone plays “beg­gar may neigh­bour”, Finan­cial Times, 18 May 2010. The cri­sis itself is wide­ly seen as jus­ti­fy­ing Britain’s deci­sion to remain out­side the sin­gle cur­ren­cy and as def­i­nite­ly hav­ing the poten­tial to destroy the Euro­zone. The fol­low­ing analy­sis from the British per­spec­tive of the dif­fer­ing ele­ments of the Eurozone’s cri­sis and its pos­si­ble res­o­lu­tion must be set against a polit­i­cal con­text in which Britain is extreme­ly unlike­ly to join the sin­gle Euro­pean cur­ren­cy for many years to come, if ever; in which there is now lit­tle pub­lic sup­port in the Unit­ed King­dom for British mem­ber­ship of the Euro; and in which what sup­port there may have been a year ago for British mem­ber­ship of the Euro has been great­ly reduced by the Eurozone’s con­tin­u­ing crisis.

Greek sovereign debt

At the time of writ­ing in late May 2010, it is gen­er­al­ly believed in the Unit­ed King­dom that Greece is now pro­tect­ed against the immi­nent threat of debt default, but that this threat may well return in the medi­um term, par­tic­u­lar­ly if oth­er coun­tries in the Euro­zone, such as Spain and Por­tu­gal, find them­selves con­front­ed with sim­i­lar prob­lems to those of Greece in regard to their pub­lic indebt­ed­ness. A num­ber of com­men­ta­tors in the Unit­ed King­dom believe that in the longer term the Greek gov­ern­ment will inevitably be forced to restruc­ture its sov­er­eign debt. There is in addi­tion to this pes­simistic expec­ta­tion a wide­spread per­cep­tion in this coun­try that the gov­ern­ments of the Euro­zone have only tak­en action over the past six months when forced to do so by glob­al mar­kets, react­ing to events rather than shap­ing them. The ill-coor­di­nat­ed response of the Euro­zone to the Greek debt cri­sis is gen­er­al­ly seen in the Unit­ed King­dom as reflect­ing seri­ous faults in the gov­er­nance of the sin­gle Euro­pean cur­ren­cy. Some crit­i­cism is direct­ed par­tic­u­lar­ly at the Ger­man Chan­cel­lor, Angela Merkel, for her sup­posed uncer­tain han­dling of the cri­sis.22Kalet­sky: It’s Lehman the sequel, with Merkel as Bush, The Times, 26 May 2010. Oth­er com­men­ta­tors stress what they see as the sys­temic weak­ness­es of the Eurozone’s gov­er­nance arrange­ments.33Red­wood: The Euroscep­tic case for sav­ing the Euro, The Times, 27 May 2010.

The Stability and Growth Pact

It is gen­er­al­ly accept­ed by British com­men­ta­tors that the Sta­bil­i­ty and Growth Pact needs rein­force­ment in such a way as to ensure that its pro­vi­sions are bet­ter observed in future.44J. M. Aznar: Europe must reset the clock on sta­bil­i­ty and growth, Finan­cial Times, 17 May 2010. There is how­ev­er con­sid­er­able par­al­lel con­cern that a more rig­or­ous appli­ca­tion of the ele­ments of the Pact relat­ing to gov­ern­men­tal deficits may, in the spe­cif­ic eco­nom­ic cir­cum­stances of the next decade, restrain the eco­nom­ic growth nec­es­sary to help the coun­tries of the Euro­zone escape from their under­ly­ing eco­nom­ic dif­fi­cul­ties. This con­cern is some­times linked to a famil­iar crit­i­cism of the whole basis of Euro­pean mon­e­tary union, the crit­i­cism that the economies of the Euro­pean Union are so diverse in their degree and type of devel­op­ment that any “one size fits all” pol­i­cy with­in the Euro­zone must inevitably pro­duce sub-opti­mal results.

Coordination of economic policies

The cri­sis of the Euro­zone pro­voked by high lev­els of indebt­ed­ness among its mem­ber states has rein­forced an already wide­spread belief in the Unit­ed King­dom that the Euro­zone was set up with inad­e­quate struc­tures of gov­er­nance.55T. Bar­ber: Europe: a tent to attend to, Finan­cial Times, 16 June 2010. These struc­tures have seemed able nei­ther to pre­vent the bur­geon­ing cri­sis, nor to react effec­tive­ly to it once it had emerged. Nor does the Euro­zone yet seem capa­ble of devel­op­ing an over­all strat­e­gy to pre­vent the nec­es­sary reduc­tion of gov­ern­men­tal debt among its mem­ber states over the com­ing years from act­ing as an intol­er­a­ble brake upon eco­nom­ic growth.

Against this ana­lyt­i­cal back­ground, opin­ion is divid­ed with­in the Unit­ed King­dom as to whether the Euro­zone will be able to devel­op what is wide­ly accept­ed in this coun­try as a desir­able goal, name­ly the bet­ter, specif­i­cal­ly growth-relat­ed, coor­di­na­tion of eco­nom­ic poli­cies. Some British com­men­ta­tors doubt the will­ing­ness of the Euro­zone coun­tries, par­tic­u­lar­ly Ger­many, to engage in such coor­di­na­tion. Oth­ers believe that the real prospect of the destruc­tion of the Euro­zone, evoked by among oth­ers Merkel, will per­suade Euro­pean lead­ers to rem­e­dy the struc­tur­al defi­cien­cies of the Euro­zone in such a way as to seek a bet­ter bal­ance between eco­nom­ic reform, eco­nom­ic growth and sound gov­ern­ment finances.

It is worth not­ing that nei­ther the greater coor­di­na­tion of nation­al eco­nom­ic poli­cies with­in the Euro­zone, nor its absence, will make it more like­ly that the Unit­ed King­dom should join the Euro­zone. The absence of this coor­di­na­tion would pro­vide an eco­nom­ic ratio­nale for this country’s remain­ing out­side the Euro­zone. Its pres­ence would pro­vide a polit­i­cal, sov­er­eign­ty-pro­tect­ing ratio­nale for the same policy.

Europe 2020 Strategy

There has been no sig­nif­i­cant pub­lic or polit­i­cal dis­cus­sion of the Europe 2020 Strat­e­gy in the Unit­ed King­dom. The Europe 2020 Strategy’s pre­de­ces­sor, the Lis­bon Agen­da, is regard­ed in this coun­try as hav­ing been at best only mod­er­ate­ly suc­cess­ful in its ambi­tious goals. The cri­sis of the Euro­zone will cer­tain­ly pro­vide ammu­ni­tion to those crit­ics argu­ing that the Europe 2020 Strat­e­gy is unlike­ly to improve on the mod­est achieve­ments of the Lis­bon Agenda.

    Footnotes

  • 1Finan­cial Times pas­sim in 2010, par­tic­u­lar­ly W. Mun­chau: The Euro­zone must take respon­si­bil­i­ty or it will split, Finan­cial Times, 9 May 2010; W. Mun­chau: To save the Euro­zone, reform its gov­er­nance, Finan­cial Times, 16 May 2010; M Wolf: Euro­zone plays “beg­gar may neigh­bour”, Finan­cial Times, 18 May 2010.
  • 2Kalet­sky: It’s Lehman the sequel, with Merkel as Bush, The Times, 26 May 2010.
  • 3Red­wood: The Euroscep­tic case for sav­ing the Euro, The Times, 27 May 2010.
  • 4J. M. Aznar: Europe must reset the clock on sta­bil­i­ty and growth, Finan­cial Times, 17 May 2010.
  • 5T. Bar­ber: Europe: a tent to attend to, Finan­cial Times, 16 June 2010.

The reports focus on a report­ing peri­od from Decem­ber 2009 until May 2010. This sur­vey was con­duct­ed on the basis of a ques­tion­naire that has been elab­o­rat­ed in March and April 2010. Most of the 31 reports were deliv­ered in May 2010.

The EU-27 Watch No. 9 receives sig­nif­i­cant fund­ing from the Otto Wolff-Foun­da­tion, Cologne, in the frame­work of the ‘Dia­log Europa der Otto Wolff-Stiftung’, and finan­cial sup­port from the Euro­pean Com­mis­sion. The Euro­pean Com­mis­sion is not respon­si­ble for any use that may be made of the infor­ma­tion con­tained therein.