The fate of the eurozone – how Europe can survive the crisis

Lord Maclennan

Federal Union and the Federal Trust held a conference on Saturday 29 October 2011 to examine the roots of the crisis in the eurozone and to explore possible solutions.  Why is the eurozone in a fix?  How can it get out again?

The speakers at the conference were Stephen Haseler, professor of government at London Metropolitan University and director of the Global Policy Institute, George Irvin, honorary Research Professor, University of London, SOAS, Lord Robert Maclennan, Liberal Democrat peer and member of the European Convention 2003-4, John Palmer, former European editor of The Guardian and founder political director of the European Policy Centre, and John Stevens, former Conservative MEP.  This report is a synthesis of what was said during the day.

It is worth distinguishing between the economic and the political aspects of the crisis.  Economically, the problem is that some countries in the eurozone have debts that they cannot service and, as a result, will soon be unable to go to the markets to borrow further funds.  Greece is the most obvious example at the moment, but it is by no means the only country that might be at risk.

If those countries are to remain afloat, they will need to be lent money by other countries, whose governments have access to deep pools of capital for lending and who can take decisions for political rather than narrowly commercial reasons.  The sums of money needed are large: Spain and Italy between them need to borrow more money next year than the European governments have currently made available.  Something has to give.

The political aspect of the crisis lies in the current inability of the eurozone governments to provide enough money.  Some are concerned about maintaining their own AAA credit rating, others have domestic opposition to providing more funds for apparently untrustworthy partners.  The result is that the economic crisis is being allowed to get bigger.  It is absurd that a problem in Greece – 2 per cent of the European economy – should imperil the whole European project, but there it is.

The paralysis of the European governments does not encourage the rest of the world to help.  If the German government cannot bring itself to help Italy, why should the Brazilian?  If the Chinese government were to help, what political demands might it make of its own?  Would those demands be preferable to any that the Germans might make?  The very notion of Europe as an autonomous power in the world could end up at stake, all because of 2 per cent of the European economy and an unwillingness to act.

The institution of collective borrowing up to, say, 60 per cent of GDP would cut borrowing costs, cut the risks of default and reduce the consequences of any default that might occur.  This would imply some form of fiscal integration between the member states of the eurozone and some form of common decision-making over their macroeconomic policies.  That in turn implies common electoral politics on bread and butter issues at a European level.  Can the eurozone countries bring themselves to take this step?

There is an additional final aspect to all this, at least from a British perspective, which is whether the United Kingdom might ever take part in such a European step.  Opinion across all the main political parties, even the pro-European ones, is hostile, and the media is even worse.  But the alternative to taking part is to be isolated from the life of Europe in a way that British politics has sought to resist since the early 1960s.  A moment of decision is coming: what will the British decide?

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For more reading on this issue:

“Only a Federal Rescue Can Save Us”, by Stephen Haseler

“More half-measures for the euro”, by George Irvin

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