For Britain’s sake, save the Euro

Roger LiddleLord Roger Liddle is a Labour Whip and a frontbench spokesperson on Europe and Foreign Affairs in the Lords

As the Coalition government moves from one confusion and contradiction to another, the public will gradually realise that it is trying to blame the Eurozone for the double dip recession.

Whatever the future risks in the Eurozone, and of course they are severe, in the past year, the facts show that in the Eurozone growth was higher than in the UK.

The EU Approval of Treaty Amendment Decision Bill is a small, two clause piece of legislation, but of central importance to a very large topic – the future of the Euro. This is crucial to Britain’s future prospects for growth and jobs.

The Bill is an enabling measure – to ratify an amendment to the Lisbon Treaty under its new simplified revision procedure, which allows the Eurozone members to set up the Europe Stability Mechanism (ESM), within the framework of the EU treaties.

As a non-member of the Euro, Britain is not a signatory to the new treaty itself. We can have opinions on it, but the Bill simply gives licence to our Eurozone partners to negotiate their own treaty on the ESM. We are legislating only on the enabling Treaty change. 

Getting the ESM up and running is a necessary part of the Eurozone’s response to the crisis. However, no one should kid themselves that this is a sufficient response.

Five additional things are required.

First, the firewall needs to be bigger in scale and more flexible in its operation. The existence of the ESM cannot be a substitute for a European Central Bank (ECB) that is prepared to intervene decisively in the bond markets, to stem otherwise self-fulfilling speculation and panic. 

Secondly, the ESM should be preparing to act quickly to recapitalise weak banks on a pan-Eurozone basis. Only decisive action to recapitalise and restructure Eurozone banks can enable the countries at risk to break out of this cycle of doom.    

Third, the ESM has to become fully operational from Day One, not incrementally as presently planned. It should be moving to a model where it is either able to access the ECB for funds, or issue a form of Eurobond in its own right; rather than depend on subscriptions and promissory commitments from Eurozone member state Treasuries. And it should also act by majority voting – to speed quick and effective decision making. 

Fourthly, the ESM has to become part of a more balanced strategy for handling the Euro crisis. A growth plan is under preparation in Brussels. Its main thrust will be a boost to EU financing of investments in the most afflicted economies, through greater flexibility in the use of unspent Structural Funds, a recapitalisation of the European Investment Bank, and an experiment in project bonds. 

These initiatives are welcome, but are not enough. Southern Europe needs a stimulus to growth now. The European authorities need to slow the pace – if not the scale – of required deficit reduction by member states. The Commission argues the fiscal compact contains plenty of flexibility, which should be used.

Finally, the Eurozone needs more balance between the strong and weak in the urgent competitiveness adjustment that is required of all members.

Today, the consequences of Euro break-up would be horrendous. Euro-sceptics make a fundamental mistake in thinking that for a country like Greece, exit from the Euro would solve its problems. They imagine it would be like a classic devaluation of the type Britain has seen so many times in its post-war history, a repeat of the British exit from the ERM in 1992 – one of the few UK devaluations that appeared to work.

The break-up of the single currency would be of a completely different order.

We would be seeing the emergence of a failed state on Europe’s south eastern flank – with incalculable consequences for relations with Cyprus, Turkey and the rest of the Balkans, where we have spent two decades,  billions of pounds, and some British lives trying to stabilise and help.

It is just too awful to contemplate. This is why, for Europe and Britain’s sake, the Euro must be saved, and why it needs a comprehensive new policy to save it.

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