Jim McConalogue: Break-up of the euro – a ‘practical’ policy?

By Jim McConalogue

In a little-observed statement in the House of Commons on Monday this week, the Chancellor George Osborne – in responding to a question by Tory backbencher and Chair of the House of Commons Public Administration Select Committee, Bernard Jenkin MP, over the “orderly break-up of the euro” – stated in his reply, “… as I say, it would not be sensible to advocate to our European colleagues the break-up of the euro. That would greatly diminish what we had to say in these meetings, as it would not be seen as practical …”. Not be seen as practical?

The situation we are in is extremely imperfect – and George Osborne has been right to discuss our relationship with the Eurozone – but is it a tip-toeing diplomatic exercise to oppose a break-up, then maintain that is not practical or even unhelpful, and for the Chancellor to state, “I think that it would be disastrous for Britain’s economy if the eurozone were to break up, and I think that it would also be disastrous for the economies of the eurozone themselves”? Disastrous? If we break the economic problem down into its component parts, how difficult would it be to pursue? It is certainly not what Eurozone states want to hear – but surely we should be bringing the issue up with them in any case.

The interesting phrase was “it would not be seen as practical” – because it turns out, the reverse is true. As many in this country predicted, it does not appear to be working and it is the ministers of our Eurozone neighbours and EU institution officials that have never been practical about its workability and will do anything to keep the Euro-dream alive, at any cost. Many previous Chancellors – and Osborne in this sense may not be much different to his Conservative predecessors of the past 40 years, since 1972 – are reluctant to assert themselves on the European stage and simply say: this is not working for Britain. And because you have to tell a friend the painful truth does not mean it is impractical advice. Meanwhile, our history of acquiescence in this situation is concerning.

George Osborne may well want to listen to one former Chancellor. The practicality of a ‘break up’ decision was made clear when former Chancellor Lord Lawson made very public statements that the eurozone had been incredibly ill-conceived and it should now be disbanded. He said that “the people who are responsible for promoting the eurozone venture in the first place ought to be ashamed of themselves” and that “they are the architects of the most irresponsible political initiative that I can recall. The disasters that are being faced now, which we can overcome and get through, just as the Latin American debt crisis when I was first chancellor, which everybody thought was the end of the world. We got over that, we don't even remember it now.” The Chancellor would do well to take up that advice. 

But whether it is simple acquiescence or not, the Chancellor now advocates a policy of Eurozone fiscal union – meaning “those who follow the remorseless logic of monetary union end up with greater fiscal union”. In turn, this means Britain is circled. The Chancellor is positively promoting the vision that Britain (including his plans for growth) be hemmed in by a bloc of 17 no-growth, highly indebted countries with a proposed singular fiscal and economic government – and for Britain’s part, this means we will be greatly dictated to by their Eurozone policy across all measures. In that context, the Single Market is finished in all but name. It is being split in two and Britain certainly will not have the accumulated votes to change what is dictated to her by the Euro-17. And we certainly must have a Government policy that is prepared to confront the awaiting catastrophe. 

Surely what is practical is what the facts tell us: a Eurozone economy being ripped apart because of its own central policies on economic and monetary union. Youth unemployment in Spain is 46.2%, in Greece it is 42.9%. Eurozone countries are being bailed out, almost without question. The panicked Parliaments of Eurozone countries are simply buckling under any ineffective recommendation by Mr. Barroso. Last year, Greece’s debt stood at €328bn or 142.8% of GDP and is estimated to reach 166% of GDP in 2012. Greece will miss the original target of 7.5 percent of GDP as well as a revised target of 8.5 percent for this year in the 2012 – and the bailout money keeps flooding in (on top of the situation in Portugal and Ireland). The situation is dire. Should we just watch it grow worse?

Surely intervention would be “practical”. What happens when all the money runs out? Both British and European proposals to restore the public finances and regulating debt for the long-term must consider an orderly break-up of the euro. In fact, the Coalition must recognise that the “remorseless logic” of monetary union is its break-up and the returning of those states to their national currencies.