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Friday, September 16, 2011

Coalition all over the place on the eurozone

Irony alert.

Ken Clarke - former UK Chancellor, now Justice Secretary in the Coalition - went on Newnsnight last night, taking a swipe at politicians in the eurozone and the US.

Clarke said :
"The main thing I take from this crisis is unfortunately the political leadership in the USA and large parts of Western Europe have been totally overwhelmed by the dimensions of the crisis, not able to cope...You have paralysis in Washington, and paralysis in large parts of Europe because they are incapable of agreeing and everybody is fighting short-term politics. I do not think the British government comes out of it too badly when you make the comparison."
Incapable of agreeing, eh?

In contrast, the Coalition has a coherent view of what the eurozone should do...not.

This is what Clarke (who once said, “The reality of the euro has exposed the absurdity of many anti-European scares while increasing the public thirst for information. Public opinion is already
changing […] as people can see the success of the new currency on the mainland"), told Newsnight:
"I think the euro will survive... What the eurozone needs is fiscal discipline, that's what the eurozone needs. It doesn't need the same level of tax, it doesn't need the same level of spending. Governments can decide that for themselves whether they are high tax, high spend, or low tax, low spend. But discipline, fiscal discipline, controlling of deficits... we agreed it when I was chancellor and the Germans led the way in breaking it."
It's hard to interpret this in any other way than that Clarke thinks that adherence to the original Stability & Growth pact will cut it. In other words, in terms of the institutional set-up, the status quo, with some tweaks is pretty much sufficient. Eurobonds - which would inevitably have to involve more German (or at least centralised) fiscal control as quid pro quo - are not necessary, for example ('same level of spending').

PA reports that Osborne "is understood to sympathise with Mr Clarke's sentiments", which confuses us. This morning, Osborne told a conference thus,

"Crucially, my European colleagues need to accept the remorseless logic of monetary union that leads from a single currency to greater fiscal integration."

And last month he wrote in the Telegraph,

"Solutions such as eurobonds now require serious consideration if investors are to be convinced about the long-term future of the currency."

We're sorry, but this is something quite different to what Clarke is calling for. Osborne clearly signals the need for more fiscal integration, including possibly eurobonds - which in fact could undermine fiscal discipline due moral hazard, but could potentially compensate for some economic divergences within the eurozone, depending on how you implement them.

On his part, Nick Clegg said last month
"Countries like the UK should not see ourselves as spectators, watching from the wings, triumphalist, complacent, as if Europe's economic woes are a eurozone problem, rather than a problem for all of us - as if it is enough to put your own house in order, but then stand by and let the neighbourhood crumble."
He went on to say that though it isn't his role to "predict",
"On the one hand, some people, including senior members of the previous UK government [hello Jack Straw], are predicting collapse and doing so with short-sighted relish, given it would do lasting damage to the UK economy. On the other hand, some people are now arguing that only complete fiscal union can work...I expect – as is usually the case – things will end up somewhere in between these extremes."
So, on eurozone survival:

Clarke: More fiscal discipline by sticking to existing rules
Osborne: Existing rules are not enough - greater fiscal integration is inevitable
Clegg: Somewhere between fiscal union and break-up (while UK cannot watch from the sidelines while the house burns, meaning participating in bailouts?)

What was that about being incapable of agreeing? Something tells us that the Coalition would not have fared much better had it been running German eurozone policy...


Sheona said...

While I think Ken Clarke is right to criticise the leadership of the eurozone and to point out that Germany was the first to break the 3% rule, closely followed by France, it now seems too late to be urging fiscal discipline - several years too late. The damage has been done.

Agincourt said...

I'll tell you what'll concentrate their minds fast! Just wait until the SNP officially confirms that it is its policy that if/when Scotland secedes from the UK Union that an independent Scotland will join the EEA, not the EU!

Now that would focus their self-important little minds for them, wouldn't it? So, the best way to preserve the only union that matters, ie the UK Union, is to pre-empt Scotland's (& who knows else: Wales', Northern Ireland's, the Isle of Man's, Guernsey's, & Jersey's) decision to join the EEA, by Britain leaving befofrehand the accursed & loathesome EU for the much wiser & pleasanter bounds of the EEA?

AuntyEUnice said...

Q. Where do you live?
A. EUtopia.
Q. Where's that?
A. Next door to penury.

Ever notice that it's only those who are sheltered by Govt and EU jobs that are keen on the EU while the rest of us carry the burden of keeping them EU fanatics.

Rollo said...

Those that hate the Euro love to see the foolish politicians kicking the can further and further down the road: because it means that the bust up, when it comes, will be much more severe and destructive. Those of us, however, who would like to see the best possible outcome not only for the PIIGs and for the Europeans but also for us, would like to see orderly defaults by Greece, Portugal, Spain, Italy, Ireland, France and Belgium, leaving a stronger Euro in the competent countries and weaker and more suitable currencies in the weaker ones.