Britain is tied to the Eurozone – so why keep it at arms length?

Europe does affect British economic fortunes, which is why it is so counterproductive to pretend "so

Another quarter, another set of negative GDP figures, another drop back in recession for the British economy. The much talked about, yet elusive, recovery seems to be slipping from our grasp once again.

Many, especially Keynesian economists and those on the left of the political spectrum, will tell you this was inevitable. No surprise. Nor is it surprising that the government has been quick to blame everyone else for the state of the British economy. That’s what politicians do best.

According to the government’s script what is really to blame for the economic predicament we are in is the sovereign debt crisis in the Eurozone and the economic crisis it has generated. With our main trading partners in economic contraction our chances for recovery are significantly reduced, the story goes. Not to mention that the rising cost of raw materials like petrol is pushing our inflation rates up, while the global banking crisis is forcing the Bank of England to inject billions in the British banking system. At the same time, the printing of money is reducing the value of our currency, making imports of German cars, Japanese DVDs and American smartphones we love so much more expensive. And all the above combined is making the Bank keep interest rates at levels so low that they are starting to become unsustainable.

So much for the cherished economic, monetary and fiscal independence of Britain. The fact of the matter is that the government is, to a large extent, right. Most of what a very open but small and peripheral economy does is affected (and often dictated) by events that take place elsewhere.

The value of our GDP, the level of our inflation and interest rates, the very health of our economy are, by the government’s own admission, dependant on outside, European as well as global, factors. All we can do is tighten our belts and hope people will keep lending us money in affordable terms (their words, not mine).

As a result it is a bit disingenuous for the government to go on exclaiming their holy duty to maintain our economic and monetary sovereignty one moment while the next admitting that the very notion of "sovereignty" is void of meaning in the context of the internationally integrated economy Britain is plugged in to.

We are not just affected by the state the European economy is in. We are the European economy. Our trade inflows and outflows, our financial services sector, our supply chains and the source (as well as destination) of investment are one with those of the EU. And for good reason. This is the biggest market in the world and one of the most mature and sophisticated economies. Britain prospers when the EU economy does well and it suffers when it stagnates.

The plot really thickens when one keeps in mind that the EU has engaged in a process of monetary integration, soon to be coupled with fiscal and political union. No matter what the immediate and short term problems of the Eurozone (and its institutional architecture) are, the Eurozone and its single currency are so systemically important for the EU (and global) economy that it is a matter of when rather than whether the Eurozone will sort itself out and continue its path towards becoming a global reserve currency.

Before the sovereign debt crisis in Greece and the burst of asset bubbles in Ireland and Spain the euro had become the most held currency and the de facto second reserve currency. It has maintained that status throughout the financial and debt crisis of 2008 and 2010 and it has also kept its value, while global powers like the US and China have verbally and practically shown their confidence in the euro.

As a result we will soon find ourselves in a world where the global economy will be dominated by two, maybe three, currencies: the US Dollar, the Euro and the Chinese Renminbi. A situation that according to academic research (pdf) will contribute to the re-balancing of the global economy, away from the uni-polar and destabilising current system and towards a more sustainable multi-polar system.

The question is what happens to small and peripheral economies like Britain’s, with a freely floating currency like Sterling, when they get caught up in the headwinds of those three global reserve currencies and the enormous economies that underpin them.

Some people are forecasting that Judgement Day is approaching for the Eurozone. But the Armageddon they are predicting (or hoping for) is not going to take place. It is actually Britain that will have to make some important judgement calls in the not so distant future about how it wishes to welcome this brave new world. On the side-lines, affected by the elements of economic weather but unable to have an effect on them. Or as part of a strong and global currency. The sooner we start discussing the merits of that question the more prepared we will be for when the time comes to make this decision.

European Central Bank President Mario Draghi. Photograph: Getty Images

Petros Fassoulas is the chairman of European Movement UK

Photo: Getty
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Theresa May could live to regret not putting Article 50 to a vote sooner

Today's Morning Call.

Theresa May will reveal her plan to Parliament, Downing Street has confirmed. They will seek to amend Labour's motion on Article 50 adding a note of support for the principle of triggering Article 50 by March 2017, in a bid to flush out the diehard Remainers.

Has the PM retreated under heavy fire or pulled off a clever gambit to take the wind out of Labour's sails while keeping her Brexit deal close to her chest? 

Well, as ever, you pays your money and you makes your choice. "May forced to reveal Brexit plan to head off Tory revolt" is the Guardian's splash. "PM caves in on plans for Brexit" is the i's take. "May goes into battle for Brexit" is the Telegraph's, while Ukip's Pravda aka the Express goes for "MPs to vote on EU exit today".

Who's right? Well, it's a bit of both. That the government has only conceded to reveal "a plan" might mean further banalities on a par with the PM's one-liner yesterday that she was seeking a "red white and blue Brexit" ie a special British deal. And they've been aided by a rare error by Labour's new star signing Keir Starmer. Hindsight is 20:20, but if he'd demanded a full-blown white paper the government would be in a trickier spot now. 

But make no mistake: the PM didn't want to be here. It's worth noting that if she had submitted Article 50 to a parliamentary vote at the start of the parliamentary year, when Labour's frontbench was still cobbled together from scotch-tape and Paul Flynn and the only opposition MP seemed to be Nicky Morgan, she'd have passed it by now - or, better still for the Tory party, she'd be in possession of a perfect excuse to reestablish the Conservative majority in the House of Lords. May's caution made her PM while her more reckless colleagues detonated - but she may have cause to regret her caution over the coming months and years.

PANNICK! AT THE SUPREME COURT

David Pannick, Gina Miller's barrister, has told the Supreme Court that it would be "quite extraordinary" if the government's case were upheld, as it would mean ministers could use prerogative powers to reduce a swathe of rights without parliamentary appeal. The case hinges on the question of whether or not triggering Article 50 represents a loss of rights, something only the legislature can do.  Jane Croft has the details in the FT 

SOMETHING OF A GAMBLE

Ministers are contemplating doing a deal with Nicola Sturgeon that would allow her to hold a second independence referendum, but only after Brexit is completed, Lindsay McIntosh reports in the Times. The right to hold a referendum is a reserved power. 

A BURKISH MOVE

Angela Merkel told a cheering crowd at the CDU conference that, where possible, the full-face veil should be banned in Germany. Although the remarks are being widely reported in the British press as a "U-Turn", Merkel has previously said the face veil is incompatible with integration and has called from them to be banned "where possible". In a boost for the Chancellor, Merkel was re-elected as party chairman with 89.5 per cent of the vote. Stefan Wagstyl has the story in the FT.

SOMEWHERE A CLOCK IS TICKING

Michael Barnier, the EU's chief Brexit negotiator, has reminded the United Kingdom that they will have just 15 to 18 months to negotiate the terms of exit when Article 50 is triggered, as the remaining time will be needed for the deal to secure legislative appeal.

LEN'S LAST STAND?

Len McCluskey has quit as general secretary of Unite in order to run for a third term, triggering a power struggle with big consequences for the Labour party. Though he starts as the frontrunner, he is more vulnerable now than he was in 2013. I write on his chances and possible opposition here.

AND NOW FOR SOMETHING COMPLETELY DIFFERENT

Emad asks if One Night Stand provides the most compelling account of sex and relationships in video games yet.

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Theresa May risks becoming an accidental Europe wrecker, says Rafael Behr

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Stephen Bush is special correspondent at the New Statesman. His daily briefing, Morning Call, provides a quick and essential guide to British politics.