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 Images
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What's to be done about racial inequality?

David Cameron's words on equal opportunities are to be welcomed - now for some action, says Sunder Katwala.

David Cameron made the strongest, clearest and most high profile statement about ethnic inequalities and the need to tackle discrimination ever yet offered by a British Prime Minister in his leader’s speech to the Conservative Party conference in Manchester.
“Picture this. You’ve graduated with a good degree. You send out your CV far and wide. But you get rejection after rejection. What’s wrong? It’s not the qualifications or the previous experience. It’s just two words at the top: first name, surname. Do you know that in our country today: even if they have exactly the same qualifications, people with white-sounding names are nearly twice as likely to get call backs for jobs than people with ethnic-sounding names? … That, in 21st century Britain, is disgraceful. We can talk all we want about opportunity, but it’s meaningless unless people are really judged equally”, said Cameron.
While the proof of the pudding will be in the eating, this was a powerfully argued Prime Ministerial intervention – and a particularly well-timed one, for three reasons.

Firstly, the Prime Minister was able to root his case in an all-but-universally accepted appeal for equal opportunities. It will always prove more difficult in practice to put political energy and resources behind efforts to remedy discrimination against a minority of the population unless a convincing fairness case is made that values cherished across our whole society are at stake. Cameron’s argument, that any party which tells itself that it is the party of the ‘fair chance’ and ‘the equal shot’ must have a response when there is such clear evidence of discrimination, should prove persuasive to a Conservative Party that has not seen race inequalities as its natural territory. Cameron argued that the same principles should animate responses to discrimination when it comes to race, gender and social class. Put like that, wanting job interviews to be fair – by eradicating conscious and unconscious patterns of bias wherever possible – would strike most Britons as offering as clear a case of the values of fair play as wanting the best baker to win the Great British Bake-Off on television.
Secondly, Cameron’s intervention comes at a potential "tipping point" moment for fair opportunities across ethnic groups. Traditionally, ethnic discrimination has been discussed primarily through the lens of its impact on the most marginalised. Certainly, persistent gaps in the criminal justice system, mental health provision and unemployment rates remain stark for some minority groups. What has been less noticed is the emergence of a much more complex pattern of opportunity and disadvantage – not least as a consequence of significant ethnic minority progress.

Most strikingly of all, in educational outcomes, historic attainment gaps between ethnic minorities and their white British peers have disappeared over the last decade. In the aggregate, ethnic minorities get better GCSE results on average. Ethnic minority Britons are more likely, not less likely, to be university graduates than their fellow citizens. 

As a result of that progress, Cameron’s intervention comes at a moment of significant potential – but significant risk too. Britain’s ethnic minorities are the youngest and fastest-growing sections of British society. If that educational progress translates into economic success, it will make a significant contribution to the "Great British Take-Off" that the Prime Minister envisions. But if that does not happen, with educational convergence combined with current ‘ethnic penalties’ in employment and income persisting, then that potential could well curdle into frustration that the British promise of equal opportunities is not being kept.  Cameron also mirrored his own language in committing himself to both a ‘fight against extremism’ and a ‘fight against discrimination’: while those are distinct challenges and causes, actively pursuing both tracks simultaneously has the potential, at least, depolarise some debates about responses to extremism  - and so to help deepen the broad social coalitions we need for a more cohesive society too.

Thirdly, Cameron’s challenge could mark an important deepening in the political competition between the major parties on race issues. Many have been struck by the increase in political attention on the centre-right to race issues over the last five to ten years. The focus has been on the politics of representation. By increasing the number of non-white Conservative MPs from two to seventeen since 2005, Cameron has sent a powerful signal that Labour’s traditional claim to be ‘the party of ethnic minorities’ would now be contested. Cameron was again able to celebrate in Manchester several ways in which his Cabinet and Parliamentary benches demonstrate many successful journeys of migrant and minority integration in British society. That might perhaps help to ease the fears, about integration being impossible in an era of higher immigration, which the Home Secretary had articulated the previous day.

So symbolism can matter. But facial diversity is not enough. The politics of ethnic minority opportunity needs to be about more than visits to gurdwaras, diversity nights at the party conference fringes and unveiling statues of Mahatma Gandhi in Parliament Square. Jeremy Corbyn’s first speech as Labour leader did include one brief celebratory reference to Britain’s ethnic diversity – “as I travelled the country during the leadership campaign it was wonderful to see the diversity of all the people in our country” – and to Labour bringing in more black, Asian and ethnic minority members - but it did not include any substantial content on discrimination. Tim Farron acknowledged during his leadership campaign that the Liberal Democrats have struggled to get to the starting-line on race and diversity at all. The opposition parties too will no doubt now be challenged to match not just the Prime Minister’s rhetorical commitment to challenging inequalities but also to propose how it could be done in practice.

Non-white Britons expect substance, not just symbolism from all of the parties on race inequalites.  Survation’s large survey of ethnic minority voters for British Future showed the Conservatives winning more ethnic minority support than ever before – but just 29 per cent of non-white respondents were confident that the Conservatives are committed to treating people of every ethnic background equally, while 54 per cent said this of Labour. Respondents were twice as likely to say that the Conservatives needto do more to reach out – and the Prime Minister would seem to be committed to showing that he has got that message.  Moreover, there is evidence that ethnic inclusion could be important in broadening a party’s appeal to other younger, urban and more liberal white voters too – which is why it made sense for this issue to form part of a broader attempt by David Cameron to colonise the broad centre of British politics in his Manchester speech.

But the case for caution is that there has been limited policy attention to ethnic inequalities under the last two governments. Restaurateur Iqbal Wahhab decided to give up his role chairing an ethnic minority taskforce for successive governments, unconvinced there was a political commitment to do much more than convene a talking shop. Lib Dem equalities minister Lynne Featherstone did push the CV discrimination issue – but many Conservatives were sceptical. Cameron’s new commitment may face similar challenges from those whose instinct is to worry that more attention to discrimination or bias in the jobs market will mean more red tape for business.

Labour had a separate race inequalities manifesto in 2015, outside of its main election manifesto, while the Conservative manifesto did not contain significant commitments to racial inequality. The mid-campaign launch in Croydon of a series of race equality pledges showed an increasing awareness of the growing importance of ethnic minority votes - though the fact that they all involved aiming for increases of 20 per cent by 2020 gave them a slightly back-of-the-envelope feel. 

Prime Ministerial commitments have an important agenda-setting function. A generation ago the Stephen Lawrence case opened the eyes of middle England to racist violence and police failures, particularly through the Daily Mail’s persistent challenging of those injustices. A Conservative Prime Minister’s words could similarly make a big difference in the mainstreaming of the issue of inequalities of opportunity. What action should follow words? Between now and next year’s party conference season, that must will now be the test for this Conservative government – and for their political opponents too. 

Sunder Katwala is director of British Future and former general secretary of the Fabian Society.