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
Show Hide image

The buck doesn't stop with Grant Shapps - and probably shouldn't stop with Lord Feldman, either

The question of "who knew what, and when?" shouldn't stop with the Conservative peer.

If Grant Shapps’ enforced resignation as a minister was intended to draw a line under the Mark Clarke affair, it has had the reverse effect. Attention is now shifting to Lord Feldman, who was joint chair during Shapps’  tenure at the top of CCHQ.  It is not just the allegations of sexual harrassment, bullying, and extortion against Mark Clarke, but the question of who knew what, and when.

Although Shapps’ resignation letter says that “the buck” stops with him, his allies are privately furious at his de facto sacking, and they are pointing the finger at Feldman. They point out that not only was Feldman the senior partner on paper, but when the rewards for the unexpected election victory were handed out, it was Feldman who was held up as the key man, while Shapps was given what they see as a relatively lowly position in the Department for International Development.  Yet Feldman is still in post while Shapps was effectively forced out by David Cameron. Once again, says one, “the PM’s mates are protected, the rest of us shafted”.

As Simon Walters reports in this morning’s Mail on Sunday, the focus is turning onto Feldman, while Paul Goodman, the editor of the influential grassroots website ConservativeHome has piled further pressure on the peer by calling for him to go.

But even Feldman’s resignation is unlikely to be the end of the matter. Although the scope of the allegations against Clarke were unknown to many, questions about his behaviour were widespread, and fears about the conduct of elections in the party’s youth wing are also longstanding. Shortly after the 2010 election, Conservative student activists told me they’d cheered when Sadiq Khan defeated Clarke in Tooting, while a group of Conservative staffers were said to be part of the “Six per cent club” – they wanted a swing big enough for a Tory majority, but too small for Clarke to win his seat. The viciousness of Conservative Future’s internal elections is sufficiently well-known, meanwhile, to be a repeated refrain among defenders of the notoriously opaque democratic process in Labour Students, with supporters of a one member one vote system asked if they would risk elections as vicious as those in their Tory equivalent.

Just as it seems unlikely that Feldman remained ignorant of allegations against Clarke if Shapps knew, it feels untenable to argue that Clarke’s defeat could be cheered by both student Conservatives and Tory staffers and the unpleasantness of the party’s internal election sufficiently well-known by its opponents, without coming across the desk of Conservative politicians above even the chair of CCHQ’s paygrade.

Stephen Bush is editor of the Staggers, the New Statesman’s political blog.