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EU cuts off oxygen to members

When the eurozone was set up, many people argued that having a currency without a government was a s

I was more than a little surprised when I read that Jacques Delors, who was president of the European Commission from 1985 to 1995, had conceded that maybe the British "had a point" when they argued that you could not have a single currency without a single government. That was certainly at the heart of the original argument. My mind went back to the House of Commons debate in 1993 when, as an ex-chancellor newly arrived on the bank benches, I asked John Major that very question, namely whether one could have a single currency without a single government.

The prime minister gave a convoluted, evasive answer, and in the wind-up, Foreign Secretary Douglas Hurd was highly scornful. I was furious and unwisely rushed into the Labour lobby, voting against the government. I hadn't given much consideration to what I was doing. But the papers were explicit the next day: I had committed a not very elegant political suicide, some suggested I was drunk, and many backbenchers cold-shouldered me. It was a difficult moment.

My second recollection was the Bath meeting of finance ministers shortly before Britain's exit from the European Exchange Rate Mechanism (ERM). At that meeting, for which I was much criticised, I pressed the Germans to cut their interest rates. I was acting on behalf of not just the UK but other countries that were slipping into recession and that had asked me to speak up on their behalf. I understood the Germans would find this request unpalatable and was not greatly surprised when they firmly put their national interests ahead of any consideration of European solidarity. The result was continued tension within the ERM right up to the events of 16 September 1992.

Iceberg ahead

The same single-mindedness has been in evidence in the euro crisis. The Germans want the euro to survive, but they are not prepared to depart one iota from the rigorous discipline that has served them well. I don't blame them and am not surprised.

Michael Heseltine has said that Britain missed an opportunity and will one day join the euro. I remember when I came back from Maastricht, having negotiated Britain's opt-out from the single currency, Michael said to me: "I envy you because you are part of History."

I replied: "It is a part of history that I would rather have nothing to do with." Michael has always been honourably open about his euro enthusiasm but I doubt if he will be right about Britain and the euro. The present crisis will live in the public's mind for a long time.

The crisis in the eurozone represents a threat to our economy and, indeed, that of the world. One commentator compared the Chancellor's task to that of a doctor treating a patient on board the Titanic - the approaching iceberg is the eurozone.

Denial has been a constant theme of the crisis. A few weeks ago, a Greek default could never happen and the break-up of the eurozone was both impossible and unthinkable. We also had the suggestion from Michel Barnier, the European commissioner for internal markets, that credit agencies should be banned from expressing views on European Union economies. It is extraordinary that we have an EU Charter of Fundamental Rights that enshrines freedom of speech but, in Barnier's mind, this does not extend to credit agencies simply doing their job.

Reality struck at the Cannes summit of 3-4 November, when the Greeks suggested they did not want to accept the terms of the austerity package but wanted to remain in the eurozone. They were then threatened with expulsion from the euro - and what was previously unthinkable suddenly became possible. It would be foolish not to recognise that this is now on the agenda. In a couple of years, the shape of the eurozone could be quite different from what it is today.

The crisis has also been characterised by drift. Perhaps that is inevitable because of the nature of the eurozone. When it was first set up, many people argued that having a currency without a government was a strength; in fact, having a currency without a government has turned out to be one of its chief weaknesses.

Now all the talk is of fiscal union. But the Germans do not mean what we mean by fiscal union. We tend to think of a common treasury, a single finance minister and a common tax system. The Germans mean more rules, more restrictions, more external supervision of national budgets. That is unlikely to work.

The German approach seems to be that each country that is in difficulty should deflate for long enough to become competitive with Germany and to put its public finances on a sound footing. However, given the dire state in some of these countries, I question whether that is sustainable. The eurozone threatens to asphyxiate its members.

Quid pro quo

If there is a real fiscal union requiring treaty changes, it will be vital to protect our interests. The government may have to invoke the so-called Luxembourg compromise, a little-used provision conceded to General de Gaulle, which allows governments in extremis to opt out of measures affecting important national interests.

If Germany does get its reinforced rules, the main question is: what will the trade-off be for France? President Sarkozy has been fighting
a losing battle to appear the equal partner of Chancellor Merkel. The French want more freedom for the European Central Bank to buy bonds. The Germans are very reluctant. It is possible there will be a behind-closed-doors deal but we may not get all the details.

At the time of writing, markets are reacting positively to the news, but the first reaction to whatever is announced at the 9 December Brussels summit may not be the right one. We should remember that Angela Merkel has said the solution to this crisis may take years. Now that is seriously worrying.

Norman Lamont was chancellor from 1990-93, and was made a life peer in 1998

This article first appeared in the 12 December 2011 issue of the New Statesman, Unholy war

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Is anyone prepared to solve the NHS funding crisis?

As long as the political taboo on raising taxes endures, the service will be in financial peril. 

It has long been clear that the NHS is in financial ill-health. But today's figures, conveniently delayed until after the Conservative conference, are still stunningly bad. The service ran a deficit of £930m between April and June (greater than the £820m recorded for the whole of the 2014/15 financial year) and is on course for a shortfall of at least £2bn this year - its worst position for a generation. 

Though often described as having been shielded from austerity, owing to its ring-fenced budget, the NHS is enduring the toughest spending settlement in its history. Since 1950, health spending has grown at an average annual rate of 4 per cent, but over the last parliament it rose by just 0.5 per cent. An ageing population, rising treatment costs and the social care crisis all mean that the NHS has to run merely to stand still. The Tories have pledged to provide £10bn more for the service but this still leaves £20bn of efficiency savings required. 

Speculation is now turning to whether George Osborne will provide an emergency injection of funds in the Autumn Statement on 25 November. But the long-term question is whether anyone is prepared to offer a sustainable solution to the crisis. Health experts argue that only a rise in general taxation (income tax, VAT, national insurance), patient charges or a hypothecated "health tax" will secure the future of a universal, high-quality service. But the political taboo against increasing taxes on all but the richest means no politician has ventured into this territory. Shadow health secretary Heidi Alexander has today called for the government to "find money urgently to get through the coming winter months". But the bigger question is whether, under Jeremy Corbyn, Labour is prepared to go beyond sticking-plaster solutions. 

George Eaton is political editor of the New Statesman.