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Thursday 24th May 2012 | 09:43
Thank you very much. As I left this morning, London was bathed in sunshine. It has been a long time coming, but summer has arrived.
But even though the sun is shining here in Berlin too, a dark cloud still hangs over Europe
Even by recent standards, this year has been grim. Wave after wave of headlines have broken on our shores: credit ratings downgraded. Banks facing capital flight. Febrile politics turning over governments.
As Europeans, our response to this brewing crisis has been woefully fragmented. We have failed on a number of fronts.
We have tried to give Europe’s problems different labels, tried to keep them separate. But the world just doesn’t work that way. Management of financial risk, fiscal discipline, labour market reform; these are not just different chapters in an economics textbook. They are closely connected problems with consequences for us all.
We have created different classes of country; strong and weak, spenders and savers, Eurozone and non-Eurozone. But these divisions are false. Europe’s economies cannot be prised apart and filed neatly in different boxes; they are too interdependent.
And we the way we take decisions is undermining public confidence. Every few weeks European leaders sit down to yet another crisis summit, where another temporary solution is agreed. The tree is falling, and we are pruning one leaf at a time. It is piecemeal politics; endless tactics with no strategy.
So we must gather these overlapping problems together and solve them as one. This is a European crisis. It must be solved at the European level.
The sceptics will claim Europe is now congenitally incapable of exercising the leadership needed to do so.
I absolutely reject that. We have got to hit back against this fatalism which says that Europe can’t fix this.
And by the way, let me challenge the fashionable assumption being whispered behind cupped hands – that for some countries, leaving the Euro wouldn’t be that bad. That actually, a Greek exit now would be in everyone’s best interests.
My own view is that that wildly underestimates the unpredictable, irrevocable damage that could be done to a monetary union when it is shown not to be permanent.
No rational person interested in the wealth and wellbeing of Europe’s citizens could advocate taking such a risk: not with Greece’s future, or our own.
Instead, we must take a clear step towards a better future for Europe. We have shown leadership in the past; now we must do so again.
That means describing our long term vision – and setting out a comprehensive solution which includes all the elements: financial, structural and political reform.
We need to show our people what we are working towards: a sustainable, confident European economy, with jobs, growth and opportunity at its heart.
Let me tell you how I see it.
Europe’s problems are well known, and well rehearsed: a common monetary policy without shared fiscal arrangements. A single market being completed in fits and starts. Bad loans and bank debts loaded onto taxpayers. Unworkable, undeliverable public spending commitments.
And underneath it all, a fundamental weakness: economies that are just not competitive enough to cope with bad times.
As long as the merry-go-round kept turning, everything was fine. But when the music stopped, everything fell apart.
Now before I go any further, let me make one thing clear. Britain may not be part of the euro, but our economy suffered all the same. We had the one of the worst debt-to-GDP ratios in the world, and one of the biggest structural deficits; some of the most exposed banks and the most indebted households.
And as a result, we’ve had to take some incredibly difficult decisions about our own economy. But that merely makes my commitment – and the UK’s commitment – to a lasting solution stronger.
So what can we do to achieve it? There are four things.
First, faced with different economies, which suffer shocks in different ways, Europe must either share common debt, or change the way money is transferred. You cannot have a monetary union in which one country saves, exports and invests and another spends, borrows and consumes without some mechanism to make it all add up. So we need new fiscal instruments in the Eurozone, through either Eurobonds or greater transfers between Eurozone members.
Second, the European Central Bank has to act as a real monetary backstop, a lender of last resort. This is critical. Fiscal action across the EU must be supported by responsive monetary policy – with central banks prepared to intervene aggressively to support demand.
Third, we must build a firewall big enough and strong enough to stop the flames from spreading. At the moment, countries are stuck in vicious, periodic uncertainty. Tottering banks are propped up by governments.
Governments then take the hit from bond markets. Lenders then question whether governments can still shore up the banks. And so the pendulum swings back, only this time everyone’s costs have gone up and the taxpayer ends up deeper in the hole. We need to find a sustainable, realistic way of re-capitalising and stabilising banks.
Fourth, we need to get serious about structural reform. The creation of the single market – the largest borderless single market in the world – is an incredible achievement, one that still has the potential to create hundreds of thousands of jobs.
But if that potential is to be realised, we must allow the single market to flourish. We must maintain a relentless focus on creating the right conditions for growth.
If we do not find a clear path out of this mess, we are risking more than simply a single currency.
It’s not just national governments at stake – although nine have fallen since this crisis began. It not just the risk that we leave our children an economy that can’t compete with the world.
There is a bigger danger here. The combination of economic uncertainty and political disillusionment is a perfect recipe for an increase in xenophobia, populism, and extremism.
We cannot let this crisis shake our commitment to Europe’s big idea – that union is worth pursuing as a means to peace and prosperity alike.
That is the case I will be making in the UK, where some paint Europe’s problems as a distant irrelevance. As if our geography means we are somehow immune from contagion.
But 3.5 million British jobs depend on the EU economy, and 40% of our exports go to the Eurozone. Culturally, economically, and socially, we share in so much more than we differ.
So Europe’s future is our future.
We must do everything we can to secure it.Thank you very much.