No, Prime Minister; That's Not What Europe Needs


Another week, another euro zone crisis! It feels as if this crisis is never ending, self-perpetuating until an eventual Armageddon that will at the very best end with the break-up of the euro zone and at the very worst in World War III.

British Prime Minister David Cameron leaves 10 Downing Street on August 11, 2011 in London, England. Mr Cameron hosted a COBRA meeting and a cabinet meeting earlier this morning to discuss the current unrest that has spread across the country. Parliament has been recalled following four days of rioting across the UK.
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While the latter scenario may seem a remote possibility to most, German Chancellor Angela Merkel is sufficiently concerned about it to cite the euro zone sovereign debt crisis as the biggest threat Europe has faced since the Second World War.

She may only dwell on such a fear in her darkest moments, but the idea that an economic catastrophe could turn into an armed conflict is very real for some politicians. It’s not as if the continent hasn’t been here before.

The likely scenario is a simple one, Greece leaves the euro zone, prompting a run on the banks, which takes Europe’s banks with it and financial chaos ensues. Then some bright guy — funny mustache optional — comes along and offers to a solution, most likely by blaming an ethnic minority group for the whole of Europe’s woes in the process.

Another scenario could see conflict in Europe taking the shape of the American Civil War.

While slavery is the issue most associated with that conflict, the fact that the northern free states raced ahead of the southern slave-owning states in terms of population expansion, economics, and industrialization — and the dominance the north had over the south as a result — were key factors.

When he was elected president, Abraham Lincoln was a well-known opponent of allowing the slave ownership on which the southern states relied to expand westward as more states joined the Union. He was elected without the support of a single one of the southern states, leading to their secession from the Union and ultimately civil war. The Emancipation Proclamation only occurred three years after Lincoln was elected president.

North and South

Fast forward 150 years and we are beginning to talk about the northern states of Europe bailing out the southern peripheral states, and about a change in culture not too dissimilar to that of the U.S. in the 19th century. Where the southern U.S. states relied upon slavery for their wealth, the peripheral euro zone members have spent the last 60 years relying on the State for their economic well-being — a practice that dates back to the end of the Second World War in the case of Greece in particular. Resentment on both sides is beginning to ratchet up.

It is with such concerns lurking at the back of their minds that Europe’s leaders met on Thursday night to try to hammer out a deal that will save the grand 60-year-old European project. All except, that is, British Prime Minister David Cameron, who seems to fail to grasp the seriousness of the current situation, and to be more concerned with in-fighting within his own party over the issue of Europe and telling anyone that will listen how smart the British were for staying out of the single currency in the first place.

It was ever thus for the Conservatives.

Many Conservative party members want Britain to leave the European Union. They would rather believe Britain is capable of existing in the world by standing on its own two feet and many wish Britannia had never divested herself of her empire in the first place.

Such attitudes are among a few of the reasons that former French President Charles De Gaulle vetoed Britain’s application to join the European Common Market throughout the 1950s and 1960s.

De Gaulle’s view was Britain was hardly European, wasn’t ready to join the European Economic Community, and would throw its weight around in rather the same way that Cameron and his predecessor Margaret Thatcher before him have done.

Cameron’s problems over Europe are two-fold. On the one hand he could have agreed to a deal on a new EU treaty that encompassed all 27 member states. On the other hand he could come away without a deal, leaving Britain on the sidelines of Europe and the euro zone’s 17 members heading off on their own to negotiate a treaty.

The latter leads to a two-speed Europe, with Britain unable to influence decisions made by its European partners, as French president Nicolas Sarkozy himself pointed out on Friday morning. The former would have required Cameron to rely on the support of the Liberal Democrats and the opposition Labour party to get the deal passed through the House of Commons after he promised his own MPs a vote on the issue.

Missed Opportunity to Save the Euro

It is hard to see Cameron’s decision to veto a new treaty as anything other than a missed opportunity to save the euro, and set Britain’s terms for doing so.

Cameron need only have shown the same courage and leadership that Lincoln showed in his own era, and undoubtedly this is the sort of leadership Europe, let alone Britain, now requires.

The euro zone crisis is one of confidence and of liquidity, anyone who has followed it for the past 18 months would acknowledge this. The issue of liquidity is the lesser of the two problems here, however, just as it was at the start of the financial crisis in the summer of 2008. Restoring confidence is all that matters.

Britain had a golden opportunity to save the euro by joining the euro, not denouncing the single currency in the way Cameron did in Brussels and unilaterally declaring Britain would never join the party.

If Britain had instead taken the size and relative strength of its economy into the euro zone, it could have set its own terms for doing so — wielding as much influence in Europe as Germany and France, and restoring confidence in the euro zone.

The economic conditions may not be right for Britain to join the euro, but they never were and never will be, just as they weren’t for any of the other countries that joined the euro in the first place. The Germans are hardly going to take lectures from Britain over the timing of anything. If Germany had listened to the British and waited, as Thatcher advised, for the right time to reunite East and West Germany, they would still be waiting for the right time 21 years after the fall of the Berlin Wall.

For a long time, Britain was the second largest economy in the European Union, before being overtaken by France last year because of the fall in U.K. financial services output; so joining the euro would end the crisis almost instantly. Yes, it is bold. Yet it is potentially radical. But how much longer are the British going to pat themselves on the back for never having joined the single currency, and will they still be doing so when the whole system has collapsed and taken the British economy with it?

The British would also have to agree to fiscal union. Not integration, but union. Those who argue that this would mean giving up control of our finances do not realize the extent to which Britain has already done so. Holding on to historic institutions simply for the sake of nostalgia is pointless.

UK Needs the Euro Zone

Those who argue that interest rates at their current level have been the one thing that has saved the housing market from collapse may to some extent have a point, but the reality is that interest rates in Europe are only 0.75 percentage points higher than they are in the U.K. That would hardly cripple the mortgage market. Banks aren’t lending money as it is, be it to small businesses or potential homeowners. It’s not as if they don’t have the money to lend, they simply don’t want to take the risk. Again, this is an issue of confidence.

Finally Europe needs joint Eurobonds! The main objection Germany has against Eurobonds is that it would be Germany that would underwrite them. Add the British economy to the single currency and that problem goes away. Germans quite rightly do not want to be left footing the bill for their profligate southern neighbors, but if they had allies of near equal economic size to share the burden, their opposition to Eurobonds would evaporate.

It would also mean that Britain’s debts — the main argument against Britain joining the euro even among those who support the single currency — would become Europe’s debts. The result being the burden of the euro zone debt crisis would be shared among all member states for the benefit of all member states.

One final thought for Britons who think being in the euro zone would be a bad idea. We are living in an increasingly globalized economy where size matters. If China were to impose massive trade tariffs on British exports there would be little, if anything, Britain could do on its own about the situation. As a fully fledged functioning member of the euro zone, as part of one of currently only two reserve currencies in the world and with the influence and trading power that the EU has, there would be plenty.

Some would argue that the EU could still help Britain by reacting to such an act by China. But why help a member state that refuses to engage positively with the rest of the union and simply lectures it from the sidelines? Britain cannot go it alone and the success of the euro is fundamental to Britain’s economic and political survival, as almost every single study that exists acknowledges.

Most recently ING bank said the failure of the euro would — at a very conservative estimate — lead to unemployment of over 4 million people in the U.K., and wipe 9 percent off Britain’s output overnight.

Of course none of this matters to Britain's prime minister. Cameron didn’t go to Brussels to solve the euro zone debt impasse. He either knows all of the above and doesn’t care, or he doesn’t get it — if that is the case he’s not up to the job of being Britain’s prime minister. Whichever happens to be true, he simply exacerbated the crisis.

Moreover, it illustrates Cameron’s driving motivation, which has always been far too concerned with self-preservation. He’s not man enough to act like the kind of statesman that Lincoln was.