Although it is asserted continuously that it is in Britain’s interests to support the eurozone and its stability in our national interest, this overlooks the fact that the Portuguese crisis, as with Greece and then Ireland, are not only tragic in themselves but in the real world are symptoms of a deeper structural problem within the European Union.
These deeper structural problems are the reasons why the European project does not work and come from the lack of underlying competitiveness within the European Union and global lack of competiveness of the Union as a whole. These in turn come from the lack of intrinsic democracy in the differences between the Member States, the failure to respond to the need for reform, which neither the Lisbon agenda or the 2020 strategy will put right.
The fact is that the one size fits all approach and the uniformity demanded by the EU simply cannot work because of intrinsic political and cultural differences between the 27 member states. The economic power of Germany and its central position and the dependents of other countries upon her – both politically and economically – and the economic distortions created by the cohesion funds which take up a vast amount of the EU budget, the failures of the Common Agricultural Policy and the failure to show any real form of the overregulation within the EU as a whole (including the Working Time Directive and social and employment legislation) simply doesn’t allow the oxygen for enterprise and small businesses which is needed for them to be successful.
Much of this was pointed out during the Maastricht debates but in the years since then, the European project has moved towards greater and greater integration but with huge internal contradictions between the internal context provided in the Treaties culminating in Lisbon on the one hand and the diversity of the Member States on the other – leading to riots, protests and the collapse of countries such as Greece, Portugal and Spain. In other words the problem is one of systemic failure which requires radical renegotiation.
Unfortunately, Portugal and the eurozone countries are contaminated by these problems. While Eurorealists have always argued that those problems exist, the European Union has by moving towards greater centralisation and by refusing the results of referendums and by undemocratic insistence on the European project has actually created this implosion.
I am afraid Portugal and the eurozone countries have made their bed and now they will have to lie in it. Europe insisted that the eurozone arrangements entered into – starting with the Stability and Growth Pact – would take care of the eurozone countries but they abandoned the rules and built up huge debts which have led to their collapse.
The UK’s exposure towards the euro bailout is expected to be around £4.4bn – by way of a guarantee – on the basis that the European Financial Stabilisation Mechanism is to be used. This was entered into by Alistair Darling and the Chancellor of the Exchequer acquiesced into this arrangement. It was legally unsound and there is no sensible basis upon which the United Kingdom should be expected to make this guarantee. (It is possible the European Financial Stability Facility (EFSF) will be used). Britain is not part of the eurozone and should not have been expected to enter into this arrangement which is “legally unsound” or unlawful, because Article 122 is to do with natural disasters and not financial mismanagement. The British taxpayer should not be expected to have this added to the national debt even as a contingent liability in these circumstances.
The EU Commissioner for Economic and Monetary Affairs, Olli Rehn has confirmed that the European Commission as well as the IMF has received yesterday a formal request from Portugal for EU financial assistance. The European Commission, the European Central Bank (ECB) and the International Monetary Fund (IMF) are now sending a mission to Portugal to establish the details of the help needed.
The Portuguese finance minister, Teixeira dos Santos, is explaining to his colleagues the Portuguese’s economic and political situation.
The Ecofin meeting of EU finance ministers – including George Osbone – will have preliminary talks on Portugal’s bailout request, including terms, conditions, amount but no formal decisions are expected just yet. Apparently, the Chancellor has re-arranged his schedule to attend in place of Treasury minister Mark Hoban.
The EU finance ministers are expected later this afternoon to approve sending a mission of the European Commission, ECB and IMF to Lisbon to negotiate the terms of the support programme.
Although there is serious concern over whether Portugal’s caretaker government can agree to the austerity measures that the EU would insist on in return for help, the British Government should lead by example insisting we will not be exposed to the eurozone failures.