Andrea Leadsom is MP for South Northamptonshire and a member of the Treasury Select Committee.
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The Eurozone crisis seems to be reaching the beginning of the end phase….for too long we’ve limped on with this pretence from European leaders that Greece can somehow survive intact. The reality is that Greece is uncompetitive and has been fiscally utterly irresponsible – Greece does not have the infrastructure to enforce taxes; their retirement age is too young; their public sector is too powerful, and from the action on the streets they don’t in any case have the public appetite for the severe austerity that could save their economy.
I think it’s inevitable that Greece will default. What Greece should do, and what it should have done 18 months ago, is to leave the Euro and renegotiate its debt. The markets can cope with sovereign default – there have been many over the years; what they cannot cope with is uncertainty and lack of transparency.
Years ago, Mrs Thatcher said ‘You can’t buck the markets.’ This doesn’t square with Angela Merkel who recently said: ‘Politics cannot and will not simply follow the markets.’ Merkel is wrong – politicians will have to deal with the verdict of the markets unless we’re prepared to change our entire capitalist, wealth generating system. Drastic action from Politicians is needed and the alternatives are increasingly obvious:
– Fiscal union between all Eurozone countries, effectively giving Germany and France control over taxes, interest rates and retirement age across the Eurozone. Will the public wear this? In my view, absolutely not…
– Total underwriting of Eurozone debt by Germany and France in return for nothing. Will the Germans and French wear that? In my view, again absolutely not…
– Germany leaves the Euro. Counter-intuitive, but an interesting idea – if Germany was to leave, its currency revalues dramatically and the euro is left to devalue to the point where the rest of the Eurozone can become competitive. Opinion polls in Germany suggest that it is starting to gain some support.
– A break up of the Euro – still an unthinkable outcome, but without a serious alternative solution it is the inevitable endgame.
In the end what will force the hand of European leaders into radical action is another banking crisis, not this time about fear of losses in securitised loan books, but instead about fear of losses on sovereign debt holdings. Banks aren’t required to mark to market their bank book in government bonds and uncertainty in the interbank market is growing daily. If there is another banking crisis where interbank lending dries up due to lack of transparency, European politicians will rightly be accused of having learned nothing at all from the crisis in 2008.
And Britain is certainly not immune to what is happening in Europe – almost half our exports go to the Eurozone and the crisis we are witnessing could well push us back into recession. A key priority for The Coalition must be to pull together a serious new agenda for growth, yet one of the biggest hindrances to growth is the bureaucracy and red tape that comes out of the European Union itself.
In my own Northants based Business Club, business owners confirm that red tape is a massive disincentive to enterprise. It is one of the major problems of being a member of the EU, and should be a key focus for renegotiation of Britain's relationship with the EU when the time comes, as surely it will, for a new treaty to implement whatever solution is agreed by European leaders.
And here lies an opportunity. There is no doubt that while markets may be instantaneous, new treaties take months and years to negotiate – in my view, Britain needs to be ready to renegotiate a better deal for our citizens as a result of the Eurozone chaos. In Parliament we are in the process of establishing a new group to carry out detailed and considered research into EU policy areas. The group will make recommendations for change and will support the Government, if and when the opportunity arises to renegotiate terms that are in the best interests of British citizens. That renegotiation must focus on promoting jobs and growth as the top priority for Britain in these extraordinary times.