The Eurozone is in trouble again – so much so that today’s City AM dubs it the “Zerozone”. Burdened by growing debts, hamstrung by the damage to confidence during seemingly endless bailouts and now struck by the introduction of embargoes against Russia, the fundamental flaws in the Single Currency appear to have been found out.
Now the French and German core is stagnant or shrinking, not just the troubled South (see Allister Heath in the Telegraph for a stark assessment of France’s problems in particular).
Does that mean we are set for an imminent collapse of the Euro? It’s always possible – as Oxford Economics said today:
“The euro area is walking a tightrope…You would only need a couple of small shocks to go over the edge – a geopolitical crisis or financial crisis, for example.”
– particularly in a world inhabited by one Mr V. Putin, but it remains unlikely.
Instead, it seems a worse fate may await: rather than a sudden disaster, the Eurozone could be set for decades of slow, grim decline. If you set political will against economic reality, the economics will always win out eventually – the only question is for how long the people stuck in the experiment have to suffer before there is a change of direction.
Remember, even a system so wicked and mistaken as Communism withstood 70 years before it was laid low. The Eurozone doesn’t have the power to suppress its critics so brutally, of course, but the example is a testament to quite how long mere dogma can sustain ongoing failure.
The test will now be for how long the peoples involved will put up with it – particularly those in Germany who fund the project.
In terms of the impact on British politics, we can expect to see three results.
First, the boost from our safe haven status is likely to continue. New investment for the UK is always welcome, and this should be further motivation to seize the opportunity by further cutting taxes in order to accentuate the attraction to businesses and individuals seeking a more stable, growing environment in which to base themselves.
Second, this is another blow to critics of OLTEP – the fantasy of a Plan B, residing somewhere abroad, is again exposed as nonsense. Miliband’s praise for Hollande’s policies in France dried up last year, so further confirmation shouldn’t be needed – but if it is, this is it. Even looking further afield, Japan’s fabled Abenomics has just come to a grinding halt, too.
Third, the Better Off Out of the EU case is further strengthened. The argument that Germany is growing while an enthusiastic member of the EU project is taking a battering. The impact on British exports to the Eurozone is yet to be seen, but with growth grinding to a halt (or slipping into reverse) the likelihood is that non-EU markets will continue to grow while those using the Single Currency will shrink – a living demonstration of the fact that our economic future ought to be global, not trapped inside the EU’s protectionist, stuttering system. The longer that trend continues, the weaker the claim that we depend on EU membership to survive becomes – and the less attractive the idea of binding ourselves to this rickety construct looks.
There’s no glee or schadenfreude from these figures – a booming Eurozone would be far better for Britain economically – but there ought to be a clear warning. Go down the path of over-regulation, over-taxation, excessive debt, artificial and undemocratic integration and narrow-minded protectionism, and your economy suffers. Work, albeit imperfectly, for deficit elimination, lower taxes where possible, keep domestic control of your currency and look out to the world rather than close yourselves off, and you do better.