Bow Group Debate - The Eurozone: Crisis or Opportunity

Economic
Saturday, July 2, 2011

June 30th 2011. Committee Room 11, Palace of Westminster Debate: The Eurozone – Crisis or Opportunity?Speakers: Dr Charles Tannock MEP (London), Conservative Foreign Affairs Spokesman to the European Parliament & David Campbell-Bannerman MEP (East of England). Chairman: Ben Harris-QuinneyThe topic of the Bow Group’s 7th debate of the year could not have been more pertinent amid the white heat of the international news cycle.  The eurozone’s debt crisis has been at the forefront of global economic affairs in recent weeks. The danger of a Greek default has sparked fears of another Lehman Brothers watershed where financial collapse would spread from Greece toward other peripheral euro countries, leading eventually to the break-up of the eurozone.While some predict the inevitable demise of the euro, others do, however, see the current crisis as an opportunity for deepening EU integration and promoting Brussles control. German Finance Minister Wolfgang Schäuble stated at the recent Munich Security Conference in bellicose tone : “The greater the crisis, the better the chance for getting solutions.” Ideas like issuing common eurobonds or the creation of a European finance ministry have been put forward exactly at a time when the eurozone would seem to find itself in its death throngs. Are we therefore living through the beginning of a terminal eurozone, and by implication EU crisis, or the emrgence of a new federal EU with far greater economic and political power? Although not a member of the currency union, the UK is set to be affected by whatever settlement European leaders will agree upon in the coming weeks and months. As such the Bow Group on 30th June convened two experienced and outspoken conservative MEPs in Westminster in order to engage in the discussion on the eurozone´s fate and its consequences for the UK. Dr Charles Tannock MEP and David Campbell-Bannerman MEP found themselves in agreement on a variety of issues. Both shared the increasingly widely held view that Greece´s mountain of debt is fundamentally unsustainable and that a technical default – although it may occur under another name – has become inevitable. Dr Tannock left no doubt about that: “Greece is insolvent, let´s face it!”. The two European parliamentarians also agreed that the single currency was originally, and still is being, conceived as a political project without a sound underlying economic rationale. The structural divergence between the economies of euro-using countries was identified as a fundamental flaw, irresolvable without complementing monetary with fiscal and political union. Mr Bannerman asserted that, given these macroeconomic asymmetries underneath the umbrella of a single currency, the periphery was loosing out while “Germany is the great winner”. Dr Tannock similarly observed that we are, in fact, experiencing a crisis of the so-called PIIGS, rather than the eurozone as a whole. A degree of differing opinion could, however, be detected in their projections on the future of the eurozone. While Mr Bannerman firmly believes the current crisis will lead to the exit of peripheral economies and, consequently, a reduced single currency area focused around the Western European core, Dr Tannock admonished that “ While many UK Conservatives are rushing to read the last rites to the euro and, some may also wish the same fate to the EU itself, I believe this to be premature as it ignores the political capital invested in the political  project and the current eurozone existential crisis is more likely to strengthen the necessary fiscal union required across eurozone countries to make EMU work than presage its collapse"  He mentioned the possibility of a managed and contained Greek default and expressed some ideas that might help keep the eurozone intact in its current form, debating a period of higher inflation or Chinese financial involvement in rescuing the single currency. Lastly, the two conservative MEPs equally believed that in the short term, Europe´s answer to the crisis will be further integration. They also showed a common conviction that the UK should keep its distance in the face of such a development. Mr Bannerman expressed his aversion to further “mission creep” from Brussels and the democratic deficit of the EU. He proposed a reduced Anglo-European relationship based more exclusively on free trade. Dr Tannock advocated strong bargaining by the Cameron government on the post-crisis settlement on European economic governance in order to extract concessions and repatriate some powers. Overall, both guest speakers based their analyses on the same underlying premises (inevitable Greek default, flawed nature of eurozone, prospect of further integration in the near term) but they diverged in their appreciation of the robustness of the eurozone, the value of the EU membership as a whole and the UK´s response to the crisis and its aftermath. Similar flexibility and debate within the Conservative Party could become crucial when Britain will inevitably have to manage and deal with the still unforeseeable outcome of the current crisis in Europe.The Bow Group will publish its paper on "The Eurozone and Germany: Crisis and Opportunity" this month.“Understanding German domestic and foreign policy priorities as this paper seeks to do in the best internationalist tradition of the Bow Group is vital to our own economic and foreign policy interests and I commend the group in producing this important document.” Dr. Charles Tannock MEP