The experiment with the euro that started almost a decade ago is now coming to an end. As Jacques Delors, one of its architects, pointed out this weekend, the design was flawed, since it was based on an assumption that has proved to be false. All the different members, from Germany to Greece, were expected to react in the same way to a single currency with a single interest rate, and to all follow the same fiscally prudent policies that were outlined in the agreements that set up currency union.
In fact, of course, a number of countries whose economies, and systems of accounting, were rather less developed than those of Germany, went on a spending spree, financed by the cheap credit to which the euro gave them access. They cannot now pay their debts, nor can they borrow money, except at ruinous rates of interest, and they will default unless they are rescued by their less imprudent neighbours – principally, the Germans.
What happens now? The truth is that no one knows. The single currency may break up completely. Or it may split, with the Germans, the French, and some other northern European countries staying in the euro, while ejecting the poorer and more indebted nations. Or the Germans may try to subject all 17 members to close central economic supervision – in the hope that by doing so, they can keep the currency and ensure that they do not have to bail out the weaker ones again in a few years’ time.
Each of these scenarios has enormously significant implications for Britain. At the moment, it seems that the most likely option is that the German Chancellor, Angela Merkel, will try to impose budgetary constraints on the entire eurozone. Christopher Heaton-Harris MP points out in this newspaper that such a move would create a “euro bloc” within the EU which would have the power to vote through regulation on all EU members, including Britain – regulation that could be immensely damaging to our economy. As European leaders prepare to discuss all possibilities at the latest in a long line of emergency summits, David Cameron and the Coalition he leads need to set out a clear direction of travel for Britain’s future relationship with the EU. Whatever happens to the single currency, the effort to save it will require changes to the terms of membership of the EU, and as part of the Coalition agreement the Prime Minister is committed to holding a referendum on any treaty changes. Mr Cameron must have the courage of his convictions and keep that promise – however expedient breaking it may seem to be.
We appreciate that there may be difficulties with the project of clarifying, in public, the contours of Britain’s future in the EU. For one thing, the Liberal Democrats will certainly have a radically different view from the Tories. For another, the Conservative Party is itself liable to split in venomous fashion on the matter. But the EU represents the most important political and economic challenge of our age. A process is now under way that will alter its nature, and our role within it, in fundamental ways. Mr Cameron must not deny the British people the chance to decide whether to endorse or reject those changes.
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