Jason Cowley: when, not if, for a Euro referendum
02 July 2012
We are living through what economists are calling a “contained depression"
UK 10-year bond yields remain at historic lows of 1.54%. The Bank of England interest rate has been frozen at 0.5% for more than three years. Output remains 4.4% lower than it was at its peak in 2008.
The economy has contracted by 0.4% since the government’s Comprehensive Spending Review of October 2010.
If the government has a coherent strategy for recovery, no one seems to know what it is. From the right the chancellor, George Osborne, is being urged to cut public spending faster, especially on welfare; to cut taxes; and introduce more supply-side reforms such as liberalising employment law, shredding red tape and so on. If Britain wants growth, it should liberate entrepreneurs, as Margaret Thatcher did in the 1980s.
From the left, the chancellor is being urged to cut public spending more slowly, to show greater flexibility and even to take advantage of extraordinarily low interest rates to borrow so as to invest in large-scale infrastructure projects. You cannot cut your way out of recession, it is said. What is required is greater fiscal activism and more, not less, government.
Meanwhile, the crisis in the eurozone will not be resolved any time soon. How to reconcile the wealth of Germany with the desperate poverty of Greece?
Again, no one seems to know. What will happen if Greece chaotically exits the eurozone, destroying confidence in the integrity of the single currency? Or if leftist parties in Greece and elsewhere continue to do well in elections – or win, as Francoise Hollande’s Socialists did in France – and use their mandates to challenge the prevailing EU-wide orthodoxy on austerity? There are many questions but few answers.
What is clear is that the hard eurosceptics within the Conservative Party, and outside of it, have been vindicated: the “remorseless logic” as David Cameron once put it of monetary union is that it would ultimately lead to fiscal union. For the sceptics and anti-federalists, the project to create a single currency was flawed from the outset.
The Mediterranean nations are enduring extraordinary hardship as austerity measures lead to the degradation of public services and rising unemployment (more than half of all young people aged between 16 and 24 are jobless in Spain),
even as the markets push their borrowing costs higher.
For better or worse, the euro countries are being cajoled (if not quite coerced) by Germany towards agreeing some kind of “fiscal compact”. The eurozone is being remade and restructured and with it the institutions of the European Union.
What does this mean for the United Kingdom, which is part of the single European market but remains outside the eurozone? The simple answer is this: a referendum on the UK’s relationship with and even membership of the EU is inevitable, if not before the 2015 general election then in 2016.
The prime minister and the foreign secretary, William Hague, are self-declared eurosceptics, but they are also pragmatists: they long to weaken the hold the EU has over this country’s affairs, especially the supra-national European Court of Human Rights in Strasbourg. But they would not wish for a straight in/out referendum on EU membership, as some of their more restive backbenchers would. They want the UK to continue to enjoy the benefits of being part of the single market, but accept that any further transfers of power to EU institutions must be agreed by the British people in a referendum.
In his new book Europe Restructured? The Eurozone Crisis and Its Aftermath, David Owen, the former Labour foreign secretary and leader of the defunct Social Democratic Party, proposes that any future referendum should ask two questions:
1. Do you want the UK to be part of the single market in a wider European Community? Yes/No.
2. Do you want the UK to remain in the EU, keeping open the option of joining the more integrated eurozone? Yes/No.
Over the next three to four years the British state is set to be profoundly challenged by referendums on Scottish independence and on the UK’s relationship with Europe. Month by month the old pre-crisis certainties are crumbling but what will replace them? No one knows.
Jason Cowley is editor of the New Statesman
Jason Cowley: when, not if, for a Euro referendum | Economia