Remember when Europe’s leaders were basically saying, ‘Don’t worry, it’s all sorted’? Remember when they were putting out communiqués that started ‘The euro continues to rest on solid fundamentals’? No doubt they’ll do so again, but those past shows of certainty still look kinda funny this morning. Despite some last-minute concessionary efforts by Europe’s beancounters, it still appears that Greece’s main parties will be unable to form a coalition, and are heading for another election. And we know what that could mean: victory for the left-wing Syriza coalition, a severe swing against austerity, Greece’s exit from the euro, etc. etc.
Were Greece to leave the currency, two questions would present themselves, among many others. The first is whether the euro break-up would stop with just the one country, or whether others would eventually have to drop out too. And the answer? A few months ago, Europe’s political class might have been confident of containment. Indeed, much of Angela Merkel’s strategy seemed to be premised on the idea. But with the Spanish economy capitulating as it is, and with the shift in the political atmosphere in France, that looks far less likely now. One economist sums it up, speaking to Reuters this morning: ‘If Greece were to ever exit the euro, no amount of reassuring comments will convince investors that other countries won’t soon follow.’
And the other question is how much damage this would wreak upon Britain. On that front, it’s worth noting that the Office for Budget Responsibility’s growth forecast of 0.8 per cent for this year is based on an assumption that ‘the euro area finds a way through its current problems’ — so a Greek exit could make it much worse. And there’s another way that we could be affected too: by contributing more to Europe’s various self-help funds. While David Cameron’s spokesman yesterday said that we wouldn’t add to any Eurozone-targeted ‘clean-up’ fund, it could be important that he didn’t rule out our further involvement in the wider European Financial Stability Mechanism. Of course, this throws up the possibility of further clashes between the Tory leadership and their backbenchers, and beyond.
So, no wonder Ed Balls is mooting the prospect of an EU referendum. The region’s problems, and their political import, won’t have evaporated by the next election.
Comments