Fraser Nelson

The death knell for the Euro?

The death knell for the Euro?
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Are we witnessing the start of a very long death scene for the Euro? Asked if the Euro will survive, William Hague replied simply: “who knows?”. The new president, Herman Von Rompuy, has said that the Euro faces an “existential test”. We are looking at the very real prospect of the Euro’s collapse. And that “if we don't survive with the eurozone, we will not survive with the European Union”. This would, by necessity, require a new treaty - and give Britain an unprecedented opportunity to renegotiate its membership on terms the public regard as acceptable. In my News of the World column today, I say (£) that this presents Cameron with what would be the greatest foreign policy opportunity of his premiership.


The EU works on a ratchet mechanism: countries get roped in further than they want and are told there’s no way back other than leaving the EU completely. It always was unsustainable: there’s only so long a project can go on in defiance of public opinion. Countries vary in degree of enthusiasm for the EU project, but the Brits routinely rank amongst the most hostile to it - on every measure taken by the European Commission. Our voters were promised a referendum on the EU Constitutiution, that promise was broken and the Lisbon Treaty - passed in defiance of Labour’s manifesto and public opinion - put the UK’s relationship with the EU on a basis that David Cameron described as “unacceptable”. As William Hague famously put it, he would “not let matters rest there.”


Look behind the Irish crisis, and you see something rather odd. They didn’t want a loan, and they’re dictating the terms on which they take the money - refusing to cut their corporation tax. Why so bold? Because they sense the fear and desperation amongst the Eurocrats is as great - if not greater - than their own. Brussels fears that Ireland is a domino standing next to Spain. And if Spain wobbles, then it’s game over for the Euro. German taxpayers are angry enough about bailing out the Greeks, but when they see Spain coming down the tracks - with an economy four times the size - then their patience will snap. It is Spain that the attention should really be on: it’s the cornerstone. The EU is desperate to stop that happening, hence the panic about Ireland.


Crashes do not always happen in slow-motion. Our 1976 bailout went far faster than anyone expected. The Black Wednesday fiasco showed how the government could be absolutely ruling out a collapse one day - then everything changes in the space of an afternoon. My point: there is no predicting when the Euro will collapse. It could do so in a year, in three years - but there’s a decent chance of it happening in Cameron’s premiership.


Cameron should, right now, start work on a contingency plan: Britain’s terms of negotiation, if the Euro collapses. They may want some return to a hard ECU idea, but whatever happens it’s time for a new treaty. Britain is the EU’s fourth-largest (and most gullible) paymaster - our hand would be strong. Cameron will not relish this prospect, believing (not without reason) that talking Europe with his party is like feeding water to Gremlins: it turns them into regicidal maniacs. It is also the biggest source of division with his Liberal Democrat partners - but even they must be looking at the continent and thinking “hmm, this Euro idea didn’t turn out to be a golden bullet after all”. Dangerously low interest rates turned the boom in both Spain and Ireland into an economy-threatening bubble. 


Cameron, however, will know he has no choice. Public opinion will demand that he picks up his blue handbag and goes to get our money back - and whatever he negotiates should pass the test of a referendum. If such an opportunity comes, it will be his chance to put our relationship with the EU on terms the country approves of. Right now, between 40 percent and 55 percent of the public would vote to leave the EU depending on which poll you look at. It’s an appallingly high number. The EU’s own research (pdf, p20) just 29 percent of Brits think our membership of the EU is “a good thing” - it’s 44 percent for France, 50 percent for Germany, 59 percent for Spain. There is a gaping democratic deficit here, and there’s only so long we can ignore it. 

This is Cameron’s chance to correct it: he can tell the LibDems that he’s acting to save our membership of the EU. Because as things are going, an in-or-out referendum would probably deliver an ‘out’ verdict. I will be at odds with CoffeeHousers in that I believe this to be a bad thing: I’d like to stay in. And I believe that Cameron is plenty capable of coming up with a package that would, for the first time since we were asked to join a free trade zone in 1975,  win public approval.  It will be the negotiation of a lifetime - and Cameron would be wise to ask the Foreign Office to work on a strategy right now.

PS: How likely is a Euro collapse? Irwin Stelzer gives his prognosis in this week's issue of the magazine - subscribers, click here. Allister Heath explains how the Euro sunk Ireland here. To join our subscribers from£1 a week, click here - or gift a £67 subscription here. The price includes a Speccy 2011 diary or a bottle of bubbly.