The end might be nigh for the euro. The currency has hit an all-time low against the Swiss franc, as individual eurozone government bond yields vaulted higher due to mounting concerns about the region’s debt crisis. To spell out what this means: in Spain, 12 billion euros of interest payments will accrue for every 100 point bond rise in Germany. That is more than Spain’s annual public investment in infrastructure (8.6 billion) and its entire defence budget (7.6 billion). At the same time, Greece is heading towards disorderly default or some form of devaluation. Or both. And now Italy looks vulnerable.
Well, I say that the end is nigh but, as the prime minister told the Spectator this week, Britons would be foolish to underestimate the eurozone’s determination to save the currency. But it will be the end of the euro as we know it: a monetary union with no fiscal union. More federal arrangements are likely to emerge in the immediate future. For instance, it is hard to see how eurobonds cannot now be introduced. Then steps will be taken to develop a pan-European solution to deal with the continent’s banks; the idea that each country will deal with their own banks is dead, so a joint solution will be found. Then there will be talk of a European Finance Ministry. A multi-speed Europe will become a reality, with consequences for everything from the internal market to Common Security and Defence Policy.
All of this will give Britain an opportunity to gain concessions from Brussels. But, generally, the euro’s collapse should not be a cause for joy here. Further fiscal integration will likely cause a democratic backlash in consequence, which will hamper economic stability and recovery. It is, therefore, not in Britain’s interest.