James Forsyth James Forsyth

Will the downturn break the eurozone?

There has been some speculation that the financial crisis will force Britain to join the euro. But I think it is far more likely that the crisis will break the eurozone. Consider this from the FT’s Wolfgang Münchau, who could hardly be called a euro-sceptic:

“The right course would be to solve the underlying problem – to shift at least some of the stimulus spending to EU or eurozone level and, ideally, drop those toxic national schemes altogether and to adopt a joint strategy for the financial sector, at least for the 45 cross-border European banks. But this is not going to happen. It did not happen in October, and it is not going to happen now. As a result of the extraordinary narrow-mindedness of Europe’s political leadership, expect serious damage to the single market in general and the single market for financial services in particular. As for the eurozone, I always argued in the past that a break-up is in effect impossible. I am no longer so sure.” (emphasis added)

The eurozone is running into the inevitable problems that hit a currency union that is not also a debt union and a political union. At some point, the currency union will either be broken apart or turned into a political union which is why Britain should stay out of it.

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