Britain and the Eurozone

We are now in the final strides in the run-up to the EU referendum. No surprise that the debate gets ever more heated, more vitriolic and more off-topic. I, of course, know that the British debate around the EU does not circle just around the British membership of the EU, but also around the overall state of the EU and the question where the confederation of states will head to in the future. Thus, it is not with great surprise there are things coming up that have something to do with Europe, yes, but not with the British membership of the EU. Nevertheless, they are mentioned as arguments against the continuation of the British EU membership.

One of these arguments is that it is just a matter of days, months or years until the Euro, the currency that 19 member states share, will collapse, no doubt about it. Europe, the Leave campaign argues, is about to go down in a sea of debts and deficits, taking the common currency with it. Should it survive a little longer, the costs for the upkeep of the EU will inevitably rise, the Leave-side claims, leading to higher financial obligations for the UK.

Prior to that, we were told that the UK would have to contribute to further bail-out programs, should Euro-countries such as Greece need some extra cash – although Prime Minister Cameron 2011 made sure that the European Stability Mechanism (ESM) would not continue to provide funding for needy Euro-countries. According to that deal, only the 19 Euro-countries are expected to account for their currency partners’ debts and deficits.

This was again confirmed in the EU-UK agreeement that David Cameron negotiated in February. “Emergency and crisis measures designed to safeguard the financial stability of the Euro area will not entail budgetary responsibility for Member States whose currency is not the Euro, or, as the case may be, for those not participating in the banking union”, the the final document read. Still, the Leave-side claims that Britain will have to pay more, should it stay a member of the European Union, both into the budget but also in case of future financial crises in the Eurozone.

I do admit that the EU is currently not in its best possible shape. There are the structural challenges of the currency, the high levels of public debt, the need for structural reform and more competitiveness. The Euro-crisis, the Greek debt crisis and the refugee crisis are just three of the crises that have devastated trust in the EU and its institutions. And yes, I do acknowledge that it’s not going to be an easy ride for Britain, was it to remain a member of the European Union.

Due to the shared currency in the majority of EU states, there will inevitably be a move towards more, not less integration. In order for Europe to keep its currency working, there is a need for more fiscal alignment, more coordination and more oversight by European regulatory bodies. I am not sure whether this necessarily leads to a fiscal and political union, as Wolfgang Munchau commented in Monday’s Financial Times.

“My conclusion is that there is no way around a political and fiscal union in the long run, even if the idea is growing less fashionable. Without it, I see no counterweight to a rise in German power in the Eurozone and no end to the rise in intra-Eurozone imbalances”, Munchau wrote. But, to some degree, I agree – there is strong case for more fiscal and political integration, do we want to improve the functioning of the Euro.

Of course, this does not sound great to British ears. Many Brits still cherish the fact that their country did not join the Eurozone but instead kept the Pound Sterling. I sometimes hear comments like “Look at the Euro – it’s obvious that we are standing on the right side of history” and “Thank god, we did not introduce the Euro”. Much can be said about the structural problems of the EU. And yes, I understand that Britain has the fear of being minimised in a Euro-dominated EU. There is a legitimate point to be made here – what role can the UK play, was it to stay, in a European Union that becomes more, not less unified, a direction of travel that the UK has resisted before?  This needs careful thinking and an open debate.

Nevertheless, one should not forget that there are eight other countries that are part of the EU but that don’t use the Euro. Let’s not pretend as if the UK was the only country that had this issue. Often times, there is a second reason why Brexit supporters mention the Euro. They claim that in a short while, we will see the whole project implode. This is the only route that Leave-supporters see the Eurozone taking and with it the EU. To me, this argument stems from a lack of perspective and understanding.

Even if there are deficiences in the Euro, support for the common currency in Germany for example stays strong. This does not only refer to public support but also to political support. Giving away the Deutsche Mark was a long and painful process for Germany. Do Brexiteers really think that Germany and other Euro-countries would let the Euro fail, now that so much money, time and effort has been spent on trying to improve its functioning? The fact that it has its difficulties is a strong motivation to get it fixed, not to dismantle the whole project and get back to the Mark, the Franc and the Lira.

This to me is another example of the difference between what continental Europeans tend to think and what many British people think. Even though the commonly shared currency makes it impossible for weaker economies to just devalue their currencies and thus regain competitiveness, none of the existing Euro-countries wants to get rid of the currency. Even Greece, at the brink of bankruptcy, was desperate last year to remain a member of the currency block. Thus, I find it funny that one of the arguments that people bring forward when proposing Brexit is the state of the Eurozone. Britain is not part of the Eurozone and will probably never become one.

The point is similar to many of the other arguments we hear from Vote Leave – that for example Turkey would become a member of the European Union fairly soon and that 75 million turks would then be entitled to work in the Schengen area. This is, to put it midly, not the most realistic thing to happen. Germany, especially the CSU – the CDU’s sister party in Southern Germany – does have strong objections against a Turkish membership in the EU and has done so for the last 30 years.

The turn that the country has taken under Premier Erdogan during the last year makes it ever more unlikely that this was to change quickly. Thus, I know at least one strong voice – not the least influential one – against it. By the way, France, a second core member of the EU, also objects to a Turkish accession to the EU.

I am mentioning this to underline the fact that the British EU-debate has unfortunately moved away from the initial subject matter. Instead of debating the advantages and disadvantages of the membership of the European Union, politicians, advocates and journalists instead discuss all sorts of maybes, “could-bes” and “would-bes”, without any of them having a crystal ball. With June 23rd approaching fast, this will only get worse.

It would sometimes be good for Brits to ask fellow Europeans for insight when discussing core European topics. There is not just a British view on all things European.


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