This downturn was triggered by by events in the credit market in the USA, but it has revealed a number of wider failings:
- shortcomings in national economic policies in a number of countries, such as failures to deal with asset bubbles, loss of competitiveness, excessive debt or insufficient investment
- shortcomings in the European Union’s single market, such as the absence of a common approach to banking regulation and supervision: we did it separately and badly
- problems in the euro area, such as insufficient macro-economic co-ordination, and the initial absence of any form of lending mechanism to countries in difficulty
Above all, the crisis revealed just how interdependent we all are, whether we like it or not, especially in Europe. Economic decisions of one country can have an enormous impact on the fortunes of other countries. Risky economic behaviour – by governments, banks or others – in any part can jeopardize the stability of the whole.
Take, for example, just one aspect of the crisis: the very high levels of sovereign debt in certain countries, reaching the point where they could no longer borrow at sustainable rates on international markets. Some countries, such as Greece, Portugal and Ireland, are inside the euro area. Others, such as Romania, Hungary and Lithuania, are outside the euro area. All of them have received loans of one kind or another from fellow European countries and the IMF, to give them more time to turn the corner.
If any one of these countries had suffered a disorderly default, it would have had incalculable repercussions across the European economy, bigger even than those caused by Lehman in 2008. And it would affect all of us. Maintaining a separate currency does not provide immunity from this interdependence!
Some in Britain like to refer only to a “eurozone crisis”, not a wider economic crisis. It is tempting to shift blame for Britain’s economic predicament elsewhere. But many eurozone countries (Germany, Finland, Netherlands, Belgium, Luxembourg, Austria) did much better than Britain over the last few years, and the pound fell in value against the euro by some 20%. But in any case, the biggest economic challenge of all — how to restore growth — is a common challenge whether you are in the euro or not.
Using the EU
And here, using the EU can help, if done correctly. It is the world’s largest market, and most British exports go there. Deepening that market still has potential. The EU also has the leverage in international trade negotiations needed to prise open new export markets in Asia and the Americas. The EU budget should be used on those items where spending money at European level will save us money at national level, by avoiding duplication (such as on expensive research & development programmes) or by economies of scale. The European Investment Bank could do more to channel funds to productive investment. The regional funds that have been so important in Yorkshire can do likewise.
Of course, the main tools of economic prosperity remain national ones. Key levers of investment, education, training, finance etc are in the hands of the government. But the European level can help, if used properly, and with the right focus.