Monday, 1 August 2011

Cameron and Osbourne in favour of single economic government

George Osbourne and Cast Iron Dave have both publicly stated their belief that the EU should move towards greater economic integration to protect the euro and that a single eurozone economy is in our national interest.
I think we have to accept that greater eurozone integration is necessary to make the single currency work and that is very much in our national interest
- George Osbourne
[The eurozone will have to move] towards much more single economic government
- David Cameron
The single currency can't work when it is the currency for many different economies that are linked by only a common unit and interest rate. The German government controls the German economy, the French government controls the French economy, the Greek government ... well, technically the Greek government controls the Greek economy but in reality they're administering it to a set of rules drawn up by the EU Central Bank.

How do you ensure those economies are being run in a way that is compatible with each others' economic policies and objectives and working to a common goal? The simple answer is that you can't unless you have a single economic area with a common treasury and finance minister and control of that single economy - including taxation - sitting with that finance minister.

The problem is, what's good for Germany and France isn't good for Italy and Greece and vice versa. The German economy is too strong but as the biggest economy in the EU (and the one contributing most to the bailout funds) they have to protect it. If Germany pulled out of the euro it would become worthless. That means interest rates are kept at a level that suits Germany but which damages weaker economies like Greece and Portugal.

To level the economies of every member of the eurozone would require massive capital investment - we're talking more money that the EU has got, probably more money than there is in the world. The only option to level the eurozone economies is to drag down the strong economies which isn't an option - no government (apart from the British government, possibly) is going to deliberately sabotage their economy to protect the euro. In short, the euro is doomed to failure. The recession has shown how weak the euro is as a concept, not just as a currency.

It is incredibly naive to think that tighter economic integration and the ultimate aim of a single economic area under EU central control will exclude non-members of the eurozone.  The UK will be required to integrate with the eurozone to a certain extent and through the traditional gold-plating of EU legislation, the UK will become even tighter integrated than the EU requires.

The only safe position to take on the euro and tighter economic integration with the EU is to be well away from it.  Well away from the euro, well away from the financially illiterate eurocrats, well away from the bankrupt eurozone countries and well away from the EU.
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