22nd Oct 2020

UK bank chief fears Paris, Berlin will push for eurozone political union

As trouble surrounding the Greek economy escalated earlier this year, Britain's top banker warned the US that France and Germany will push for political union inside the eurozone currency club and that this could damage London's influence within the EU.

The thoughts of Bank of England Governor Mervyn King were relayed to Washington by US Ambassador Louis Susman after the two men talked in February of this year, as revealed by a leaked cable from whistleblower site WikiLeaks.

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  • Greater euro cohesion could hit Britain's influence inside the EU, warned Mr King (Photo: Downing Street)

"Germany and France will ultimately have no choice but to offer explicit guarantees of Greek debt, argued King," according to the cable.

"The eurozone could not risk a Greek default and euro devaluation would not be an acceptable political option for Germany or France. Germany and France will likely, as a condition of any guarantee, require the ability to scrutinize if not exercise some control over the Greek budget. Longer-term, the drive for greater political cohesion will accelerate."

In May, Greece was handed a €110 billion EU-IMF bail-out.

At the same time, the EU's statistics agency, Eurostat, was given greater powers to scrutinize member state economic data, and the subsequent setting up of a €750 billion eurozone rescue mechanism, only days later, further increased the determination of European leaders to better co-ordinate their economic policies.

A decade after warnings about monetary union being unstable without a parallel political union to co-ordinate economic policies were ignored, EU leaders appear to be coming round to the idea.

French President Nicolas Sarkozy has put forward plans for a European "economic government," while European economy commissioner Olli Rehn has repeatedly said it is time to finally put the 'E' in Economic and Monetary Union (EMU).

Already in February, Mr King worried that this drive for eurozone consolidation could sideline Britain's influence inside the EU.

"The eurozone's move to greater political cohesion could poise some disadvantages for the UK, King speculated," reads the US ambassador's cable.

As an example, the central banker apparently pointed to a meeting of EU finance ministers earlier in February, during which "eurozone governments politely listened to chancellor [Alistair] Darling when he commented on the situation in Greece, but he was not invited to attend internal discussions since the UK is not part of the eurozone."

Mr King went on to warn: "It would be incumbent for the UK to demonstrate that it has something meaningful to say and to be constructively engaged in the EU, should this greater political cohesion among the eurozone governments occur."

Separately, former French President Valéry Giscard d'Estaing has insisted that the eurozone is not in danger of breaking apart, arguing that it would be impossible for any state to leave and reclaim its former currency.

"It is impossible. Imagine a country decides to return to a national currency. Its citizens do not want. What could they do well with a currency devalued by 40 percent? There is no space for a small change," he told Le Parisien on Thursday

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