Saturday

30th Sep 2023

Opinion

Eurozone approaching moment of truth

  • "An integrated single market, including in financial services, is strongly in Britain’s national interest" (Photo: Paul Vallejo)

We are approaching a moment of truth for the eurozone. After more than two years of uncertainty, instability and slow growth, decisions taken over the next few months could determine the economic future of the whole European continent for the next decade and beyond.

I have argued for a year now that the eurozone need to follow the “remorseless logic” of monetary union towards much greater fiscal integration. In countries like the UK and the US we are familiar with the features of a stable single currency area. The solution in the eurozone doesn’t have to be a full-blown United States of the eurozone, but if it is to be successful it is likely to include some form of most of the mechanisms that make other currencies work: more support from stronger economies to help weaker economies adjust; more pooling of resources, whether through common Eurobonds or some other mechanism; a shared backstop for the banking system through a banking union; and as a consequence, much closer collective oversight of fiscal and financial policy.

Read and decide

Join EUobserver today

Become an expert on Europe

Get instant access to all articles — and 20 years of archives. 14-day free trial.

... or subscribe as a group

While we are not members of the eurozone, as full and committed members of the European Union, Britain has a huge interest in the outcome of this process. The British Government is clear that it is strongly in Britain’s interests for our biggest export market to succeed; the risks for us of a disorderly outcome are huge. We will not stand in the way of further political integration amongst the eurozone countries that any successful solution will require.

One proposal that has been put forward in recent weeks is for a banking union. This could have a number of features: a collective guarantee for insured bank deposits; a facility to inject capital directly into banks; and common supervision of banks.

In my view, such a banking union for the euro area is likely to prove necessary. If countries in the eurozone default, they hugely destabilise and threaten the euro. The need to stand behind banks in a crisis is one of the greatest risks to its public finances a country could face. If governments in the eurozone cannot meet their liabilities, such as to protect depositors or ensure their banks have sufficient capital, then to avoid a threat to the currency as a whole it may become necessary for the other eurozone countries to stand behind them. In return, it is understandable that those countries would want a say in how banks across the eurozone are supervised and dealt with in a crisis.

That is why a banking union is a natural extension of a single currency. But it is not essential for a single market. In no other sector of the single market is such a high degree of integration deemed necessary. Countries outside the euro have their own currency and their own independent central banks, and therefore the means to stand behind their own banking systems in times of crisis. And those outside the euro do not have a vote on the fiscal and macroeoconomic policies of those inside. For these reasons we are clear that Britain will not take part.

Of course, operating a banking union, which involves some but not all members of the EU, does pose challenges for the single market. The countries of the euro area will have an automatic qualified majority, and will therefore, in principle, be able to set rules for the EU as a whole.

There may be decisions the euro area has to take to protect its financial stability, which could be detrimental to the rest of the EU if imposed on them. For a country such as the UK with a large financial sector, there may be decisions we have to take to protect our taxpayers and our financial stability that may not be possible if we are constrained by rules set only for the single currency area.

So it is entirely reasonable for countries in the EU but not in the banking union to seek safeguards that protect their taxpayers and preserve the single market for all EU members.

Far from seeking opt-outs as some claim, we want to deepen and enhance the single market. An integrated single market, including in financial services, is strongly in Britain’s national interest, and indeed in Europe’s too. But the rules that govern it must continue to be determined by all 27 members of the EU.

I accept my responsibility for keeping Britain's financial system secure. Our new bank levy is greater than that in France and Germany combined, and in addition we already tax share transactions. The last thing Europe needs now is the kind of instability we are seeing in some countries in the euro area in Britain. That is why I have taken tough action to our deficit back under control; and why I am taking tough action to reform our financial sector by ringfencing our high street banks from their investment banking arms and ensuring our banks have sufficient capital to withstand future shocks. In the debate on banking regulation in Europe, it has been Britain that has been among the most vocal in arguing for tougher standards.

Britain is playing its part in contributing to economic and financial stability in Europe. By playing a constructive role in shaping necessary reforms in the euro area, we can help others do so too.

The writer is British Chancellor of the Exchequer

Disclaimer

The views expressed in this opinion piece are the author's, not those of EUobserver.

UK better off in EU for now, says eurosceptic think tank

The UK would be better off staying in the EU than leaving it, the country's foremost eurosceptic thinktank has said. But London should use "likely" new treaty discussions to negotiate more beneficial EU membership terms.

Punish Belarus too for aiding Putin's Ukraine war

While Belarus has not sent its own troops to fight Russia's war in Ukraine, the Minsk dictatorship has been heavily involved. As a result, Belarus must be punished for its involvement — what can the world do to sanction Belarus?

Time for a reset: EU regional funding needs overhauling

Vasco Alves Cordeiro, president of the European Committee of the Regions, is advocating a revamp of the EU's regional policy so that it better supports all regions in addressing major challenges such as the green and digital transitions.

How do you make embarrassing EU documents 'disappear'?

The EU Commission's new magic formula for avoiding scrutiny is simple. You declare the documents in question to be "short-lived correspondence for a preliminary exchange of views" and thus exempt them from being logged in the official inventory.

Column

Will Poles vote for the end of democracy?

International media must make clear that these are not fair, democratic elections. The flawed race should be the story at least as much as the race itself.

How do you make embarrassing EU documents 'disappear'?

The EU Commission's new magic formula for avoiding scrutiny is simple. You declare the documents in question to be "short-lived correspondence for a preliminary exchange of views" and thus exempt them from being logged in the official inventory.

Column

Will Poles vote for the end of democracy?

International media must make clear that these are not fair, democratic elections. The flawed race should be the story at least as much as the race itself.

Latest News

  1. EU women promised new dawn under anti-violence pact
  2. Three steps EU can take to halt Azerbaijan's mafia-style bullying
  3. Punish Belarus too for aiding Putin's Ukraine war
  4. Added-value for Russia diamond ban, as G7 and EU prepare sanctions
  5. EU states to agree on asylum crisis bill, say EU officials
  6. Poland's culture of fear after three years of abortion 'ban'
  7. Time for a reset: EU regional funding needs overhauling
  8. Germany tightens police checks on Czech and Polish border

Stakeholders' Highlights

  1. Nordic Council of MinistersThe Nordic Region is stepping up its efforts to reduce food waste
  2. International Medical Devices Regulators Forum (IMDRF)Join regulators, industry & healthcare experts at the 24th IMDRF session, September 25-26, Berlin. Register by 20 Sept to join in person or online.
  3. UNOPSUNOPS begins works under EU-funded project to repair schools in Ukraine
  4. Georgia Ministry of Foreign AffairsGeorgia effectively prevents sanctions evasion against Russia – confirm EU, UK, USA
  5. International Medical Devices Regulators Forum (IMDRF)Join regulators & industry experts at the 24th IMDRF session- Berlin September 25-26. Register early for discounted hotel rates
  6. Nordic Council of MinistersGlobal interest in the new Nordic Nutrition Recommendations – here are the speakers for the launch

Stakeholders' Highlights

  1. Nordic Council of Ministers20 June: Launch of the new Nordic Nutrition Recommendations
  2. International Sustainable Finance CentreJoin CEE Sustainable Finance Summit, 15 – 19 May 2023, high-level event for finance & business
  3. ICLEISeven actionable measures to make food procurement in Europe more sustainable
  4. World BankWorld Bank Report Highlights Role of Human Development for a Successful Green Transition in Europe
  5. Nordic Council of MinistersNordic summit to step up the fight against food loss and waste
  6. Nordic Council of MinistersThink-tank: Strengthen co-operation around tech giants’ influence in the Nordics

Join EUobserver

Support quality EU news

Join us