Last weekend I was celebrating a colleague’s birthday when conversation somehow loomed into the Eurozone crisis. Whilst many had clear views on what is happening, I thought I’d share my view with you all here at the Spilling the Beans site.
When I was applying for my role as a Tax Graduate back in the winter of 2009 the feeling of austerity had been within the UK economy for a couple of years. At the time, we were seeing the beginnings of quantitative easing and the focus was largely on what would the Bank of England do with the interest rates.
Fast forward two years and that feeling of austerity hasn’t disappeared, Quantitative easing is still part of the government’s plans and low interest rates have become accepted by UK populous. The impact of Northern Rock and Lehman Brothers, whilst still apparent, is something for the financial history books.
Today, the hot potato on all economists’ and businesspeople’s minds alike is the Eurozone crisis. While previously much of the Eurozone benefitted by the generous and poorly aligned monetary policies of the EU, now that the bubble has burst, there are a lot of politicians scratching their heads.
The lesson being learnt is that a single currency union cannot be achieved effectively without fiscal union, an issue of the Euro from day one. So while the larger Eurozone economies benefitted from an almost artificially devalued exchange rate, others benefitted from the low interest rates. It was win-win, and something had to give.
When financial services failed in those economies which grew too-quick-too-soon, the respective governments were jeopardised and their austerity packages have had a damning effect on their elective.
Recently, David Cameron utilised his veto in the EU conference to pull out of talks aimed at working out a new EU treaty. Whilst the media has drawn the expected black and white conclusions, it might be worth considering how this reflects our UK economy, and what lessons could be learnt.
The Eurozone ran into problems because its central management failed to generate policy that benefited the geographical area as a whole. David Cameron pulled out of the treaty because it was not in Britain’s interests. Of course, a large proportion of the UK’s GDP is made up of financial services, but we also have flourishing hi-tech manufacturing, competitive retail, world-class design and some of the best inventors on the planet.
So the question I keep asking myself is this; was the veto in Britain’s interest, or London’s interest?
There is really no excusing that London has outgrown much of the rest of our country. With average house prices several multiples higher than the least wealthy areas and salaries reaching much higher amounts when paid in the capital.
It must be that the UK as a whole benefits from London’s activities, and to accept regulation from Brussels in the world’s largest financial center would seem a little odd. But, if we make a large proportion of our wealth in the capital, and policy is made there, do we miss a trick? Did Brussels forget what was important to the people living in Greece or Ireland? Did David Cameron really have a choice over the veto? Should the UK rely so heavily on one city for its national wealth?
I’d be really interested to hear what you think about the Eurozone crisis and whether you’ve been speaking about it during interviews for graduate and school leaver jobs. In addition, what is the solution? Will the Euro disappear? Or will some of the 17 members slowly drift away? Can it really continue to encourage more countries to join after this rollercoaster ride?
Thanks for reading and please feel free to comment below.