Open Europe Blog

In a speech to business leaders in Paris today (at the Mouvement des Entreprises de France ), Nick Clegg had some interesting things to say about the eurozone. The speech was seen in the UK media as “contrasting” to the comments David Cameron made in the Spectator the other day, where he suggested that Britain should use the eurozone crisis to re-shape its relationship with Europe (“Nick Clegg and David Cameron split over Europe” as the over-excited Independent put it).

The truth is that Clegg’s speech was a mixed bag – some very sensible remarks combined with others whose logic wasn’t always as easy to follow.

He started off with the usual government line that the UK must resist “finger-wagging” and that there is “no room for schadenfreude” over the problems that have hit the single currency.

He made the good point that,

“Events both inside and outside of the eurozone have demonstrated the irrefutable need for all European states to pursue deep-seated economic reform, individually and together, because without it there will be no lasting success – no matter what happens to monetary union…If Europeans now take the right action in fiscal policy, financial policy, structural reform, we can correct the mistakes of the past. We can lead a new era of prosperity for our continent.”

Then he made the arguably even more important point,

“We have also had to look very carefully at the functioning and structure of our banks to ensure they can never again take our economy to the edge of a precipice…[banks must be] properly capitalised and able to withstand future shocks”.”

Clegg rightly noted that

“we may have different coins in our pockets, but our fates are intertwined…We all have an interest in a strong European economy…There are problems in the eurozone and they are important, not just to members of the single currency, but to all Europeans.”

This is absolutely correct as we forcefully state in our recent briefing assessing the second Greek bailout. But then it gets a bit confused and hard to follow.

He said,

“Countries like the UK should not see ourselves as spectators, watching from the wings, triumphalist, complacent, as if Europe’s economic woes are a eurozone problem, rather than a problem for all of us – as if it is enough to put your own house in order, but then stand by and let the neighbourhood crumble.”

What, exactly, does this mean? Is it “not let the neighbourhood crumble”, as in not allowing governments to default? Seems like it. But that’s not the policy that the UK government is pursuing. Since it isn’t participating in a second Greek bailout, it is, in fact, standing by and letting a country in the neighbourhood crumble (or at least relying on others to ‘save’ it).

So is he criticising his own government’s policy on the Greek crisis?

It gets more confused:

“On the one hand, some people, including senior members of the previous UK government [read Jack Straw], are predicting collapse and doing so with short-sighted relish, given it would do lasting damage to the UK economy. On the other hand, some people are now arguing that only complete fiscal union can work.”

He said that “It’s not my role, or the role of the British government, to predict the future of a currency union we’re not a part of”, but then, interestingly, goes on to make a prediction:

“I expect – as is usually the case – things will end up somewhere in between these extremes.”

Hold on a minute. So Clegg firstly goes to great length to explain how the fate of the euro is linked to the UK economy (which is true) only to say that it’s, however, not his role to predict the outcome of the euro since the UK isn’t part of it. Adding then that predicting its collapse is irresponsible, while predicting a full fiscal union is incorrect since, lastly, he’s predicting that the euro will end up somewhere between the two.

But if the UK is so horribly affected by any movements in the eurozone even though it’s not part of it, isn’t it exactly his role to predict where the eurozone is heading so as to make preparations for whatever will occur down the line, given his position as the second most senior person in the government?

What’s more, is he saying that a fudge is the best outcome for the UK, since a collapse is a disaster and a full fiscal union won’t happen?

We’ve had a fudge for 18 months and the eurozone crisis hasn’t exactly gone away. Can he say with confidence say that a fudge (whatever that involves, more bailouts? stronger EU budget rules?), isn’t in fact increasing the political and economic cost of the eurozone crisis, therefore leaving the UK even more exposed to meltdowns in future (as the cost of a Greek default, for example, only increases the longer you wait to restructure)?

We’re confused. To Predict or not to predict? Part of or not part of? More UK-backed bailouts or no more? Does the UK have a eurozone crisis policy or doesn’t it?

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