Daily Politics interview on the eurozone crisis

Andrew Neil: If you were heading for the Brussels summit this weekend, what would you be advising our European partners to do?

Ed Balls: Well I think there are three things you need: you need a plan, you need political agreement for that plan and it has got to be a plan which works. And the problem is none of those things are in place: there is not an agreed plan, the politics in the European Union and in the Eurozone is very divided, no decisions can be made and I fear the danger is that the plan won’t be the right plan. You’ve got to say to the European Central Bank as governments you have got to do whatever it takes to show that Italy and Spain will be supported by the collective in the Eurozone. The quid pro quo has got to be that in Italy there has got to be a clear political deficit reduction plan – the Germans are right to insist upon that – but you won’t have stability unless you say collectively we are going to stand by each other in the Eurozone for now. And that means a very substantial commitment to inject billions and billions of pounds of resources if necessary. Without that I’m afraid the markets will doubt whether or not there is a real political commitment to hold this together. That is where the contagion, the tensions, the low growth, the market worries come from. As I said though there has also got to be a commitment to a balanced plan, and if you try to go too quickly on austerity as you see in Greece, it doesn’t work, if you look at the British example as well. In Ireland it has been, as we were just hearing, they’ve cut VAT recently temporarily, there is a debate now about moving to a more balanced plan, even then, unemployment very high, markets not lending yet to Ireland. Navigating your way through this is very, very difficult, you’ve got to have a plan for growth and jobs, a credible deficit plan and political agreement to implement it. Without those three things you can’t make progress.

AN: But the problem is that no-one is following your advice the Irish haven’t followed your advice, they are cutting the deficit much more quickly than we are cutting ours and the Germans and French are also cutting their deficits, you seem to be a lone voice in your Keynesian stimulus proposals, no-one else in Europe seems to want them?

EB: The Irish government have just announced a temporary cut in VAT…

AN: Yes but the deficit is going to be reduced more quickly.

EB: And you were just hearing the troika saying to the Irish you may need to ease off and move toward a more balanced plan given this more dangerous world situation. What you have got to do is have a credible plan on the deficit. I’ve always agreed with that but it has got to be one which works and if you have flat lining growth, if unemployment is rising what the markets then say is look, it is not working, the debt is going to be going up rather than down, borrowing under pressure. If you look at Italy, their problem is that with the level of debts they have got, twice as high as ours, plus high interest rates, no growth means their debt gets worse, so you have got to have a growth and jobs plan alongside a credible deficit plan. If you say we are going to do it all through austerity it doesn’t work and that has been part of the Eurozone problem. Of course the other part, as I was saying a moment ago, is you have got to have a collective political commitment in the Eurozone and until France and Germany can reach a deal, I have to say David Cameron in my view should have been in Berlin and in Paris this week saying to people in Europe’s interests, in Britain’s interests too, get this sorted out and instead he is just stuck in an internal Conservative Party wrangle. This is so important…

AN: Well he is heading to the European summit on Sunday, along with other European leaders, the problem is that you are a lone voice on this, indeed you are in isolation. Mrs Merkel doesn’t agree with your analysis, she wants to continue to cut the deficit at a high rate, Mr Sarkozy doesn’t, even the French Socialist candidate wants to cut the French deficit, who agrees with you?

EB: So you are saying Andrew, at the moment when we see the chaos of a summit not reaching agreement that I should be following the path being prescribed by Mrs Merkel and Mr Sarkozy?

AN: No, I’m just asking who agrees with you, I’m not saying you are wrong, you are maybe right, you alone in Europe may be right, it has happened before I’m sure, I’m just wondering who agrees with you?

EB: That would be quite a punt to take Andrew, at the moment…

AN: And I did say ‘may’…

EB: … the Eurozone is going into what has been, is probably the biggest political crisis of our lifetimes. Economically it is incredibly dangerous what they are doing, they can’t sort it out, austerity is not working, the ECB is neutered, there is no way of standing behind Italy, so you have got these huge contagion problems. In Britain we’ve got a deficit plan and we have got a political agreement to deliver it, our problem is that it is the wrong plan because it is going too fast and you just have to look at the evidence on unemployment or on growth. But the idea that you can look at the Eurozone and say Britain would be better following their plan, good grief Andrew, I don’t believe you would think that for a moment.

AN: That is what I didn’t say, I asked a much simpler question that people can follow and that is, it seems your position is that Ed Balls is right and everyone else is wrong. Mrs Merkel doesn’t agree with you, Mr Sarkozy doesn’t agree with you, Mr Zapatero in Spain doesn’t agree with you, the incoming likely Conservative government in Spain doesn’t agree with you, the Irish don’t agree with you, the French Socialists don’t agree with you, so I simply ask again who does agree with you?

EB: Look, we didn’t join the Euro Andrew, what a good decision that was, outside the Euro…

AN: I know and you’ve taken the credit on this programme endlessly for that. I’m not arguing about that, I’m simply, it seems to me, as I say again you may be right, you may be wrong but you as you sit there in Sheffield are an isolated figure in the European debate?

EB: Sometimes Andrew you have to have the strength to make an argument which is right and be outside the consensus…


EB: A year ago I said if we cut the deficit in Britain this fast it would be bad for Britain and the Conservative Party and many commentators said, ‘no we’d get growth, unemployment would come down, borrowing would come down.’ What has happened? A year of flat lining, unemployment going up, markets now doubting whether Britain will get the growth we need. I have to say increasingly it looks as though those optimists of a year ago have got it wrong and I’m saying now in Britain you have got to change course and Europe has got change course as well because austerity and a lack of political consensus is not working.

AN: So let’s for the purposes of the rest of our short discussion assume that Ed Balls is right is and the rest of the world is wrong, so to capitalise on your wisdom let me ask you on this. It would seem to me and you are quite right about the failure of leadership in Europe and this keeps going on and on and they have kicked it into touch again. It would seem to many people that in the longer term the only way for Europe to go is either to break up the Eurozone and kick out the weaker members so you have what economists like you and me would call an optimal currency area in the North or you have, as the British government is proposing, a much stronger fiscal union with transfer of payments and a Eurozone economic policy, which way would you go?

EB: Well I think you cannot make a monetary union work without collective fiscal agreement. There is no doubt about that, that is the direction it has to go in. I personally think that you can make a larger monetary union work across an optimal currency area plus if you have got that political commitment, and the problem is that Italy is probably OK if it gets its deficit sorted out, but the others have got to stand by the Italians and that is not working. So I am for political integration, a step beyond on that and I am for, you know, the things which need to be done to make that happen. The problem this weekend is that the French and German governments can’t really quite face up to that, our government is sitting in London not doing the diplomacy that we should be doing and it is going to end up with jobs and investment lost here in Britain because what happens in the Eurozone really, really matters to Britain.

AN: No, no I understand that, but if you, like the government, are urging a deeper fiscal union for the Eurozone countries with massive transfer of payments and an economic policy for the Eurozone, that by definition redefines our relationship with Europe, it would then change, we would face a 17 country block which would out vote us on every major issue, wouldn’t we then have to change our relationship if the logic of your policy and Mr Osborne’s policy was followed through?

EB: Well look the logic of a monetary union is deeper fiscal integration. Of course that means that that changes over time and Britain has to deal with that. The thing I find really worrying about the Conservative Party is they seem to think the only way to sort Europe out, or our relations out with Europe is essentially for Britain to walk away and to leave and withdraw. That is so defeatist…

AN: Well that is not Conservative government policy?

EB: Well it is the view of very many Conservative MPs who will be rebelling next week and is pretty much what George Osborne hints at and winks at when he is in the House of Commons. We should be leading the arguments for reforming Europe, not walking away, the single market, financial services, the labour market, they matter across the whole Euro area, the whole EU area, not just the Eurozone, us not being in those debates is incredibly dangerous.

AN: Alright, stay with us just for a second Mr Balls, we are running out of time, but let me get some reaction here from our guests. Janan, what do you, if we are urging the Europeans to do what we wouldn’t do ourselves, doesn’t that change our relationship overtime with Europe?

JG: Yeah and I think a 17 country core Eurozone area would effectively be the European Union and would set the terms of economic and fiscal policy and even business regulatory policy for the European Union as a whole and you can imagine therefore in the longer term British membership coming into question as its interests diverge from the core for the European Union. But I do think Ed Balls is right that the ultimate solution to the Euro crisis is some kind of fiscal harmony, that won’t happen for a long time…

AN: It wouldn’t involve us

Janan Ganesh: It wouldn’t involve us and it would be incredibly difficult even for the existing Euro countries to get there but it is the most plausible…

AN: What is your take on it and I will get a final word from Mr Balls?

Vincent Moss: I think people are very depressed by the lack of political leadership. Where Ed Balls is right is people need unity of purpose, they are not getting that, it doesn’t reassure the markets and we have got a position where…

AN: Do you really think the British could make a difference?

VM: I don’t think they could make a huge difference but people would listen if the Party, if the Conservative Party weren’t split down middle on this, you have got the potential of 100 Tory MPs rebelling on Monday…

AN: There will be quite a few Labour MPs as well

VM: Absolutely and that sends out a very, very bad message and it is echoed across Europe, the lack of political leadership in this area is woeful…

AN: Just, I want to come back finally, because it is an issue which will come up in the debate on Monday and it is not a party political point I’d like you to comment on, I’ll just come back to what I’ve said, it seems to me that if the Eurozone does go down the route of fiscal integration and economic harmony and we are not part of that, whatever British politicians say that will enforce a redefinition of our relationship with the EU, can I just get a final reaction to that?

EB: That is right and it is a huge challenge for our generation but I have to say millions of jobs and investment in our country depends on our access to that wider EU market…

AN: There are rules on that, that is all covered by WTO rules Mr Balls you know that as well as I do…

EB: But you also know that the integration of the single market, on financial services for example, goes way beyond the WTO. We are negotiating those things at the moment and Britain is not punching its weight. I have to say Margaret Thatcher, John Major, Tony Blair, Gordon Brown all of them would have been demanding to be at this summit, getting it sorted out, David Cameron has walked away, that is not in our national interest, I want us to be not in the Euro, but in the debates, we’ve got to shape it so we keep the jobs and investment in Britain.

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Posted October 21st, 2011 by Ed's team