What needs to be done in the eurozone – Ed Balls in today’s Independent

Far from being over, I fear the eurozone crisis is this year entering a more chronic, drawn out but equally dangerous phase.

While the bouts of market turmoil which characterised the crisis of last year may have receded – at least for a time – don’t be fooled. The underlying pressures have not gone away. There is still no plan for Greece. And endless summits have still not got to grips with what needs to be done to properly restore market confidence, stop contagion spreading and promote growth.

I believe it’s essential that the European Central Bank is given political backing to act as lender of last resort. It is the logic of the monetary union these 17 countries have signed up to. Investors need to know that eurozone countries will do whatever it takes to stand together. As long as that doubt remains the current crisis and risk of contagion will continue.

And look at what is happening to growth, unemployment and debts. The credit rating agency Standard and Poor’s got it right when, in downgrading France and others last month, they said ‘austerity alone risks becoming self-defeating’.

Yes, all countries need to make tough decisions on tax and spending. But to successfully get deficits down we need a proper plan for jobs and growth across Europe – just as we need one here in Britain. Yet the new Treaty risks locking in an austerity straitjacket that even the credit rating agencies have now criticised.

In Britain we know what self-defeating austerity means – no growth, soaring unemployment and £158 billion of extra borrowing. Outside the euro, Britain had a choice. But we made the wrong choice and choked off our domestic recovery well before the recent crisis on the continent.

That belief in collective austerity means David Cameron and George Osborne are unable to argue for a proper solution to this crisis, which is vital for our own fragile economy – especially since only rising exports kept us out of recession last year. In Britain and the eurozone, as long as political leaders carry on like this, 2012 is going to be a grim year.

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Posted February 2nd, 2012 by Ed's team