Leaving Europe is a bad breakup we don't need

The future of Europe is one of those great discussions where it doesn't appear to actually matter if someone knows what is going on for them to make a contribution.
This is a good thing otherwise I would obviously be unable to wrIte about it.
In recent weeks the call from Conservative MP's to leave the EU, or at least calling for such unacceptable changes to the treaty agreement that they leave little other choice, has grown to more than 100. The Conservatives' For Britain group has appeared in a ghastly parliamentary parody of a bad boyfriend deliberately making unreasonable demand in the hopes that his girlfriend will break up with him and leave him looking like the injured party.
At the time of writing British MP's are debating the European Union Referendum Bill, the legislation required for the much heralded in out referendum to take place in 2017. As forgone conclusions go this was a safe bet. Everyone knows that it will pass. There is just too much pressure for a referendum to take place for it not to. It isn't whether we have a referendum now which matters, it is how we vote in that referendum.
The EU is far from perfect and in many ways could do with significant reform. This won't happen just because Britain stamps it's feet and cries though. It won't happen quickly and it most certainly won't happen in one go. The eurosceptics pushing for a renegotiation of the UK membership, supported by a number of disgruntled failed cabinet ministers looking to put the boot in,  know this. If they don't then they have either deluded  themselves or they really should not be allowed close to the debate. They know that the EU cannot change just because Britain says so. Likewise it won't even consider changing when there is a chance that the UK could leave anyway. International politics is a game and relies on states playing it in order to maximise their own preferences and gains.
The question which should be being debated in parliament is what is in it for everyone else. If we were serious about requesting reforms which would ensure that we stayed in the EU then we should be looking at how other states perceive their positions and what the relative gains will be. At the moment Britain had offered nothing in return for getting everything it wants.
An additional issue, and one which seems to be lost on many eurosceptics, is that leaving the EU will diminish Britain's absolute gains on the international stage. At present the United States sees the UK as a gateway into dealing with the rest of Europe. With its exit Britain's special relationship will sour quickly. This is of course something which will please the more nationalistic elements of the debate and what they are hoping for. The problem is that as the UK loses a great deal of support from America's declining hegemony it will lose its importance on the international stage.
This split will lead to a loss of trade which on its own could have been absorbed. Combined with the loss of trade and resources from Europe however it will prove crippling. Trade with China, based in no small measure with an understanding of Britain's ties to the US and its access to the EU economy, will not take long to dry up.
Britain is no longer an empire and it seems that too many people have forgotten this. We live and work in a globalised networked society. An EU exit has only one possible outcome for the UK, economic isolation and collapse. Better the long crawl to reform than the short sprint to crisis.

It's a crisis but not like you think

THE victory of the Syriza party in Greece has led to media reports making it sound as though we are on track for a Mad Max distopia.

In the short term the support for the anti-austerity platform it campaigned on has already seen fluctuations in the money markets. This is only to be expected though. The thought that the eurozone may be forced to write off €240bn is not a pleasant one, least of all for Germany which has the most to lose.

Statements by newly elected representatives of the party that the debt is unrealistic and should be wiped fail to explain why the country a) needed the loan in the first place and b) why it was issued if it could not be repaid. 

The easy answers are that accumulated mismanagement of fiscal policies led to Greece's collapse and that the debt can be repaid but only through lengthy and painful austerity measures. 

Euclid Tsakalotos', Syriza's economic spokesman, declaration that "nobody believes that the Greek debt is sustainable,"  failed to add the addendum which will have gone through the minds of European Central Bank policy makers. It is only unsustainable if Greece does not radically change its attitude to spending.

A comparison can be drawn by an individual maxing out credit cards, overdrafts and getting into arrears in the mortgage. While they may not be able to pay off the full amount in one go they can look at restructuring the debt, cutting back expenses and paying it off gradually. If they decide not to do this and take out more debt to buy a new television and computers for the kids then the debt is going to be unsustainable.

The key difference, other than the obvious size of the debt, is that it is harder to repossess the Parthenon than somebody's car.

Mr Tsakalotos seems to have forgotten that the €240bn was a loan, not a handout. While he may be correct in thinking that economists would agree that the debt is unsustainable it is only this way because Greek authorities have allowed it to become so.

His belief that the rest of the Eurozone will cave in the face of economic uncertainty, rather than risk a possible, albeit unlikely, exit from the bloc, is a very large gamble to take. Germany has already signalled that it is likely to call Greece's bluff. 

This could be disastrous in the short term as the euro suffers but it would not necessarily mean the end of the eurozone though. In a very simplistic explanation as the euro devalues it will make it cheaper for countries, such as America and the UK, to buy products from the member countries. This in turn increases the amount of foreign capital entering the country and thus begins the long road back to stability and prosperity. The fundamental issue is whether the bloc has sufficient resources to prop itself up in the meantime.

This may well be a risk worth taking though as one of the alternatives is that Syriza gets exactly what it wants. This in turn would provide a boost to other anti-austerity and anti-EU parties, a risky business for the long term survival of the European Union as a whole not just the euro.  

The slow road to recovery

FOLLOWING the announcement by Bank of England Governor, Mark Carney, earlier this week that interest rates were likely to remain low “for some time” the debate has intensified as to how strong is the British economy?

Some analysts had previously claimed that the Bank may be forced to raise interest rates in the face of signs that the British economy is starting to recover following the 2008 crash.

"Securing the recovery is like making it through the qualifying rounds of the World Cup - it's a real achievement, but not the end goal. The prize in the economy is sustained and prolonged growth," Mr Carney was reported as saying.

One of the problems facing the Bank of England’s Monetary Policy Committee, which decides on the rate of interest, is how to ensure that the increase in the economy is maintained rather than reduced.

While the signs may be positive it is not all good news for the economy. Although stating that the economy is back to 2007 levels may sound good as a politician’s soundbite it fails to take into account the way in which the global financial system has changed.

As minutes from the Monetary Policy Committee demonstrate it is not just the British economy which needs to be considered before making changes to the interest rates:

“There had been further signs of a strengthening recovery in the advanced economies, with modest positive news on euro-area activity and more evidence of continuing expansion in the United States. But weaker data from China had highlighted the continuing downside risks to global activity from the emerging economies.”

 

The growth also does not taken into account the rise in cost of living which has affected so many people, particularly those on a lower rate on income who could be most affected by a rise in interest rates. An average increase in the cost of living by approximately three per cent year on year means that while it may show signs of strength there is still a long way to go for the economy before it is stable.

 

While this may be good news for many it might not be what the Treasury wants to hear. Politicians, as well as the public, it is often forgotten that it can take a couple of years for monetary policies to demonstrate an impact. As Mr Carney has already said, any change is going to need to be “gradual” if it isn’t going to damage the confidence of investors, and the financial system as a whole, thereby destroying what has taken so many years to rebuild.