Why does Osborne want a United States of the Eurozone?

I was puzzled by George Osborne’s interview on the Today programme last week, about which I wrote for The Independent on Sunday, and his article for The Sunday Telegraph makes matters no clearer.*

I can understand that a  ”United States of the Eurozone” – Osborne’s phrase, even though he says that it does not have to be a “full-blown” political union – is one solution to the present crisis. It would be better for us than a disorderly break-up of the euro. But it is still far from the best outcome, which would be an orderly break-up and the restoration of floating exchange rates.

So why do Cameron and Osborne not say, “It is in our interest that the eurozone finds a way back to prosperity, but it is up to the eurozone members how they do that”? Why do they advocate, from outside, a non-optimal route to relative prosperity, namely the closer integration of the eurozone? They must know that this will (a) paper over the structural imbalances of the eurozone, postponing the day of reckoning, (b) suppress growth in the eurozone for the foreseeable future and (c) create a European core superstate on our doorstep.

Iain Martin seems similarly baffled in his Q and A in The Sunday Telegraph, although he tries to make sense of it. He points out that William Hague, the Foreign Secretary, must surely believe that the euro is doomed, yet takes the opposite position in public.

James Forsyth, always well informed about No 10’s thinking, reports in the Mail on Sunday that the Prime Minister feels vindicated by his standing aside from the fiscal compact in December and is disinclined to worry too much about Nick Clegg. Yet Cameron does not seem to intend to use this opportunity to lead on the question of Europe, with “senior figures” being just as obsessed by the idea of a referendum as the rest of them. Forsyth even says that these SFs (senior figures or, more accurately, stonking fruitcakes) believe that a promise of a referendum “would boost Cameron’s reputation for strong leadership”.

As I have repeatedly said, a referendum is a second-order question. First, you have to decide what is the right thing to do. I simply cannot believe that Cameron, Osborne and Hague sincerely think that trying to make the unworkable euro work is the right thing to do, which is no doubt why the Conservative Party, and the rest of us, find the referendum question so incomprehensible.

Update: My excellent colleague Mary Ann Sieghart in tomorrow’s Independent is better than me at explaining what Cameron is up to:

A break-up of the euro fits far better with Conservative views on national sovereignty and the undesirability of creating a United States of Europe. And – after the initial trauma – it would give the member states greater long-term economic and political stability. But the process of getting there would be nearly as painful for Britain as for the rest of the eurozone, which would make the 2015 election almost unwinnable.

No wonder the Prime Minister looks as if he is talking out of the side of his mouth when he urges the eurozone to integrate further. The idea couldn’t be more foreign to him. But he is terrified of a eurozone failure dragging Britain down with it. And he is equally unwilling to advocate break-up for fear of being blamed by the rest of the eurozone for precipitating it.

*This sentence, for example, is curious: “Despite our huge budget deficit and massive banking system, our economy is benefiting from safe-haven status.” Massive banking system?

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• creggancowboy

  Well Tory Bliar wanted the UK to be the poorest & smallest province of the American Imperium, and he succeeded, in fact Britain is a worse bet than Cuba under Batista or ‘Nam under Thieu. As for finance, Spain is intertwined with Ingerlund so if it goes there will BE no safe haven.

• http://twitter.com/KathyStephen Kathy Stephen

  This is a banking crisis. British banks are also involved with Credit default swap deals with European banks up to the hilt. And then they have sold and resold and resold their deals between their institutions towards oblivion
  Banks have pushed for a credit/debt driven economy in the west (UK and USA) and the finance sector is looking for citizens to repay ALL the debts, and Europe is the wealthy sector being targeted first. watch out anyone who doesn’t deal at a high level in this industry. Even you Daily Mail retired bitter Europhobes.

  Take the banks before the courts of the citizens I say.

  The Euro had threatened to be the new reserve currency instead of the US dollar, and now China, Russia and the Middle East are looking to another option. RMB?

  And never forget, History isn’t over yet.

• Odalchini

  This article is a bit weird, frankly.  Every economist and his dog, throughout Europe and farther afield, has been saying for years that currency union can’t work without political and fiscal union, and that sooner or later the the euro project would fall apart for that reason.  And they were right.  Why is that view, which is so widely held (outside the caverns of the EU imperium) suddenly special and new and Tory when George Osborne says it?

• postageincluded

  I think Ms Sieghart has hit the mark: it’s all about 2015, stupid, and if, to win the next election,  the PM and Chancellor both have to face two ways at the same time they will give it their best shot.
   
  Now I’d imagine being two-faced is right at the beginning of Chapter 1 of “How to be a Tory for Dummies”, but can they really maintain this position for nearly 3 years without serious injury? 

• http://twitter.com/francessmith frances smith

  you are searching for rational thinking in coalition policy?

  its not worth it, it will drive you mad, just assume there is none.

• greggf

  “First, you have to decide what is the right thing to do.”

  And who, pray, is “you”?
  Cameron, the Conservative party or Miliband?
  Or did you have the Continentals in mind?

  Really JR, such naïvety about politics is heart-warming but rarely is “doing the right thing” effected.

  But you’re right about a referendum being a second-order question, we might get a vote in the end but it won’t amount to much.

• greggf

  “….and that sooner or later the the euro project would fall apart for that reason.  And they were right.”
  Er Odal, has it – fallen apart?
  I live in France and the euro is stronger than the £ is or was.
  Nobody is right or wrong about such things because it’s what people make of the euro that counts. Sure there are problems in some EZ countries needing big bailouts but Britain and the US have made big bailouts – TARP in the US is $700 billion. Perhaps George Osborne recognizes that the EZ can be a viable entity and not pre-ordained to fail.  

• timberanddamp

  This from a chancellor who could not judge the importance of the humble pastie, and who had to carry out a complete U turn on his recent budget, yeah, we will all have get used to useing Camerons worn out quotation, as we witnessed in the Hunt debacle, ”I have every confidence in Him”