A Conservative Prime Minister would have faced a full-scale party revolt — including Cabinet resignations and backbench defections. Therefore, he or she would have no choice but to block the deal. There’d also be overwhelming pressure from the EU to let the deal through, and as the Greeks can tell you, the masters of the eurozone will do “whatever it takes” to save the single currency. All blackmail options would have been on the table — including an end to Britain’s budgetary rebate.
In other words, an irresistible force would have met an immovable object. And whenever that happens, something breaks — most likely the British Government. In the middle of a pandemic.
Back in the real world, we need to ask whether the rescue package is enough to keep the Italians and others afloat through the brutal recovery period that lies ahead. The answer is probably not — and, in fact, the cracks are beginning to show. In the run-up to this week’s EU summit, Poland and Hungary are threatening to veto the recovery fund and the entire EU budget. Even if that’s just brinksmanship, there’s a deeper problem.
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While the recipient countries are happy to help themselves to the grant component of the fund, they’re not so keen on the loans — because these come with onerous conditions. Instead, the recipients have been borrowing the money they need on the open market, thus circumventing the conditions they object to. They’re able to do this at a low interest rate because of the European Central Bank buying up debt issued by eurozone member states. And so the weaker economies have been filling their boots, which is the sort of thing that got the eurozone into trouble before. The ECB could crack down by cutting off bond purchases. However, this could trigger the sovereign debt crisis the Bank is so desperate to avoid.
It would be easier for Brussels and Frankfurt to keep things under control if any extra money required over-and-above the €750 billion were also to be borrowed and doled out by the European Commission. There’s no immediate proposal for this to happen, but having crossed the fiscal Rubicon once already, the next trip to the money markets will be much easier — and the trip after that. I wouldn’t want to bet my house on this summer’s rescue package being a one-time deal.
Covid has taken all the old imbalances and fragilities in the eurozone and made them worse. Further bail-outs are all but inevitable. Given the new model for raising emergency funds, it’s just as well we’re no longer on the hook.
The words “post-Brexit Britain” conjure up an unfamiliar environment fraught with danger. By voting to leave, we’ve supposedly condemned ourselves to a future full of uncertainty, while our neighbours remain secure within the European Union. But as we’ve seen, the post-Covid world means risk and uncertainty for all.
The only way that any nation can prevail in such circumstances is to stay adaptable. We must react with speed and agility to the risks that we can manage, while reducing our exposure to those that we can’t. Remaining in the EU would have compromised our freedom of action on both counts.
It is not that the EU is completely paralysed. As the recovery fund demonstrates, it is capable of changes of direction — albeit after a protracted period of wrangling. However, when the breakthrough does come it is always in the direction of further integration, of further compromises to national sovereignty. In voting to leave we did not just leave the EU as it was in 2016, but also the EU as it is now becoming.
As a result, we still have the opportunity to make the wise and timely decisions on which our future depends. Of course, that does not mean that we will — because that requires a competent, visionary government.
But at least we will be responsible for our own failings, instead of being made responsible for those of others.
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