Monday, October 31st, 2016

Eventual Eurozone reform and improving Russian/European relations

Speech by Lord Owen to the Progress Foundation’s 43rd Economic Conference on ‘Which Future for Europe?’, Zurich, Friday 28 October 2016.

Extracts only. Read the full speech here: zurichspeech2

The EU is wisely, four months on since the UK referendum vote to leave the EU, less inclined to dismiss Brexit as an event of little significance, a matter just for the British. The EU is more likely now, in the wake of Brexit, to start to face long overdue reform….

Defining a core Eurozone involving a Fiscal Union and a Banking Union will have to be openly discussed, as already has been done informally by Germany and the Netherlands. Initially at least with Belgium and Austria. Even if something dire happens to the Eurozone these four countries will ensure that a small Eurozone continues. The question is who will be their partners?

As for France, a lot will depend on the outcome of the French elections. But for the first time, whereas it would have been automatic in the past that Germany would insist on French membership, there may not be the level of public support after the elections in Germany to include France initially.

It is very unlikely that German public opinion will accept any system of automatic money transfers to Italy….

Other countries that would want to be part of a core Eurozone are Spain and Ireland. Finland in the past would have expected to be a member; perhaps not now. Luxembourg will want to participate but they, Ireland, Cyprus and Malta, may need to face tax haven questions first as it is very undesirable that any unacceptable practices should be inherited by a new Fiscal and Banking Union…..

The core Eurozone countries cannot throw a number of countries out of the Eurozone given the practical politics of the EU. What they can do is make them ineligible to be part of a core because of the way that core has fixed the initial criteria for a Fiscal and Banking Union. The weakest economies would become more vulnerable to speculative moves aimed at destabilising some of their economies, but if they can ride out speculation they might be able to stay in the Eurozone even though they were not protected as would be members of the core. Aware of their vulnerability and anticipating such speculation, some might prefer to leave rather than await being forced to decide to leave at a time of crisis. The best outcome would be if Italy voluntarily chose to leave the Eurozone for they would have the power to lead a serious restructuring of the EEA and ensure it was not unduly influenced by core Eurozone members. And others like Greece and Portugal might follow.

A core Eurozone will not be a North-South Eurozone in the sense of a formal geographical divide, though this may be the appearance. A divide will happen because of the design and disciplines of the core. Some countries that stay in the Eurozone and make the transition will be able to qualify to be part of the Fiscal Union and Banking Union over time. In effect this core will become a federal Europe.

… Besides Eurozone reform, there is the need to face up to President Obama’s criticism that Europe is “freeloading” within NATO and the disappointing record of the European External Action Service, EEAS.

… Only in a revived NATO, where European countries are no longer as President Obama rightly accused us of being ‘freeloaders’, and we make a greater financial contribution, will Europe redress the imbalance between us and President Putin’s Russian Federation.

Read the full speech here: zurichspeech2

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