No easy exit for Blair from the Euro maze
THERE’S a generally sound piece of advice for those in need of direction: if you’re lost already, it’s best not to walk into a maze. Sadly this appears to be exactly the trap Prime Minister Tony Blair has set himself this month as he prepares for a summit of European Union (EU) leaders at Hampton Court, London, on the need for economic reform. It has one of the largest mazes in Britain. But getting out of Europe’s economic maze is an altogether tougher call. Whether the EU summit at Hampton Court will produce anything of value is moot. Blair is thought to be uncomfortable with his chancellor’s hectoring and lecturing manner. This is not the way the prime minister would like to proceed. Nor is it particularly helpful given the political gridlock in Germany, with Angela Merkel’s CDU having to cede key cabinet positions to the SPD. Even if both parties agreed on speeding up the pace of reform (which they don’t) they have to contend with a large majority of German voters who are strongly opposed. They see no reason why they should give up the comforts of a high-welfare, high-spending German state and have no incentive to embrace reform. No less than seven of the 12 euro area member states are now in breach of the Maastricht criteria. Such breaches, says economist Stephane Deo of investment bank UBS, are not per se, an issue. But it is symptomatic of the growing divergence between country performances in the euro zone.
And that in turn is opening up growing doubt about the long term viability of the single currency. This was the currency, it will be recalled, that Blair was most keen for Britain to join barely two years ago.
The five Maastricht criteria were: exchange rate stability (two years without devaluation); budget deficit to be kept within 3% of gross domestic product (GDP); public debt to be not more than 60% of GDP (or at least moving rapidly and sustainably in that direction); inflation no more than 1.5 percentage points higher than the average of the lowest three EU member states; and long term interest rates no more than two percentage points higher than the average rates of the three member states with the lowest inflation.
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