25.06.2012

By Simon Miller

As I write this editorial, the eurozone is in another spasm as money supply goes down, Greece faces its ‘Grexit’ and Ireland votes on the fiscal pact. The problem with the eurozone is that all attempts to offset the crisis have resulted in temporary lulls followed by runs on various embattled southern European countries’ debt. There is a reason for this - the fundamental issues with the eurozone have not been addressed.

Yes, there is a need to get excessive spending under control but without control over its own money, Greece, for example, finds itself without any sugar to swallow the bitter pill. The whole area is in a paralysis over addressing the issue that the system is at fault.

In true fiscal unions, such as the United States and the United Kingdom, money is taken from the richer areas to fund the poorer areas - a true debt transfer. Without full debt transfer, the eurozone is going to continue its way spending vast monies on expensive sticking plasters over the wound that will eventually fester. For the eurozone, the question has to be asked: what do you want from the single currency?

If you think that you can continue your way without discipline, you are mistaken. On the other hand, if, like Germany, you think that you can impose austerity without the back-ups to support the embattled countries then you too are wrong. The only answer to the eurozone problem is, ironically, the one that eurosceptics warned about all those years ago - a currency can only work with full fiscal and political union.

Taxing the City
Sticking with Europe for a minute, one idea that is gaining strength is the financial transaction tax (FTT) that has been voted for by the European Parliament. Surely, creating conditions that would drive finance companies away is not the most intelligent option in these difficult times? Whether you agree with an FTT or not — and fundamentally I do not — driving finance houses away from Europe and adding costs to pensions and investment funds is not the way to solve the crisis. And that is before we get onto the subject of who will actually pay the bill - London. Not only do the EC’s own figures point to a 90 per cent drop in derivative trading but also, with 80 per cent of derivative trades in London, how can European parliamentarians honestly believe that this is not a tax fundamentally targeted at the UK in the same way that a luxury car tax would disproportionately hit Germany?

Ringing in the summer
Finally, this Summer will bring its own risks to the citizens of London when the Olympics come to town.
For those of us that are not going on holiday, this will mean overcrowding and late running of trains, people piling into the capital and restaurants and bars
overflowing as visitors sample the City. In fact much like a normal day really. I hope that the Games will show London is its best light and that the appetite the UK has for sport is demonstrated during the Olympics. Whichever country you support, hope you enjoy the games.