What may emerge from the Eurozone debt crisis?

Recent events in Europe have been deeply destabilising but in time they could potentially lead to some quite welcome changes and could also produce some surprises.

Starting with the latest “solution”, a deepening of fiscal links and controls between Eurozone members, this has been widely criticised for a lack of detail and also because it fails to address key issues like the build-up of private sector debt and the lack of growth in the Eurozone.

In reality however one plan can’t solve all problems; the Eurozone needs a number of initiatives in different areas and bringing control and trust back to public sector finances can hardly be a bad place to start. In fact if the planned compact evolves more as a Eurozone fiscal policeman than a fiscal government, then it might be a welcome step forward.

What is more, current pressures may bring about other overdue changes to combat excessive debts and push through reforms. Indeed, whether the Euro collapses or endures, there will be a need for such reforms to be accelerated and for imbalances to be righted.

So on the “welcome” side we have the potential for reforms to actually get under way at long last. On the “surprising” side, we have the prospect of the Euro emerging as a much stronger currency once its structure is revised and improved.

More of a long shot perhaps, what about the potential for the UK to consider joining the Euro?  This may seem unlikely or even impossible today, but it could be a real winner for the Eurozone – helping to increase its size and importance, providing greater stability and boosting the Euro’s role as a global reserve currency.

So if getting the UK in would buy credibility – whatever certain French central bankers and officials might think –  what price would Eurozone governments pay to make it happen? Cameron’s decision to veto could ironically shift the balance of bargaining power in the UK’s favour and could offer the best way to safeguard London’s future.

Membership of the single currency would also have a powerful effect on UK trade and productivity by locking in a competitive exchange rate, reducing currency fluctuations, improving price transparency and possibly leading to greater capital market integration.

So could it happen? It may look unlikely to say the least but recent events should have shown us it would be dangerous to rule anything out – well nearly!

David Hutchings, European Research Group, London

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