George Osborne says eurozone crisis killing UK recovery

 
George Osborne Mr Osborne said banking union was a "natural extension" of the euro

The UK's hopes of economic recovery are being "killed off" by the eurozone crisis, the chancellor has warned.

Writing in the Sunday Telegraph, George Osborne said European leaders faced a "moment of truth" which could determine the economic future for over a decade.

He added that British businesses were "being held back because of uncertainty about the future".

But Labour's Ed Balls said Mr Osborne was making "desperate excuses" for the government's failure to deliver growth.

And Conservative MP Douglas Carswell said Mr Osborne's analysis was "misplaced".

BBC deputy political editor James Landale says Mr Osborne has spoken before about the negative impact of the eurozone crisis but never in such stark language - or with such pessimism about the UK's future recovery.

Revised figures last month revealed the UK economy shrank by 0.3% in the first three months of the year, while in the final three months of last year the economy also shrank by 0.3% - putting the UK back in recession.

Start Quote

If Spain has succeeded, as it claims, in persuading Germany and the other eurozone governments to hand over the 100bn euros with no strings attached that relate to Spain's spending and taxing - to its budget - then Ireland would have a powerful case for demanding a renegotiation of its bailout package”

End Quote

The government says the single market is a key driver for economic growth in the UK and in Europe.

The Department for Business Innovation and Skills says the eurozone may be responsible for income gains in the UK of between 2% and 6% - which would add around £1,100 and £3,300 a year to each household.

It says European markets account for half of the UK's overall trade and foreign investments and that around 3.5 million jobs in the UK are linked to the export of goods and services to the European Union as a whole.

The newspaper article comes in the wake of an announcement that Spain will get up to 100bn euros ($125bn; £80bn) in loans from eurozone funds to shore up its struggling banks.

The move was agreed during emergency talks between eurozone finance ministers on Saturday.

The International Monetary Fund (IMF) said the bailout was big enough to restore credibility to Spain's banks.

Start Quote

The risks for us of a disorderly outcome are huge”

End Quote George Osborne

Mr Osborne wrote that the lesson of the last two years was that treating the "latest symptom" would not be enough to "cure the underlying conditions".

He added: "Our recovery - already facing powerful headwinds from high oil prices and the debt burden left behind by the boom years - is being killed off by the crisis on our doorstep."

The chancellor continued: "The British government is clear that it is strongly in Britain's interests for our biggest export market to succeed; the risks for us of a disorderly outcome are huge."

He said decisive action was needed to end the instability as "we are approaching a moment of truth for the eurozone".

"After more than two years of uncertainty, instability and slow growth, decisions taken over the next few months could determine the economic future of the whole European continent for the next decade and beyond."

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'Choked off'

Mr Balls said it was "deeply complacent and out of touch" to blame the eurozone for a "double-dip recession made in Downing Street".

The shadow chancellor added: "Despite the eurozone crisis, Germany, France and the euro area as a whole have so far avoided recession while Britain's recovery was choked off in the autumn of 2010."

He said what was needed was a plan for jobs and growth, in Britain and in the eurozone, to get people back to work and get deficits down.

"If we fail to act now, we will pay a very heavy long term price," he said.

Mr Carswell also took issue with Mr Osborne, accusing him of "Gordon Brown-era Whitehall thinking",

"The idea that it is all the fault of the eurozone is demonstrably wrong," he wrote on his blog.

"It is not the eurozone crisis that we should blame for our awful economic performance, but the almost total absence of domestic economic reform, coupled with the Treasury's absurd belief that monetary stimulus can engineer growth."

Eurozone debt crisis bailouts

Who When How much Main problem

Spain

Spanish flag and Bankia branch

June 2012

Up to 100bn euros

Some banks borrowed large amounts to lend out, feeding a property boom. The credit crisis and recession meant billions of euros worth of loans could not be repaid

Greece

Greece flag

May 2010 and March 2012

110bn and 130bn euros. Private lenders also wrote off debt

Greece borrowed large amounts for public spending. The financial crisis, combined with deep-seated problems such as tax evasion, left it with massive debts

Portugal

Portugal flag

May 2011

78bn euros

High government spending and a weak, uncompetitive, economy built up debts it could not pay back

Republic of Ireland

Irish flag

November 2010

85bn euros

Like Spain, a property crash plunged the "Celtic Tiger" economy into recession, saddling its banks, which had lent big to developers and homebuyers, with huge losses

 

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  • rate this
    +4

    Comment number 312.

    303. TheBladesman
    "For decades governments have been trying to reduce tax evasion/avoidance. Suddenly (by magic?) we will be able to find extra billions to regenerate the economy - if only it was that easy"

    It is. Osbourne has some nerve dictating to us and the rest of the world on austerity. The man's a filthy-rich tax dodger. He makes Scrooge look like Santa Claus

  • rate this
    +4

    Comment number 311.

    Never mind inflation.

    Osborne's speciality is Conflation.

  • rate this
    +3

    Comment number 310.

    275 statement_Germany

    Do Germans always insult their best customers? You won't last long as an exporter with that kind of attitude. Killing your other European customers won't help much either, as you'll soon find out.

  • rate this
    +1

    Comment number 309.

    Before you keep coming up with your excuses George, do us a favour - look in the mirror.

  • rate this
    0

    Comment number 308.

    I have to say the loan to Spain is in the right direction, however it's not enough. I have calculated a bail out for the Euro will be in the region of 425bn Euros to have an impact so that the economy can be developed which will sustain growth. It's a simple calculation based on BBC website figures. If I can do it then I am sure the ministers who are the best should have no problem.

  • rate this
    +3

    Comment number 307.

    Osborne et al are all one trick ponies, saving money by privatising whats left, i.e the police and NHS.
    Taxing the poor to protect the 'job creators' and then blaming everybody else for the mess they continue to fuel by failing to invest in free education, infrastructure etc to create jobs and taxable income in the future.
    We are not all in it together.
    MIOPIC idiots the lot of them.

  • rate this
    -1

    Comment number 306.

    Whatever the comments about George Osborne and the present Government's policies it is a certainty that Balls would be an absolute disaster. He didn't see any of this coming when he was at Brown's right hand and now he professes to be the saviour. He's a joke.

  • rate this
    0

    Comment number 305.

    What I can't figure out is that at present the current eurozone bailouts are almost equal to the £325 billion in quantitive easing (devaluation) that we have used in the UK. So size for size the euro economy seems in less trouble than the UK. It seems that the only failure with the eurozone is that Germany doesn't want to devalue, not a bad idea? there again the money speculators need a profit.

  • rate this
    +3

    Comment number 304.

    All of the UK needs to wake up and realise the situation we are in. Countless years of importing cheap goods, bought with borrowed money has brought the UK to the edge.

    Sure the austerity isn't helping, but neither is any idea that we can borrow our way out of the mess.

    Buy British, employ British people, - these are things we can all do and WILL help.

    Europe cannot thrieve in the future

  • rate this
    +1

    Comment number 303.

    @266.Sixp

    ''...Increase tax revenue by targeting tax evasion, avoidance...''

    For decades governments have been trying to reduce tax evasion/avoidance. Suddenly (by magic?) we will be able to find extra billions to regenerate the economy - if only it was that easy.

    'Invest' but interestingly not in infrastructure (such as HS2)
    but by creating more public sector 'non-jobs' I assume?

  • rate this
    0

    Comment number 302.

    the EU is only one of the factors why we are in double dip,our country is no longer a giant of industry,a direct result of thatcherism or monterism '(please yourself) our wealth comes fom our city economy,we may not like it but we need our banking fratenity,it payed for most of GB co.ltd, if things do go pearshape and they give us the EU vote think deeply on where you put the X.

  • rate this
    +3

    Comment number 301.

    Osborne says: "Our recovery ... is being killed off by the crisis on our doorstep." No chum: the facts show you killed it in 2010.
    But you are right: we need the EU. The best way the UK can help eurozone banks is by you pushing for tight banking regulation (e.g. global financial transaction tax). Stop bleating from the doorstep. Stop protecting your banking chums.

  • rate this
    +4

    Comment number 300.

    Recession in the UK is a combination of 'austerity inspired' low domestic consumer confidence & the insolvency of the EZ banking system. The first, was expected & had a secondary goal of reducing imports, but the severity of the second was underestimated in 2010. But this really doesn't change anything; the solution for the UK is new markets to export into, just like Germany has

  • rate this
    0

    Comment number 299.

    Europe probably killing the UK recovery but GO is the doctor who stands by its bedside doing nothing watching it die...

  • rate this
    +4

    Comment number 298.

    Spanish Prime Minister Mariano Rajoy has hailed a decision by eurozone finance ministers to help Spain shore up its struggling banks as a victory for the common currency.

    "It was the credibility of the euro that won," he told reporters.

    -----
    Another politician living in la la land.

  • rate this
    +4

    Comment number 297.

    Surely conditions will at last force a rethink. Politicians and business conspiring to maximise consumption and thereby promoting debt in order to maintain employment and government income is a road to utter global disaster. That the UK is in this mess is not down to anything but this utterly misguided route. The formerly frugal British people have been turned into brainwashed pigs at a trough.

  • rate this
    +3

    Comment number 296.

    Osbourne is completely wrong as usual. The recession in the Britian is simple, no one has any money and untill the Government get more money into the average persons pocket we will remain in recession. If the government doubles the minimum wage and increases the minimum threshold of income tax to 15 - 20k the economy would start working again. Simpleeeessssss

  • rate this
    +1

    Comment number 295.

    A national Economy isn't an Individual, it is about the ability of countries to buy ,sell and lend and borrow from each other.It is this that fuels growth.

    At around 1% it has never been cheaper for the UK and German Governments to borrow,compare this with Ireland or Greece where this is clearly not an option,we can and should invest in infrastructure projects creating employment and Growth

  • rate this
    -8

    Comment number 294.

    Gosh! working class snobery is out in force today! the econony is as much about mindsets as finance! seeing oneself as a victim or others getup and go, is of very low intelligence!

  • rate this
    +3

    Comment number 293.

    Cuts needed to be made to start to pay off the massive debt Brown and Balls gave us. Brown and Balls set the example of borrowing and a great many Britain's followed suit. Now they like the government are having to play payback and this will keep the economy pinned back while debts are being repaid. As I have said before the 'boom ' years under labour was fuelled by debt. Unsustainable.

 

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