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."

leslie dowining

'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


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 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 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

    Comment number 672.

    Some people say Austerity has brought us where we are now. Rubbish.
    Its been caused by the Eurozone countries spending money like madmen
    when all the indications were clearly pointing to serious trouble ahead.
    Politicians might say they adopted this kamikazi route to appease their
    people not mentioning it would enhance their election chances.
    The outcome is here to haunt us. E.Wilcock

  • rate this

    Comment number 671.

    I taught we were supposed to manage without Europe,this proves to those euro sceptics that we cant go it alone without Europe.

  • rate this

    Comment number 670.

    You'd think it'd be nigh impossible to look more incompetent than Darling but Osborne has defied all the odds.

  • rate this

    Comment number 669.

    The Lib-Tories should stop pointing of blame for the economy at other countries. They are in charge, in the same way that Gordon Brown was in charge when the crisis first hit.

    Also, I presume that, with all of these bailouts of banks undermined by housing bubbles, the European taxpayers are assuming ownership of the abandoned properties to house the poor victimized by the bankers' folly...

  • rate this

    Comment number 668.

    No single item is causing the UK's economic problems. There is little we can do about Europe, but we can do a great deal more at home by reducing benefits to people who have never contributed. Also stop ALL child benefit for more than 2 children. There are other ways to punish prisoners rather than short jail sentences. Try the stocks. Politicians have start thinking outside of the box they are in

  • rate this

    Comment number 667.

    "Do something wise, join the Euro and the markets will have that boost of confidence needed to restart the whole thing."
    Unbelievable..... is this the comedy section.
    400 Billion Euros & counting

  • rate this

    Comment number 666.

    its not the snows fault after all

  • rate this

    Comment number 665.

    My word, it has taken Osborne how long to work out that the euro fiasco is slowing down our recovery?

    I think I worked that out months ago. Should have been an MP to help them all to stop dithering

  • rate this

    Comment number 664.

    Ordinary people are fed up with this (and successive) government(s) feeding the ever hungry banking and financial institutes to the continual detriment of 'our' country's economy.

    The next, and any future, Bank of England QE should be directed to 'us' the people via investment in ‘our’ economy and not the ‘Bankers’!

  • rate this

    Comment number 663.

    I'd be more impressed if Osborne & Cameron were promoting more trade with countries outside the EU, like Brazil & India so the UK were much less reliant on Europe

  • rate this

    Comment number 662.

    @ 652. Reflections_Germany:
    Schadenfreude, no matter how misplaced, quite comforting if you don't have anything else going for you, is it? Where are you from, really? Slough? Milton Keynes? Must be some hellhole like that for you to be this bored.

  • rate this

    Comment number 661.

    How can spain think that another bailout is good for anyone!! We will be paying for this just like the others.

  • rate this

    Comment number 660.

    So this is what a public school education gets you, moronic people who haven't got a clue and who couldn't cobble together a half decent idea between them if their lives depended on it. As a parent I'd ask for a refund.

  • rate this

    Comment number 659.

    It also shows the reliance of having too many of your eggs in one basket, when the basket develops on big hole and the bottom falls out of it.

    At least we dont have 25% unemployment like Spain, not yet !

    The HYS seems to be heavily populated with posters who cant see past Labour & all their failings of which there are too many to list & also their class wars. Blinkered view of life maybe ?

  • rate this

    Comment number 658.

    Could all of our Politicians reflect on how their previous Politicians came up with wonderful solutions to their problems.
    Problem with Mining Industry..Solution. Destroy it.
    Problem with the Railway Industry.Solution..Sell it.
    Problem with Shipbuilding Industry..Solution...Sit back and do nothing
    Problem with Aero Industry.Solution...Make bits of planes.
    Was that a big mistake?

  • rate this

    Comment number 657.

    Dear George I have more bad news for you i dropped a pound in the street and lost it .

  • rate this

    Comment number 656.

    both British media and politicians have spent years undermining the Euro and the eurozone, and now that they somehow got what they wanted, they still manage to find an excuse to blame someone else for the never ending decline of the British "Empire". Do something wise, join the Euro and the markets will have that boost of confidence needed to restart the whole thing.

  • rate this

    Comment number 655.

    648. ronnieboy1: You don't give the money to people in the street! Even though blowing it in the way you suggest would constitute economic activity. You give it as mortgage vouchers to people who are about to lose all & are about to become an expensive 'burden' on the state. The money ends up on banks balance sheets, as intended, but it does a little work along the way.

  • rate this

    Comment number 654.

    645. Reflections_Germany
    However, there is only very little compassion with the UK´s situation in Germany.
    I very much doubt that. especially going by the 10s of thousands of Germans working in London alone and my German colleagues. Also, I, I have quite a few German clients. That's why I don't believe you're really German. The ones I know are much cleverer than you.

  • rate this

    Comment number 653.

    we are in the same situation just getting there slower we built apartments and houses and we plan to build more but what jobs are the people in these homes going to have, with service jobs going abroad, manufacturing on its knees also slowly seeping abroad the only people in the houses will be claiming benefits we need to shore up or manufacturing and service areas then build houses fairly priced


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