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

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
    +2

    Comment number 852.

    851. JasonEssex
    JUST NOW
    Not surprising this country is in a state. No party has any idea how to change the civil service. Anyone ever watched "yes minister" ? Ask the top civil servants to save money and they just cut jobs, ask someone in business and they look at processes and improve things
    +++
    Are you sure you haven't got that the wrong way round?

  • rate this
    0

    Comment number 851.

    Not surprising this country is in a state. No party has any idea how to change the civil service. Anyone ever watched "yes minister" ? Ask the top civil servants to save money and they just cut jobs, ask someone in business and they look at processes and improve things. Until you change the people who make decisionss u will never improve this country. Having initiative and brains is frowned upon.

  • rate this
    0

    Comment number 850.

    842 Lethnot,
    Apologies, I did not read the quote above which also includes financial investments in Europe as well as exports of goods and services - this might be correct.

    The effect of devaluation on inflation is currently about 1.6%. But given the huge costs of long term unemployment significantly outweigh this, risking devaluation to a much larger degree is waranted, I would submit.

  • rate this
    +1

    Comment number 849.

    847. Skywatchman

    I've got the destinct feeling that Angela Merkel would prefer that the male representatives didn't pee in either direction when attending a European Union summit.
    +++
    Thats not the impression I get from some of the German films I've seen.

  • Comment number 848.

    All this user's posts have been removed.Why?

  • rate this
    +2

    Comment number 847.

    836.Name Number 6
    "If the UK recovery is dependent on the Eurozone, shouldn't we be inside the tent peeing out and not outside peeing in?"

    I've got the destinct feeling that Angela Merkel would prefer that the male representatives didn't pee in either direction when attending a European Union summit.

  • rate this
    +1

    Comment number 846.

    Tell the bankers to go whistle for their money.

    There you go, sorted.

  • rate this
    0

    Comment number 845.

    838 Skywatchman
    Yes, I watch Bloomberg TV alot, and occassionally I have seen his brother being interviewed. Ed is well aware that if UK govt were to increase its deficit (by say 3%GDP), it would not cause gilt yields to rise significantly in the way the Tories claim.

  • rate this
    +1

    Comment number 844.

    If we concentrate on what were originally UK invented / developed products, specifically those which have to manufactured / assembled, I think we would find that most successful UK companies have outsourced their products to cheaper labour countries. Therefore we are now importing those same products. Our UK workforce can't compete with that. If this continues our economy will decline even further

  • rate this
    0

    Comment number 843.

    Display problem in my post @ 841

    (i.e Apple ha! ha!)

    should read:
    i.e. doesn't equal Apple ha! ha!

    I used lesser than and greater than relational operators but HTML filter probably removed them - sorry about that.

  • rate this
    0

    Comment number 842.

    838.Charles Jurcich .... Your arugment is why there is so much DEBT around ,,, yes GOVT can print money when that happens it devalues and the risk of inflation is greater. Politicians are not accountable when the make a balls they just walk away usually voted out.. We need more accountable book keeping which this GOVT seems to have set up..we will see!.

  • rate this
    +4

    Comment number 841.

    Peter Barry 824:
    "Globalisation & efficiency have to give way to parochialism and higher-priced consumerism ...?"

    Could you elaborate?

    I assume you mean legislation being introduced to prevent UK companies from being swallowed up by large internationals.

    Higher-priced consumerism = built-to-last hand-made?
    (i.e Apple ha! ha!)

  • rate this
    -3

    Comment number 840.

    832.Charles Jurcich .... TNX but I stand by what I said. Here is a clip from the above, 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.. Hope EB's brother helps him he does need help...

  • rate this
    0

    Comment number 839.

    832.Charles Jurcich
    "Balls' brother is quite senior in PIMCO, the worlds largest bond trader, so he may know more than you think"

    That I didn't know, so we have two Balls in the City! I would imagine one being a Shadow Chancellor and the other being a bond trader they balance each other out nicely (economically knowledge wise that is)

  • rate this
    0

    Comment number 838.

    834 Some Lingering Fog
    Spending less (or equal) to what you receive is very sensible for currency users like households and businesses, but govt is the currency issuer, and therefore can always spend more than it receives because it cannot run out of currency, anymore than a cricket scoreboard can run out of numbers.

  • rate this
    +2

    Comment number 837.

    @834.Some Lingering Fog

    "Annual income twenty euros, annual expenditure nineteen euros 99 cents, result happiness. Annual income twenty euros, annual expenditure 5 trillion euros, result Eurozone."

    Chip the Duck 2012

  • rate this
    0

    Comment number 836.

    If the UK recovery is dependent on the Eurozone, shouldn't we be inside the tent peeing out and not outside peeing in?

  • rate this
    +1

    Comment number 835.

    828.Lethnot
    "He (Osborne) can only then do what he can do to try and protect the UK from any fall out. It is easy for E Balls to keep trotting out his same words..meaningless"

    Well Ed achieved something, as DC pointed out at PMQ's he is now the official 'Muttering Idiot Shadow Chancellor' Regarding any fallout to hit the UK, the Chancellor actually briefs the Shadow minister

  • rate this
    -2

    Comment number 834.

    "Annual income twenty pounds, annual expenditure nineteen six, result happiness. Annual income twenty pounds, annual expenditure twenty pound ought and six, result misery."

    Charles Dickens David Copperfield 1849

    It was right then and it is right now.

  • rate this
    +3

    Comment number 833.

    well, it makes a change from blaming the previous government, i guess

 

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