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.

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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


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 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 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

  • rate this

    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

    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

    Comment number 182.

    George is quite right, his approach relied on the UK increasing exports to make up for the decrease in domestic demand caused by his policies & as our major export market, the EZ had to be one of the main targets to buy those extra exports.
    This raises the question is it a sensible policy to rely on increasing exports in world wide recession when your main trading partners are doing austerity?


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