Investors have been obsessed with the notion of “Grexit” – Greece’s exit from the euro. But “Brexit” – Britain’s exit from the European Union – is as likely if not more so. The country has never been at ease with its EU membership. It refused to join its predecessor, the European Economic Community, in 1957; it was then blocked twice from becoming a member by France’s Charles De Gaulle in 1960s; and shortly after it finally entered in 1973, it had a referendum on whether to stay.
The euro crisis has put further pressure on this difficult relationship. David Cameron’s Conservative Party, the governing coalition’s dominant group, delights in pointing out the flaws in the single currency. The party’s eurosceptics feel vindicated because they have long believed that monetary union was only possible with political union.
But “I told you so” is never a good way of endearing oneself to others. What’s more, the idea that greater integration in the euro zone has “remorseless logic” – as Britain’s finance minister, George Osborne, puts it – directly undercuts the country’s national interest. The more the 17 countries in the single currency club together, the more the UK will be left out on the fringe.
If the Tories weren’t so keen to prove the point about how right they had been, they would be able to articulate an alternative way of keeping the euro together based on two key principles: more flexibility at the level of both nation states and the single market so economies can weather shocks; and the use of market discipline rather than bureaucratic rules to prevent banks and governments borrowing too much money and hence requiring taxpayer bailouts.
Such a vision would play to the UK’s national interest. London has long wanted a more open, market-orientated Europe. But, unfortunately, the government has been urging the euro zone in the direction of further integration – only to realise belatedly how bad this could be for Britain’s interests.
This is most apparent with the euro zone’s current push to create a single banking supervisor. It’s far from clear that this will actually help solve the current crisis. But it will certainly create problems for Britain as all 17 members of the zone will vote as a single bloc on future banking regulations.