Chancellor of the Exchequer George Osborne said the U.K.’s recovery is being “killed off” by the euro area’s deepening crisis and the economy faces “huge” risks from a disorderly breakup of the region.
“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,” Osborne wrote in an opinion article in the Sunday Telegraph, published yesterday. “The risks for us of a disorderly outcome are huge.”
The euro-region’s turmoil deepened as Spain on June 9 became the fourth member to seek a bailout since the start of the debt crisis more than two years ago with a request for as much as 100 billion euros ($125 billion) in loans to rescue its banking system.
Osborne said that while there were signs a solution will be found for Spain’s banking crisis, “the lesson of the last two years is that treating the latest symptom does not cure the underlying condition.”
Any “further pooling of sovereignty” among European Union members over financial supervision or fiscal policy should be limited to the euro’s 17 member states, Osborne said. Political moves in the U.K. to transfer more power to Brussels would be subject to a referendum, he said.
“British taxpayers will not stand behind euro-zone banks, and British voters want their government to be in charge of supervising our own banks, especially in a crisis,” Osborne said. “One of our first and most important acts was to pass into a law a referendum lock, so that any politician proposing to give up more power over our own affairs in any new treaty will have to put that choice to the people. Whatever may lie ahead I find that extremely reassuring.”
Osborne reiterated that the U.K. economy is benefiting from “safe-haven” status because of the government’s plan to cut the budget deficit, though he said investment and entrepreneurship are being held back because of “uncertainty about the future.”
“A resolution of the euro-zone crisis would do more than anything else to give our economy a boost,” Osborne wrote. “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.”
The opposition Labour Party’s finance spokesman Ed Balls said Osborne was being “deeply complacent” in blaming the U.K. recession on the euro-region crisis.
“Osborne needs to finally realize his policies have failed,” Balls said in an e-mailed statement. “We urgently need a change of course and a plan for jobs and growth, here in Britain and in the euro zone, if we’re 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.”
The Conservative-led coalition government has been under fire from Labour, which argues Osborne’s austerity plan is responsible for plunging the U.K. into its first double-dip recession since the 1970s.
The U.K. economy shrank 0.3 percent in the first quarter, more than initially estimated, after contracting by the same amount in the last three months of 2011.
Scotland’s Finance Secretary John Swinney will say in a speech today that while a swift resolution to the euro-zone crisis is “vital” for the Scottish economy, the recession has been caused by the government’s fiscal squeeze.
“The more immediate threat to Scotland’s fragile recovery from recession, however, is the U.K. Government’s wrong-headed commitment to austerity,” Swinney said in prepared remarks distributed by his office. “Rather than seeking cover in the Euro crisis the Chancellor should acknowledge that much of the responsibility for the lack of economic growth lies at his own door.”
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