Andy Burnham’s pledge at the Labour conference that the UK ‘could go all the way’ to rejoining Europe was lustily applauded by the party faithful.
And yet a glance at the chaos raging across the Continent – from a France amid the turmoil of violent demonstrations to socialist Spain’s snap election following housing protests, and Germany in despair as its motor industry collapses – shows just how deluded Andy’s EU fan club really are.
Meanwhile, the euro is in freefall, reaching a 17-month low against the dollar.
Britons queuing at passport controls at EU airports will be assuaged by the slump in the currency’s value making continental travel cheaper. But it is hardly the most propitious moment to start talking about reversing Brexit.
Throw in the fears about how the hard Right is dominating so much of the agenda in Europe, and it is clear the EU today could hardly be less like the one Burnham looks back on through rose-tinted spectacles.
If there were presidential elections in France today, Marine Le Pen’s far-Right National Rally party, with its antisemitic roots, would romp home. In Germany, the Right-wing Alternative for Germany party is threatening the future of Friedrich Merz as Chancellor, and we should not forget that the political roots of Italy’s premier Giorgia Meloni rest in Mussolini’s fascists.
But to my mind, almost more alarming than the rise of the hard Right is the catastrophic financial situation the EU now finds itself in. If it is economic prosperity, growth and stability which those in favour of rejoining the EU crave, then forget it.
What is happening there today has distinct parallels with the build-up to the Greek crisis in 2009 which almost brought the euro system tumbling down.
Andy Burnham with European Commission President Ursula von der Leyen. The PM has signalled he wants the UK to have closer ties with the EU
That crisis was caused by soaring sovereign debt levels amid a total lack of financial discipline in the country following Greece’s adoption of the euro a few years before the great financial crisis of 2008. Unable to devalue its currency because it was now in the eurozone, Greece had to endure a joint rescue by the International Monetary Fund (IMF) and Brussels which meant massive cuts in public spending and an explosion in unemployment and poverty.
France, the second largest economy in the EU, is now heading into the same dangerous territory I fear and there are already signs that the European Central Bank (ECB) in Frankfurt may be asked to step in and provide emergency support to Paris.
The trouble is that the ECB has been helping to support so many other countries financially in the EU that it is effectively maxxed out on credit – and an economic crisis in a nation the size of France could bring the whole system down.
We have all become acutely aware that bond rates in Britain, the price which the government pays to borrow on global markets, have shot up to their highest level for almost three decades in response to Labour’s tax and spend policies. Indeed, our borrowing costs are the highest in Europe.
But, as bad as Britain’s economic difficulties may be, the economic crisis building in France could easily dwarf ours before long.
The bond vigilantes have their sights firmly set on president Macron and his prime minister, Sebastien Lecornu.
Here in Britain, where we berate ourselves for national debt, the nation’s accumulated borrowing is 100 per cent of national output (GDP). In France it stands at 120 per cent of GDP. Not yet as high as the 180 per cent and more that Greece reached, but very much in the same danger zone.
In the UK, we have fiscal rules – carefully monitored by the independent Office for Budget Responsibility – intended to provide a degree of discipline. In France, amid a bitter budget stalemate in the French national assembly there is a policy vacuum with no formal plan to bring down government borrowing and debt, and a cascading crisis which exposes the budgetary incontinence affecting much of the eurozone.
Italy in particular is in the spotlight, with a debt to GDP ratio of 139 per cent, and progress there on cutting borrowing, after an effective EU bailout for Giorgia Meloni’s government, has come to a grinding halt
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Clear signs of acute distress over France’s situation are rising rapidly. The cost of government borrowing there has been shooting up, and is now 1.6 per cent higher than the benchmark rate of Germany, still a pillar of fiscal rectitude in Europe with a debt to GDP ratio of just 62 per cent. And this, despite Berlin’s own industrial problems, with its motor industry imploding because of Chinese vehicle imports.
In the past Germany has provided cover for France’s budgetary ineptitude, but thanks to the existing demands on the ECB to which it contributes, that free ride is rapidly coming to an end.
Another indication of French vulnerability to an all-out meltdown is a recherche instrument known as credit default swaps, a kind of insurance taken out by banks and financial groups to protect themselves against market losses. At the time of Liz Truss’s catastrophic mini-budget in 2022, the risk index rating of the UK government defaulting on its debt peaked at 44 points.
In France, the index, which measures the chance of a country going belly up, has jumped to an alarming 80 points in the past 48 hours.
What is more, France’s economic and political difficulties have focused attention on deteriorating budget conditions across the EU, where borrowing costs are too high and still rising.
Italy in particular is in the spotlight, with a debt to GDP ratio of 139 per cent, and progress there on cutting borrowing, after an effective EU bailout for the Meloni government, has come to a grinding halt.
Eyes are also on Belgium where bond rates have climbed rapidly. Spain has been regarded as a star performer in recent times, achieving strong growth, but the cost of borrowing there has jumped half-a-percentage point and traders fear the contagion from France may prove unstoppable.
French PM Lecornu’s fragile minority administration in the National Assembly is attempting to push through €54billion (£46billion) in fiscal savings in order to cut the burgeoning annual deficit.
But opposition groups from both the far-Right and far-Left have rejected the austerity measures which include a public sector pay freeze and pension cuts, leaving the government on the verge of collapse as the boss of the Banque de France, the nation’s central bank, admits the country is ‘being strangled by interest rates.’
This economic earthquake across Europe could not come at a worse time. Frankfurt is awash with speculation that the president of the ECB, Christine Lagarde, a former French finance minister who previously headed the IMF, is keen to step down. She is said to have leadership of the World Economic Congress – the elite Davos talking shop – in her sights.
The ECB does have an emergency arrow in its quiver – a special fund designed to take the pressure off member-country interest rates. But, as I explained, the ECB already is maxxed out – to the tune of €2.3trillion (£1.95trillion)of bond holdings – from past economic rescue efforts.
If it stepped in to buy yet more bonds, its credibility would be undermined, releasing a terrifying inflationary genie.
Despite our own economic difficulties, the deep-seated fissures in the eurozone, where budgetary caution has been thrown to the wind, makes Britain’s decision to free itself from a stagnant, debt-fuelled economic bloc look ever more sensible.
That Burnham’s government should think a return to this rabble would deliver more growth is unhinged – and shows his profound ignorance of the growing economic storm now endangering the eurozone.
