The Foreign Secretary finds himself in the rather unique position today of trying to
deal with the consequences of a crisis that he largely predicted. In May 1998, William Hague gave a speech warning that the single currency would lead to "http://www.economist.com/node/372316">social unrest as governments tried to cope with one size fits all interest rates. It is a reminder of how much Hague was swimming against the tide of
bien-pensant opinion that Michael Heseltine claimed this prediction was
so extreme as to drive the Tories off the centre ground.
But what is, perhaps, more interesting than Hague’s vindicated view that the euro, in a crisis, would be the ‘economic equivalent of a burning building with no exits’ is his view
on how European governments would resolve the problem.
“In order to make the single currency work I fear the European Union will be forced to intrude more and more into the spending and taxation decisions of individual states. Even if the
EU does not actually raise the taxes or spend the money itself, it will increasingly control the decisions.”
This is clearly what is happening now. Just look at what Greece is having to do in exchange for its bailout cash. For Britain, this raises an important question: what will the relationship be
between the inner core of ever more integrated euro-zone countries and those EU members who have stayed outside?
In private, the government’s expectation is that the eurozone countries, rather than letting the currency union break up, will push forward with further integration and a policy of fiscal
transfers from north to south in exchange for the right of veto over the budgets of recipient counties.
It is not hard to imagine that as the eurozone countries integrate further, the non-eurozone countries could take the opportunity to develop a looser relationship with the European Union —
remaining members of the customs union but opting out of, say, its social, environmental and financial regulations. That would be a solution that would suit Britain well and would address the areas
of EU membership that so infuriates the Steve Hiltons and Oliver Letwins of this