The EU needs to change policy to solve its economic crisis

The favourable reaction to the $1 trillion package of loans and guarantees for Euroland states in difficulty did not last long. Yesterday markets fell sharply again on renewed worries that Euroland will not grow quickly enough or in places at all. A failure to grow will keep tax revenues depressed and social spending high, leaving deficits too large. Markets fear a European vicious circle.

So what should the EU do? It should change policy. Instead of seeing higher taxes and more regulations as the answer to everything it should see them as part of the problem. Instead of seeing government action as the outward manifestation of social solidarity, it should see the need for more private action to employ and serve the neighbours as proof of true social solidarity.

The EU should meet to achieve two big changes of direction. Its first task, as stern budget superviser urging member states to rein in deficits, should be to make dramatic reductions in the EU budget. From each member states point of view the money spent on EU matters and projects is of more marginal importance than say the money spent on domestic education and health care. The EU should take the lead to in cutting spending to relieve the budgetary pressures. Spending cuts should start abroad. The EU’s sensible requirement for controlled budget deficits should make them lead by example.

Its second task should be to draw up a big Repeal Directive, removing from the law codes many of those fiddling and costly interventions in business life which have led to the export of so many jobs from the EU to less regulated places like China and India.

Euroland needs more private sector jobs. It needs to export more and import less. EU rules and taxes get in the way of that.

The UK coalition government also needs to follow policies which promote a faster private sector recovery.

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20 Comments

  1. alan jutson
    Posted May 15, 2010 at 9:45 am | Permalink

    But John what you suggest is not Socialist policy.

    First thing the EU could do is reign in on all of the expenses, perks and salaries that all of its employees and Euro MPs get.

    A drop in the ocean I know, but at least this shows some leadership and understanding of the problem.

    Next job, each Country to reduce its yearly contribution (not increase it)

    Next job, either choose Brussels or the other place for an HQ, who the hell wants two Head offices to be used for only 6 months of the year. What other commercial operation works in this way.

    Next job conduct all business in one language, preferably English as this is normally the Worlds Business language, then you can relieve all of the translators of their jobs and all of the excess printing of regulations and laws in different languages.

    Perhaps when the running costs of the EU are reduced substantially, then they may have some clout asking Nations to do the same as you suggest.

  2. Bill
    Posted May 15, 2010 at 10:42 am | Permalink

    The EU needs to be “doing less”, less regulation, fewer directives, enterprise is being smothered. Our competitors in the Far East aren’t stifling their producers with more holidays more paternity leave…

    I don’t think there’s any evidence that the EU are going in the direction that you indicate, indeed the momentum is still in the direction of more interference and more regulation.

    Europe will feature highly on the agenda in this parliament I think the next Labour leader will aim to keep it there. No longer can Mr Cameron keep the EU on the back burner.

    Just as the UK has an economic advantage by retaining the pound, we would enjoy an advantage by withdrawing from EU working directives. Such a move would help prevent the outflow of manufacturing jobs and encourage yet more foreign investment in this country.

    Mr Blair made a big mistake in not putting Gordon Brown in his place at the start of his premiership and this overshadowed his government throughout their term in office.

    I just hope that Mr Cameron by embracing the Lib Dems hasn’t made an error at the start of his premiership that could cause the Conservative’s big long term problems.

  3. MaxVanHorn
    Posted May 15, 2010 at 11:34 am | Permalink

    The whole project is fatally flawed.The construct of what constitutes the Greek economy is totally different to the German or other north Europeans.The 'one shoe fits all' currency model is just a very foolish idea.A strong euro may be good for the Germans but to a tourist based country it is a GNP killer. The majority of people went to Spain,Portugal and Greece because it was cheap; they bought a Mercedes because it was beautifully engineerd. They can fiddle with their ECB Barroso bonds till the cows come home but at the grassroots of these economys it will not make the slightest difference.And without growth there will be no debt repayment.The real problem is how to convince a statist command economy based institution such as the EU that in economic terms its ideas are rubbish.

  4. DBC Reed
    Posted May 15, 2010 at 11:36 am | Permalink

    Despite being in favour of the traditional British mixed economy where public sector and private sector complement each other, I do agree that we need more private sector jobs.Just don't see how
    slashing and burning the public sector achieves that. (You could re-employ sacked public sector workers to do more or less the same things in the private sector.This would increase private sector jobs on the rob Peter principle but it does not increase the total number of jobs or the amount of national wealth).
    This everything must be in private ownership prejudice is no less doctrinaire than the old comrades who believed in the public ownership of everything.It is also unduly influenced by foreign ideas (in this case of the American Neo Cons who like the old Commies insist on exporting extreme ideas elsewhere while they are spectacularly failing at home).

  5. JohnRS
    Posted May 15, 2010 at 11:40 am | Permalink

    John, this is definitely the voice of common sense. However that substance is a rare commodity in the EU and amongst its supporters.

    Given Dem Tories pro-EU stance do you really forsee any of the very sensible changes you recommend actually being adopted?

    If not, how on earth do we get the promised referendum?

  6. Citizen Responsible
    Posted May 15, 2010 at 11:43 am | Permalink

    The speed with which the EU has gone from a 30 billion euro bailout package for Greece last month, to a $1 trillion package for Euroland this week, is surprising. It normally takes years for the EU to agree on policies.

    One of the points made by critics of the Euro, is that monetary union would not work without political union. As JR said in a previous post, sharing a currency is like sharing a bank account with your next door neighbour. Greece now finds that the cost of being rescued means loosing its national sovereignty and accepting financial policy from Brussels. He who pays the piper calls the tune as they say.

  7. Brigham
    Posted May 15, 2010 at 11:59 am | Permalink

    It is not what euroland should do. It is what we should do. Get out of this crooked undemocratic mess and leave them to it. Give Scotland their independence, and Wales too if they want it. We won't need to placate the Lib-dems. All win win.

  8. A.Sedgwick
    Posted May 15, 2010 at 12:21 pm | Permalink

    Just as lions are not going to become vegetarians the EU will continue in the same vein until it collapses. The situation has similarities with appeasement in the 1930s – too few brave enough to speak the truth, the obvious and the inevitable.

  9. Kevin Peat
    Posted May 15, 2010 at 1:23 pm | Permalink

    All very well but the more power the EU has, the less what you think counts.

  10. Eric Arthur Blair
    Posted May 15, 2010 at 1:40 pm | Permalink

    Don't give them advice John. You'll only encourage them.

    Now, about that In/Out referendum…

  11. Dr Bernard Juby
    Posted May 15, 2010 at 2:26 pm | Permalink

    All well & good but you should remember that the bulk of the EU are States with Communists & Socialists forming the major parties. Profit is a dirty word & old dogs don't learn new tricks!

  12. Tony E
    Posted May 15, 2010 at 2:29 pm | Permalink

    All this is correct, which is probably why the EU ill never do it.

  13. Dr Bernard Juby
    Posted May 15, 2010 at 2:29 pm | Permalink

    P.S. They should read the suggestions from the Federation of Small Business (FSB) on how to create tye dynamo that Europe needs – especially when the bulk of EU businesses employ fewer than 20 apiece.

  14. Bill
    Posted May 15, 2010 at 7:51 pm | Permalink

    The EU needs to be “doing less”, less regulation, fewer directives, enterprise is being smothered. Our competitors in the Far East aren’t stifling their producers with more holidays more paternity leave…

    I don’t think there’s any evidence that the EU are going in the direction that you indicate, indeed the momentum is still in the direction of more interference and more regulation.

    Europe will feature highly on the agenda in this parliament I think the next Labour leader will aim to keep it there. No longer can Mr Cameron keep the EU on the back burner.

    Just as the UK has an economic advantage by retaining the pound, we would enjoy an advantage by withdrawing from EU working directives. Such a move would help prevent the outflow of manufacturing jobs and encourage yet more foreign investment in this country.

    Mr Blair made a big mistake in not putting Gordon Brown in his place at the start of his premiership and this overshadowed his government throughout their term in office.

    I just hope that Mr Cameron by embracing the Lib Dems hasn’t made an error at the start of his premiership that could cause the Conservative’s big long term problems.

  15. blokeinfrance
    Posted May 15, 2010 at 8:29 pm | Permalink

    And here's the chief of the ECB pouring petrol on the flames in tomorrow's Guardian (sorry, Le Monde):
    http://www.lemonde.fr/economie/article/2010/05/15

    first they infantilise us, then they scare us, then they take away our democracy in the name of security. Note that the markets worked fine on Friday, they just didn't do what the beurocrats wanted. So they're going to close down the markets.

    In the race for the exit, please form an orderly queue.

  16. Winston's Black
    Posted May 17, 2010 at 12:55 pm | Permalink

    I hope you get behind Douglas Carswell and his brave attempt to obviate the damaging effects of Lisbon Mr Redwood.

    Why, when we are skint, are foreign countries ordering us to pay £13 billion we do not have to prop up a currency we are not part of?

    Secondly why is a supposed Conservative Government rolling over supinely to have its tummy tickled by going along with this nonsense?

    The EU is the modern day equivalent of the USSR. There is more chance of my beloved Charlton Athletic winning the Premier League title than the EU doing any of the things you suggest even though, to sane right thinking people, they are eminently sensible.

    • Lindsay McDougall
      Posted May 18, 2010 at 2:43 am | Permalink

      The interesting question is whether the Lisbon Treaty obliges us to provide that £13 billion guarantee. I think the reference in the Treaty is to "exceptional circumstances", and it is a matter of opinion whether fiscal incontinence and deceipt by a Club Med country is exceptional. One problem is that if a reference is made to a European court, the ruling will always be in a pro-Federal direction. In that sense, all European courts are kangaroo courts. It may well be that the only way out is to repeal the Lisbon Treaty.

  17. Javelin
    Posted May 18, 2010 at 10:38 am | Permalink

    INflation up to 3.7%, beating expectation of 3.5%.

    I imagine that BofE will argue that this is the peak because the EUR/GBP exchange rate will fall and imported inflation will fall.

    What a load of rubbish – for two reasons.

    1. The UK economy is in the same fiscal basket as the rest of Europe and where Europe has gone the UK will follow.

    2. Imported inflation will just keep on rising because of demand from emerging countries – not Europe.

    I think there is a deeply rooted protectionism is this country for house prices. I see it in the recent proposal to restrict CGT on a temporal basis rather than a categorical one, that includes houses. I see it is the BofE keeping interest rates down. I the protectionism of house prices as the primary and principal cause of the recent economic crisis. House prices must be left to fall of the problems will just keep coming back. We need hourse prices to take up less of our income and not be used as pensions. Turbulence and crisis will become the norm unless house prices are brought back down.

    • Winston's Black
      Posted May 19, 2010 at 3:30 pm | Permalink

      What are people supposed to use as pensions if not their houses?

      Why buy a house at all if there is no ultimate return on it?

      The ultimate alternative surely is let the State supply us all with council houses which is patently unrealistic when the State is already feeling the pinch.

      People need a "carrot" to become independent of the state in my opinion.

  18. Bruce
    Posted May 19, 2010 at 11:49 am | Permalink

    The EU needs to be “doing less”, less regulation, fewer directives, enterprise is being smothered. Our competitors in the Far East aren’t stifling their producers with more holidays more paternity leave…

    I don’t think there’s any evidence that the EU are going in the direction that you indicate, indeed the momentum is still in the direction of more interference and more regulation.

    Europe will feature highly on the agenda in this parliament I think the next Labour leader will aim to keep it there. No longer can Mr Cameron keep the EU on the back burner.

    Just as the UK has an economic advantage by retaining the pound, we would enjoy an advantage by withdrawing from EU working directives. Such a move would help prevent the outflow of manufacturing jobs and encourage yet more foreign investment in this country.

    Mr Blair made a big mistake in not putting Gordon Brown in his place at the start of his premiership and this overshadowed his government throughout their term in office.

    I just hope that Mr Cameron by embracing the Lib Dems hasn’t made an error at the start of his premiership that could cause the Conservative’s big long term problems.

  • About John Redwood


    John Redwood won a free place at Kent College, Canterbury, and graduated from Magdalen College Oxford. He is a Distinguished fellow of All Souls, Oxford. A businessman by background, he has set up an investment management business, was both executive and non executive chairman of a quoted industrial PLC, and chaired a manufacturing company with factories in Birmingham, Chicago, India and China. He is the MP for Wokingham, first elected in 1987.

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