LONDON (Reuters) - The euro zone can protect its currency if its stronger countries provide more support for the weaker to help them deal with their problems, British finance minister George Osborne said in a newspaper on Sunday.
The future of Europe’s 17-country single currency bloc is under threat from a political stalemate in Greece, which could lead to its departure from the monetary union at unknown costs to the financial system and global economic stability.
“Euro zone countries must either stand behind their currency or face up to the prospect of Greek exit, with all the risks that could involve,” Osborne wrote in The Sunday Times.
“How can they stand behind the euro? First, those countries with high deficits and low competitiveness need to carry on confronting their problems head on. But in the absence of flexible exchange rates, the economic and political barriers to dealing with those problems will only get worse without more support from the core of the euro zone.”
He added that the euro zone must follow “the remorseless logic” of monetary union towards greater fiscal integration and “burden-sharing”, with Eurobonds one possible option.
“Finally, the whole of Europe needs to become more competitive and productive. That means reforming welfare systems, investing in infrastructure, more job-friendly employment laws, better education and lower business taxes,” he wrote.
Greek voters this month toppled a government that had agreed to painfully austere terms of an international bailout plan, and uncertainty hangs over the next election set for June 17.
Osborne’s comments follow a remark made by British Prime Minister David Cameron that a government source said was a veiled suggestion that the European Central Bank should follow the example of the Bank of England by embarking on an asset purchase program to lift economic growth in the euro zone.
“Clearly, just as Britain benefits from a strong government with a strong deficit reduction plan and strong banks but also an independent monetary policy giving us low interest rates, helping to push demand in the economy, so the euro zone I believe needs that approach as well,” Cameron said at a summit of the Group of Eight major economies on Saturday.
British officials are deeply worried about the impact that a break-up of the euro and a further deterioration of the euro zone crisis could have on Britain’s recession-hit economy. The country is outside the euro zone but about 40 percent of its exports go to the single currency bloc.
The turmoil in the euro zone appears to be making Britain’s membership of the larger European Union increasingly unpopular among voters, undermining support for Cameron’s Conservative Party which leads the governing coalition.
In an opinion poll by ComRes for the Sunday Mirror and Independent on Sunday newspapers, 46 percent of Britons said they would vote for Britain to leave the EU in a referendum, compared to the 30 percent who disagreed.
And 26 percent of Conservative voters would “seriously consider” switching their support to the UK Independence Party (UKIP), Britain’s biggest anti-EU party, if an election were held now.
However, Conservative Justice Minister Kenneth Clarke said Britain’s exit from the EU would be “disastrous”.
“I can’t think of anything more irrelevant to the present situation actually, nor personally can I think of anything more disastrous than the British leaving the European Union and deciding now is the moment to take up splendid isolation,” he told Sky News television on Sunday.
Reporting by Olesya Dmitracova; Editing by Greg Mahlich