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EU exposed in financial crisis

Thursday, 8th January 2009

The current financial crisis demonstrates that the European Union only has a future as a centrally-controlled superstate, says UKIP – and people across Europe need to wake up to that.

UKIP economics spokesman Dr John Whittaker MEP noted: "The European Central bank ought to follow the Bank of England's interest rate cut, but being the central bank for 16 different countries gives it a problem."

He was commenting after the Bank of England reduced its official Bank Rate from 2% to 1.5%.

"All the signals say that the ECB should cut rates at its meeting next week. Euro inflation is down below its 2% target, there is recession all round and, if the ECB doesn't follow the Bank of England, it risks pushing the euro exchange rate even higher," Dr Whittaker added.

"But as our Chancellor said on Tuesday, if interest rates are near zero, any further monetary stimulus can then 'only be done by the Treasury and the Bank of England working hand in hand.' The trouble for the ECB is that the eurozone has 16 different treasuries to deal with."

The obvious conclusion is that the single currency and the EU itself can only survive if member states sacrifice their sovereignty and allow Brussels full control of their economic and by extension their political activities.

Last month, ECB president Jean-Claude Trichet said that "we have to beware of being trapped at nominal levels [of interest] that would be much too low."

Dr Whittaker said: "If official interest rates are zero, the 'quantitative easing' that is being discussed as the solution in the US and the UK entails the central bank issuing new 'money' in exchange for government bonds. This would be fraught with difficulty in the eurozone, given the current risk premia on government debts in Greece and some
other countries.

"It is no wonder that Mr Trichet is hanging on to his story that eurozone economies are not faring too badly. He knows that zero interest rates would show up fundamental flaws in the structure of the euro currency."

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