By Donal, an anti-globalisation protester and writer (Hiding in the Bushes)
A crisis in the Euro will have a direct impact on the people of Leeds as credit gets harder to get from troubled banks, while the economic growth underlying the government’s plan for recovery will fail to materialize in such an outcome.
As I write this, the House of Commons is gearing up for a vote on having a referendum over Europe. This has been a long term goal of the Conservative right, traditionally suspicious of anything that causes the UK to give up any of its sovereignty. Yet we have talk of Cameron imposing a ‘three line whip’ to stop his MPs voting in favour of it, despite the motion coming out of his party. Indeed, over the last few days we have heard such telling statements from Tory ministers that while they may not like the Euro, they appreciate that they need it to be healthy.
To answer the question what happens to Leeds if the Euro unravels, we need to understand why Cameron, Osborne and Co have been forced to have this change of heart.
Firstly, its all about the economic growth that George Osborne desperately needs if his particular plan to get the country out of the doldrums is to work. A unravelling Euro will cause vast economic woe in our largest market, thus hitting our exports. This will in turn hit growth in the UK, and without that, we would be left with an economy faltering even more. That means less jobs and a government needing to make more cuts to balance the books. For all that people complain about EU red tape, successive UK governments have recognised that access to that market is worth more than the political pain it causes. Businesses may not like the EU bureaucracy, but they do like the financial benefits that come with them.
The second effect of a collapsing Euro is the shock it would induce in the financial markets – it would be equivalent the global economy having a stroke. Already very jittery, it is a good bet that a failure to rescue the Euro is going to send the global economy back into recession with a credit crunch to match the one of 2008. Indeed, what is happening now is a continuation of a crisis that has not actually gone away.
To put this in context of Leeds there are a number of implications. The cuts being proposed by the Con-Dem coalition are now starting to bite, but this is only the start of the larger programme. The more the economy weakens the less room Osborne has to manoeuvre in his plans. More cuts will come, sending ever more people into an overcrowded market place. And the way Osborne and friends are working, cuts are as much from local government as they are central government.
Leeds is the main UK financial and business services hub outside of London. For example, the centre of Leeds has 2800 lawyers in it. A collapsing financial situation puts that at risk. While the immediate affect may not be felt among the people of Leeds, there will be ones in the medium term as Leeds Council income, already under squeeze from central government, will fall as revenue declines. This means more job cuts in local government and trimming back of ever more services in an effort to balance the books, at a time when there is ever greater demand.
Of course, much of this will be true of any financial situation which causes the global markets longer term uncertainty, but the collapse of the Euro will accelerate this greatly.
In the more immediate terms, the most significant effect of the collapse of theEuro will be what it does to the banks and in turn to lending locally. The events of 2008 are being repeated, only now it is countries, not the great investment institutions, that look like they might fall, despite all the bailouts. Indeed, all that happened in 2008 was the shifting of the problem from the banks to the governments. It did not deal with many of the underlying problems, and all the exposure that the banks had to insolvent governments remained. The banks still have problems, and the indications coming out of the markets is that this is still a big issue.
What we are potentially looking at, in the worse case scenario, is a repeat of the credit crunch. Banks aware of how financially unstable they are due to their multi-billion lending to the countries of Euro will try to hold on to as much money as possible to shore themselves up. This is the problem as small to medium businesses suddenly find that the credit they need for day to day life is harder to get, becomes more expensive. We all remember what happened to Woolworths, which was an otherwise viable business. The same problem could easily repeat itself, with businesses shutting down, increasing unemployment. People, as well, will find loans harder to get and prohibitively expensive, hurting those who need the credit to get through the various ups and downs of life.
Though it is often hard to see, the impact that the Euro has on the banks is how it will affect the people of Leeds directly.
In a global world, nobody has shelter from the ripples that run through the global economy. The more you depend on your exposure to that global world, the more damage can be done. It is too late for questions about whether the Euro is a good thing or not; it is there and what now matters is how relate to it. Worrying about whether to join the Euro or not is missing the bigger picture.