EU solidarity and wider export led strategy is needed to resolve current crisis

The action taken by EU Finance Ministers so far has not stemmed a crisis of confidence in the ability of the Eurozone to handle the internal imbalances between its members.

This is partly because they, like our own Government, have been trying to tackle this problem in an excessively narrow way. The Eurozone Finance Ministers seem to believe that fiscal retrenchment and austerity alone make for a credible economic strategy for Greece in the midst of the sharpest economic recession for many years.

It is, of course, vital that there are credible public finance strategies emerging from countries with high or rising debt problems, including Ireland. This must be built on a strategy of reform, restructuring and targeted reinvestment in sectors that can make a difference. But countries like Greece and Ireland will only be in a position to regain fiscal health if they can export their way back to growth and rising employment. This requires a wider EU strategy that supports purchasing power in core European markets. Depressed and shrinking markets will make it extremely difficult for countries like Greece to refloat their exporting sectors.

Some high saving countries within the Eurozone, such as Germany, have the capacity for greater expansion in domestic purchasing power in a way that would provider a more lasting resolution of the Eurozone crisis than a mere bail-out.

A resolution also requires the European Central Bank to remain innovative in moving beyond its narrow inflation remit during this crisis. It must realise that its desire to tighten monetary policy as banking stability re-emerges must take account of the severe strains that are emerging in peripheral Eurozone countries.

While it is easy to point to institutional impediments that can explain the lack of a more effective strategy to underpin a robust common euro currency area, in the end this comes down to a need for greater EU solidarity and political will.