UK Chancellor George Osborne has warned that excessive global debt meant “the recovery will take longer and be harder than hoped”.
It came as he defended the government’s austerity plan in the Commons, saying it had made the UK a “safe haven” in the volatile financial markets. The British Finance Minister said the current financial crisis “completely vindicated” the government’s deficit cutting programme.
He pointed out that while the UK stock market had suffered like others in Europe, in contrast UK government debt had risen in value thanks to investors’ “flight to quality” during the current market volatility.
Osborne also criticised European partners in his speech, claiming that the “remorseless logic of monetary union” made greater fiscal integration in the eurozone inevitable.
He called on eurozone governments to provide a more comprehensive solution to the eurozone debt crisis, including measures such as common debt obligations – or “euro bonds”, something that has been explicitly rejected by Germany. “We accept the need for greater fiscal integration in the eurozone, while making sure we are not part of it,” he said.
He said contingency plans were in place to ensure UK banks weather the crisis.
Elaborating he said , ”The euro zone needs to move towards some sort of greater fiscal union to deal with a crisis which has undermined the single currency area, UK finance minister George Osborne said on Saturday.
Asked if the only answer for the health of the euro zone was some kind of fiscal union, Osborne told BBC radio: “The short
answer is yes.”
Osborne earlier this month urged euro zone countries to develop a system of common euro zone bonds to help put a lid on
a worsening debt crisis which has threatened the future of the currency bloc. “I was against Britain joining the single currency. One of the reasons … was because i thought the remorseless logic of having a single currency is you end up having something akin to a single budget policy. You can’t have one without the other,” Osborne told the BBC .
“An unstable euro is very bad news for us, we have to ensure that our influence on important decisions like financial services is not undermined. But we do yes have to allow greater fiscal union while protecting our own national interest.”
Osborne said that the world faced “the most dangerous time for the global economy since 2008″, adding that markets were waking up to the fact that the global recovery would be much weaker than expected. But he sought to reassure that UK banks would be well protected from any renewal of the crisis.
“I can confirm that the assessment of the Bank of England, the Financial Services Authority and the Treasury is that British banks are sufficiently well capitalised and are holding enough liquidity to be able to cope with the current market turbulence,” he said.
“We have in place well-developed and well-rehearsed contingency plans,” Finance Minister George Osborne said.