Background

When the Common Market was set up, there were only a handful of countries involved and their economies were pretty similar. Now there are 28 (including the UK) and some of their economies are hugely different. The way the EU works means that all member countries are expected to agree to the rules and not rock the boat. New Treaties have to be signed if significant changes are wanted and this involves agreement of all 28 members and in some cases referendums of their populations.

However the Euro currency seems to be considered a special case which must be upheld at all costs. Over the years the strict rules agreed to in the Maastricht Treaty about the way the Euro currency would work, and the criteria to decide which countries would be allowed to join, were unofficially relaxed so that economically unstable countries were allowed to join the Euro zone, and now all new countries joining the EU are obliged to take on the Euro currency as a condition of entry. The Euro is now seen as an essential element of the “ever closer union” idea embedded in all the Treaties.

When the Euro zone was being set up, the Big Business lobby in Britain was desperate that the UK should be part of it and predicted that disaster would strike if we stayed out. Thanks to Conservative Prime Minister John Major and his opt-out at Maastricht, we did stay out from the Euro currency and disaster did not result. The EU on the other hand is having to call on German tax-payers repeatedly to pay to clear the debts of struggling countries using the Euro like Greece. Unfortunately the UK did accept the first part of the Euro set-up under Maastricht which involves our contributing to the funds of the European Central bank and sharing the risks if that Bank should be in need of a bail-out itself. With Greece relying on daily hand-outs of billions of Euros from the European central bank at present, these risks for the UK if it stays in the EU are only too real.

Georgie’s tale

I find economics very difficult to understand, but I do know that money is paid to buy things like cat biscuits and my treatment and medicines at the vet’s. If my family didn’t have any money, I wouldn’t get these things.

Garfield’s reply

Unfortunately there are quite a lot of people who don’t have the money they need and just borrow money to buy what they want to have. And there are other people who believe this is good because they think it keeps manufacturers in business making these things that people are buying with their borrowed money. The banks also like it because they expect to get extra money (interest) paid back to them at the end of the loans.

However some loans are never paid back and some people never stop borrowing. This has happened in the UK for years. The UK government also borrows to pay for many of the things it promises people it will provide and when it tries to reduce its borrowing, people complain because the government is not keeping its promises.

If money was only borrowed to invest in the expansion of businesses, particularly manufacturing businesses, then more people could be employed and would have enough money to pay for their daily needs and taxes to support the government. If governments only borrowed within the framework of what they receive in taxes and trade with other countries, and not beyond this framework as they do currently, then countries like Greece and the UK could balance their budgets and although banks might not get huge interest payments, they would not need bail-outs either.

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