Britain pushes hard choices for Europe's hard core

Euro coin on a Europe map Image copyright Getty Images
Image caption Greater integration of the eurozone is being pushed to create stability

Interesting new alliances are being formed in the attempt to calm markets in the short-term and to tackle the fundamental problems in the world economy after that.

George Osborne informally represents Europe - not a position the Chancellor of the Exchequer is used to - in signing up to a manifesto for reform alongside the finance ministers of Australia, Canada, Singapore and South Africa.

They're not saying anything that would surprise you. Not much of it is controversial - apart, of course, from the implications for workers and welfare of all those structural reforms.

Rather more astonishing is the breadth of reform being demanded as a solution to the problems in the world economy, in this joint call for "political courage".

Complex challenges

Deficits need cutting, the eurozone has to get decisive to reassure markets and banks must be strengthened and banking regulation co-ordinated, while spurring job creation and boosting growth.

Today's jointly-authored article chooses to ignore the tensions and compromises between these goals, conceding only that the complexity and challenge cannot be under-estimated.

The crisis is being seen by this quintet of finance ministers as an opportunity to get back some of that spirit of international co-operation which marked the response to crisis in the winter of 2008-09.

But as they say, the problem now is the credibility of the political response.

It's not just those with deficits being put under pressure. This manifesto calls for countries with surpluses to make their own structural reforms to boost consumption. That's trickier than it might seem.

There's also a call for the G20 this autumn to co-ordinate action in a bid to bring down inflationary pressures, which looks like a heavy hint that the oil price and speculation in other commodities should be constrained.

Disruptive transition

There's a particularly clear and strong message to the US to provide leadership, saying "fiscal responsibility" in Washington is in America's own interests as well as that of the rest of the world.

The US can reduce the chances of "a disruptive transition as we move towards a new global economy, with the major emerging economies playing an increasing role both in global consumption and savings flows".

They also see this as an opportunity to get the Doha trade negotiations going again, when many had lost any hope they could be resolved. That, it's argued, could be "the greatest global stimulus of all".

For George Osborne, this underlines one of his themes of recent days - that the eurozone countries need to get their act together, demonstrating their "commitment to greater fiscal integration".

German guarantee

Implicitly, he's saying something very important. Britain needs the eurozone to stabilise, but it's saying that can only be achieved by much greater integration.

That includes the selling of eurobonds, which would have to be collectively guaranteed by all its members. That, in turn, implies considerable pooling of taxation and spending policies as well as borrowing, to a far greater extent than many had previously recognised across the 17 members.

It puts particular pressure on Germany, in the leading role of the more prosperous, more disciplined and still-growing northern European nations. It would act as final guarantor of its weaker, less disciplined partners.

The Germans know that George Osborne and the British would never sign up to what he's expecting of them.

But the next implication is that tighter integration of the eurozone countries would put Britain more clearly on the outer ring of a two-speed Europe - less integrated and showing every sign of wanting to stay there.

Confused and troubled

For euro-sceptics, including those in the Conservative part of the UK's coalition government, it's an outcome with which they'd be more than happy.

But what about the LibDems, who have long wanted to play a more integrated role in Europe? Or for those in Labour who think likewise?

Likewise, the idea of an independent Scotland inside the eurozone, which remains the preferred option of the SNP "when the time is right", looks a lot less like anything resembling independence.

After 50 years in which Britain has struggled to define or resolve its confused, ambivalent, troubled relationship with Europe, the events currently being played out in this eurozone crisis look ever more likely to achieve that, while Britain remains largely passive about it.