Does eurozone need a single finance ministry?

By This Is Money
Updated: 03:44 EDT, 3 June 2011

George Soros correctly identified the fatal fault line running through the eurozone.

It is that while interest rates and the exchange rate are under the control of the European Central Bank, tax and spending decisions are still left up to national governments.

The big problem with this is that countries such as Greece could enjoy the benefits of low interest rates effectively underwritten by Germany, without imposing any form of Teutonic self-discipline on their public spending, tax collection or state pension costs.

Nor is there any budget mechanism to transfer money between member states, for richer countries to help their poorer brethren.

It is with this in mind that Jean-Claude Trichet, the president of the ECB, called for governments to consider setting up a common finance ministry for the euro bloc.

His idea is that the central ministry would oversee fiscal policy and competitiveness and take 'direct responsibilities' for countries in trouble - such as Greece, whose bonds were downgraded deeper into junk territory this week.

Trichet's proposals would go some way to addressing the structural weakness in the eurozone, though there was no mention of giving it control of a central budget so that funds could be transferred from rich to poor.

No-one should underestimate the extent of the difficulties in the eurozone.

The credit rating agencies have not done themselves proud during the financial crisis but Moody's is right to highlight the growing risks in Greece. Ireland, Spain, Portugal and Italy have dire problems of their own.

But those who speculate on the imminent demise of the single European currency project reckon without the enormous political will at the governmental level to keep it going. Indeed, that is the reason for the huge efforts the Greek government is making to impose austerity on its citizens.

In the longer term, it is hard to see how the eurozone can survive without a common finance ministry and fiscal policy.

As Trichet said, however, this is a decision for countries and for their voters - and the problem is that there is no great enthusiasm there for greater integration.

High energy

Companies frequently make threats to the Treasury when presented with a tax or rule they dislike, but not many are ever carried out.

Centrica is one of the few to do so; with its decision not to re-open its South Morecambe gas field, which had been closed temporarily, it has called the Chancellor's bluff over his new higher tax rates on North Sea production.

Sam Laidlaw, Centrica's boss, says with a larger sum sliced off by the taxman, profitability from Morecambe is marginal.

The Treasury does not look as if it is minded to back down. Its belief is that oil and gas operators will make a combined £24bn in pre-tax profits from the North Sea this year, an increase of 50% over two years.

This is a serious issue. The North Sea is a dwindling asset for this country, with the UK becoming a net importer of gas in 2004 and of oil a year later.

The risk for the government is that we become even more dependent on imports from Russia, the Middle East and elsewhere.

That could lead to even more expensive energy prices for consumers, and leave us at the mercy of potentially unreliable supplies.

It is worrying in this context that a report by risk-analysis firm Maplecroft said the UK is already one of the most exposed developed nations to energy price shocks, with our dependence on imports making us as vulnerable as Uganda. One can only assume that in playing tough, the Chancellor and his advisers are sure of their ground.

He should be similarly robust when the banks trot out their threats to leave the country.

Well-heeled

The spirit of Carrie Bradshaw in Sex and the City, who spent so much money on stilettos she couldn't afford a mortgage, is making itself felt in the corporate world.

Management at Kurt Geiger are the latest to cash in on the insatiable appetite for new footwear, with a £20m windfall from its sale to US outfit The Jones Group.

Nice - if not quite in the same league as the £85m businesswoman Tamara Mellon made by selling her Jimmy Choo label recently in a £500m deal with Austrian group Labelux.

Even at the sensible end of the market, Somerset-based shoe retailer Clarks broke through the £100m profit barrier for the first time after a 28% rise in earnings.

When it comes to defying a recession, it seems there's nothing like a woman's right to shoes.