Fundamental weaknesses remain in the eurozone that make it “vulnerable to future shocks,” warns the House of Lords EU Economic and Financial Affairs Subcommittee in a report on the recent recession.
The report also warned that the U.K. is becoming increasingly isolated as the eurozone authorities grow in influence.
Despite coming out of the recent recession, threats remain for the eurozone from economic imbalances between core and peripheral countries, unemployment and incomplete programs of structural reform.
According to the report, growth across the eurozone is “anemic, and there are growing fears of a damaging deflationary spiral. … Such weaknesses will continue to test the economic and political stability of the euro area for as long as they persist.”
The report recommends that EU leaders promote growth-friendly policies, move ahead with structural reform and the completion of the single market. An impending assessment of the banking system by the European Central Bank, which is due to end in October, must be “robust, (but must) not undermine the euro area's fragile recovery.”
However, the necessary integration of the eurozone brings challenges for the U.K., the report said. “Moves toward euro-area integration leave the U.K. in an increasingly isolated position,” the report said.
The Bank of England and the U.K. government must maintain and develop “constructive relationships with the increasingly powerful euro-area institutions,” the report said. Efforts to demonstrate the benefits of the City of London “as the leading global financial center for the EU as a whole” should be redoubled, it said.
In a news release accompanying the report, Lord Lyndon Harrison, chairman of the subcommittee, said: “The U.K. needs to get a grip: firstly by maintaining effective working relationships between the Bank of England and the ECB; secondly by developing constructive relationships between the government and the euro group; and finally by working hard to convince the new European Parliament and European Commission of the City of London's value as the leading global financial center for the whole of the EU. A vibrant, successful city is a unique asset, key not only to the U.K.'s prospects, but also to the future prosperity of the EU.”