Plan E: Preparing for Euro Exit - 25 May 2012

In a new paper released today, Plan E: Preparing for Euro Exit, Kwasi Kwarteng MP, Elizabeth Truss MP, George Eustice MP and David Ruffley MP, argue that as the possibility of ‘Eurogeddon’ becomes increasingly real, urgent action is needed to protect the UK. You can read the full paper here.

Key Points

In the short term, the Government will have to defend the economy from loss of confidence, damage to the export and banking sectors, and the influx of excess capital. We should:

• Reaffirm the deficit reduction programme. If Britain is to retain the confidence of the markets, there will be no room for fiscal stimulus. Instead, the government should reaffirm its fiscal strategy, and in particular the target for net debt to fall by 2015-16. A cash freeze of benefits would be simple, fair and save significant amounts.

• Capture greater capital flows. Excess capital fleeing the Eurozone could be funnelled into new infrastructure bonds, tied to real assets. The Government should create a portfolio of major infrastructure projects that will be automatically approved if they can fund themselves through private capital (including new runways, nuclear power stations and freight lines).

• Develop a bank capitalisation plan. In the event of a second credit crunch, foreign capital could also be used to recapitalise the banks.

• Rebalance exports. The Government should continue and accelerate its current strategy seeking to rebalance trade away from the EU to the BRICs and other developing countries.

Across Europe there has been a major problem of employment, and especially youth unemployment, leading to economic sclerosis and civil unrest. Only Germany has really succeeded in increasing employment, thanks to the reforms it made to improve its competitiveness. In order to maximise exports outside Europe, we should learn from the German model.

• Plan to get the unemployed and young into work. The Government should enable flexi-jobs similar to German ‘minijobs’. These would be for earnings under £10,000 per year, and be tax-exempt to enable younger, older and returning workers to get work. The minimum wage should be frozen for three years but those workers would see a rise in real incomes as they would no longer have to pay employees NI. Employment restrictions should be reduced (Sunday working and HSE) on the under 18s to encourage take up of part-time and work experience jobs.

• Encourage firms to take on workers. The fear factor should be removed from hiring. Companies with fewer than 10 workers should be exempted from unfair dismissal (as Germany did in 2004). This should be for new employees only, so existing workers retain their “grandfathered right” therefore maximising stability. Employment tribunal fees should be introduced from April 2013 and discrimination and unfair dismissal claims should be capped at £50k (currently unfair dismissal is £72k and discrimination unlimited).