The euro area has been, if not an economic disaster, a “very serious problem” affecting Britain, the former governor of the Bank of England Mervyn King has said.
The crossbench peer, known as Lord King of Lothbury, said in the longer run the euro area was “something we should all be concerned about”.
Asked if he was in favour of Britain leaving the EU, Lord King told BBC One’s The Andrew Marr Show: “I don’t think you can draw that conclusion, it’s very clear that we are influenced and affected by what goes on in the euro area and, as I describe it, it has been a, I think, economic, if not disaster, very serious problem and it’s affecting us.”
He added: “Germans wanted to bind Germany into Europe so the rest of Europe would never again be frightened of Germany, it’s had exactly the opposite effect.
“And if you look at the attitudes towards Germany today in Greece or even Italy, you see there’s more tension and concern about Germany than ever before.
“And this is a headache for Germany, they didn’t set out to find themselves in this position.
But the economic arithmetic has led them inexorably to it. And that is why in the longer run, the euro area, not the EU, but the euro area, is something we should all be concerned about.”
Lord King, who has written a new book The End Of Alchemy: Money, Banking And The Future Of The Global Economy, spoke about Britain’s ties with the eurozone.
He said: “That will be true in or out. The euro area is our biggest trading partner, that’s going to carry on being the case and therefore it does matter to us what goes on there.
“I worry that this is now going to be a battle between the political will of an elite that created this and darn’t now admit that it was a mistake and economic arithmetic and we’re all going to suffer from that.”
Lord King said, since the financial crisis of 2008, living standards had continued to grow very slowly and there had been an “extremely slow recovery” across the whole world and anger had built up.
It was sensible, he said, to cut interest rates and to increase Government spending in 2008 and 2009, but it was a temporary solution or a painkiller, adding: “If all you do with painkillers is keep taking them but never deal with the underlying symptoms you don’t get better.”
Lord King said the banking system was safer now than it was before the crisis, adding “but it’s not safe enough”.
There was a 10 to 20-year period to put in place measures to make the banking system much safer, he said, but in the short term “what we need to be worried about actually is the rest of the world” including the euro area and China.