Leading article: The euro crisis is a political one and Britain should play its part

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When David Cameron planned his first foray into Europe as British Prime Minister he cannot have imagined that he would be entering a maelstrom.

But a financial maelstrom it is, with stock markets falling, the euro currency sliding and politicians openly talking about the biggest crisis for the union since the European Community was founded. That makes Mr Cameron's trip to Paris and Berlin this week seem more of a sideshow in the Continent, for all the pre-meeting suggestion of a clash between a Eurosceptic British leader and his European partners. But it also provides opportunities for forging a new relationship in crisis which the British premier could never have foreseen.

It would be difficult to overestimate the scale of the financial storm that has broken over the Continent. Talk of the fracture of the union would seem premature. But it is clear that the EU, and in particular the 16 members of the eurozone, are facing the full force of a market withdrawal of confidence. The Greek debt crisis has led to growing doubts about the financial state of not only Portugal and Spain but Italy which have not been quelled by the trillion-dollar rescue package announced by governments earlier this month. As the doubts have grown about the ability even of this package to meet the fundamental problems posed by the fiscal deficits of the southern European countries, so investors have also started to worry about the exposure of the German and other European banks to the troubled countries.

Part of the market fall arises from justified concern at the strain on the single currency. Investors fear that the package may have solved the liquidity problems of Greece but it does not tackle the basic questions of solvency of the debtor nations. The more you force countries to restore their finances by cutting expenditure, the greater the risk of driving them ever deeper into recession.

Yet it is wrong to see this crisis in wholly European let alone economic terms. The fall in stock exchanges around the world owes as much to fears of a slowdown in the US as in Europe. It is also being driven by concern at the political will of European governments. There are now clear differences between Germany and France as to how to respond to the crisis. The unilateral decision by Germany to ban naked short-selling has upset her partners in the EU and caused consternation in the markets, which have also been disturbed by the talk of radical regulation in individual countries, including the US. What the markets want – and what they have not so far been given – is a firm indication that governments have a grasp of the realities and a proper plan to deal with them.

Which is where the UK could play a constructive part. In his talks with both President Sarkozy on Thursday and Chancellor Merkel yesterday, the new British Prime Minister was at pains – with almost undiplomatic emphasis – to point out that Britain was not part of the euro and had no intention of joining any eurozone bailout. But he also stressed that he saw it in Britain's interest that the euro survived and that the European economies were not pushed into reverse by this crisis. He sought, he said, a "positive role" in Europe. If this goes on, he will have plenty of opportunity over the coming months.

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