Cameron: Eurozone lacks conditions for success

David Cameron and entourage have rolled into Davos to sell the investment potential of Olympic-year Britain to the business leaders, investors and bankers who throng the World Economic Forum's annual meeting.

But in his plenary address, he also delivered something of a lecture to the eurozone on what it needs to do insure the long-term survival and prosperity of the creaking currency union.

This is what he said:

"I'm not one of those people who think that single currencies can never work. Look at America. Or the United Kingdom.

"But there a number of features common to all successful currency unions. A central bank that can comprehensively stand behind the currency and financial system.

"The deepest possible economic integration with the flexibility to deal with economic shocks. And a system of fiscal transfers and collective debt issuance that can deal with the tensions and imbalances between different countries and regions within the union.

"Currently it's not that the eurozone doesn't have all of these - it's that it doesn't really have any of these."

To translate, the prime minister believes a successful monetary union requires the rich areas to stand behind the poorer areas - especially when those poorer areas are undergoing austerity to persuade investors they aren't bust.

So the implication is that Germany should provide support to Italy, Greece, Portugal and so on, as they undergo the pain of shrinking state deficits and improving private sector productivity (the pain induced by less public spending and by cutting wages).

Mr Cameron suggests the eurozone should be able to borrow as a single entity, so that the price it pays to borrow is based on an assessment of all eurozone members - and so that the central bank can buy that debt without facing the charge that it is unfairly bailing out one country at the expense of another (you may have noticed that the Bank of England has been buying quite a lot of the debt of Mr Cameron's government).

And he seems to believe that decisions on taxing, spending and borrowing should be taken centrally, by a finance minister and finance ministry for the whole eurozone.

How close is the eurozone to acquiring these characteristics? Well, if you were feeling generous, you would argue that member states are travelling in the direction of such a European superstate. But few would deny that the journey is at the vitesse of a plump escargot.

Which is why when I pressed Mr Cameron on what the eurozone needs to do most immediately to get through the crisis, he explicitly focussed on the necessary short-term sticking plaster - such as expanding bailout resources to a credible size (which in his view has not yet happened).

It was clear from our short exchange that he disagrees with the bankers here that the eurozone is over the worst (and see my earlier note for the contrary view from the pinnacle of a giant French bank).