´óÏó´«Ã½

This Westminster election campaign will almost certainly have a notable absentee: we won't have a dispute about the euro.

While Labour, the SNP and Liberal Democrats are, in principle, in favour of joining the single currency, they would be mighty brave to push the case for joining at the same time that it is creating such tensions, and may yet find some members parting company with it.

Greece raised the temperature last week, as the markets responded to fears that it can't handle its deficit. The cost of servicing its fast-growing debt was pushing up to 4 percentage points higher than that for the eurozone's German baseline. It doesn't take a downgrade of the national credit rating to have that effect: markets are pricing in these risks without being told to do so by Standard & Poors.

Portugal and Spain were drawn into those concerns. They protest they're different, but there's a fear of contagion, or domino effect, and they are seen as next most vulnerable. All three have problems in reaching a political consensus around what to do.

Pigs in muck

There's an EU chiefs' pow-wow in Brussels later this week to decide how to handle this pressure, which brings to mind a significant factor of this recession; the sense of crisis which saw an unprecedented global plunge around the turn of last year has ceased to have much sense of crisis for over a year. It's been quite a while since we haven't known how the week was going to pan out.

In Britain, the political debate ahead of the election revolves around the risk that the UK could join Portugal, Ireland, Greece and Spain (the so-called PIGS) on the critical list (PIGSUK?), with the national credit rating coming under pressure. How best and when to bring down the deficit is where Labour and Tory have so far clashed, and found themselves moving onto very similar turf.

But while a downgrade of Britain's credit rating would be expensive and politically humiliating, the markets also know that Britain can help get itself out of trouble by letting the pound slide. The PIGS don't have that luxury.

Budget pain

And being in uncharted waters - as the eurozone has spent most of its life in benign economic weather conditions - it's not yet clear how much the other eurozone members will do to help them through the difficulty and/or to punish them for their lack of budgetary discipline.

It seems the central bank and Germany will do what it takes. There's too much riding on getting the euro through its first big crisis. But at what price, for how long, and what impact will it have on the future of the euro if its members know they'll get bailed out in future?

You'll note Ireland may be the 'I' of the PIGS but for now at least, it is being treated differently from others in that unhappy sty. Ireland doesn't have Britain's flexibility with its currency. It has the same rigidity within the eurozone, but in Dublin, they've pulled back from the edge of the abyss by taking the kind of painful budgetary decisions being urged on Athens, Lisbon and Madrid.

Meanwhile, consider a quieter crisis besetting Latvia, a small European outlier. It's not in the eurozone, but it has pegged its currency to the euro, and it's paying a heavy price for doing so.

This Baltic state has lost around 25% of its economy since the recession began, and it's reckoned it will lose another 5%. As the Wall Street Journal recently noted, that's more than the 29% of output USA lost in the worst four years of the 1930s Depression.

Retail sales are down 30%, and austerity measures include a near halving of teachers' salaries and a 40% cut in hospital budgets.

The sense of crisis that's come back to Europe is being closely watched around the world, with fear of that contagion.

Women's skills

Longer term, with government budgets under severe pressure, what's the solution to this? One is to plan for changes to the shape of the economy. Labour market research just out from the European Commission underlines the shift towards high skill jobs, and away from low skill jobs.

It says that despite the sharp rise in unemployment recently, there could be seven million new jobs created by the end of the decade, along with 73 million vacancies created by the need to replace workers who retire or change careers. It also points out women are going to be more highly qualified, and more will have to be done to encourage them into using those skills in the workplace.

Plus, to continue this broad sweep of the continent, there's an interesting lesson from France in the past week. The country that invented the word 'entrepreneur', and then failed to follow through on it, is now seeing unusually strong growth in business start-ups.

Sterling slide

It's reported this is being driven by the diminished opportunities in the public sector. Or it could have to do with a new fast-track means of starting a company - doing it all online and avoiding red tape and tax until you start to turn a profit. While Britain as a whole does comparatively well at starting up companies, there may be lessons there for Scotland, where the entrepreneurial spark-plug remains damp.

Meantime, if those who lean towards the euro would do well to keep quiet about it during the election campaign, does that mean the Tories can crow about their opposition to membership of the euro?

Not really. They've been so burned by their own divisions over Europe that it carries too many risks for them to make a big deal out of it this time. And as an economic strategy, it doesn't do to trumpet Britain's freedom to let sterling slide, when the reality behind that is reduced spending power and the threat of inflation.