21/08/2011 19:26 BST | Updated 21/10/2011 06:12 BST

Germany And The Euro Crisis: Britain's Opportunity

I was on BBC Radio 4's Today programme on Saturday, debating with Lord Owen political leadership - or its absence - in Europe and America against the background of looming double-dip recession. It was a slightly surreal occasion, as, back in 1970s, I had been, as a junior Foreign Office official, David Owen's speechwriter when he was Foreign Secretary.

Today had asked me on because of my time in the US as British Ambassador. But as the discussion went on, I found myself more interested in the curious case of Germany and its reluctance to help underwrite the debts of those Eurozone countries threatened by sovereign default. Most observers believe that if the contagion is not to spread from the so-called peripheral states to Italy, Spain and even France, either the European Central Bank needs to start issuing Euro-bonds, backed by the full faith and credit of all Eurozone countries; or much more cash needs to be put into the European Financial Stability Facility, a fund created last year to keep the peripherals afloat. Either would help bring stability and confidence to the markets. They would remove an existential threat to the Eurozone and maybe the EU itself. Of course, the lion's share of the liability would have to fall on Germany, the richest of the Eurozone powers. But, Germany is after all one of the founding fathers of the grand European project. German reluctance to put its triple-A economy at the service of the project is like watching slow-motion infanticide.

Before going to Washington, I was briefly Ambassador to Germany in 1997. I remember that when I arrived in March that year, Helmut Kohl, then German Chancellor, was having a wobble and considering the postponement of the Euro's introduction. What worried him was the state of German public opinion. To replace the trusted, stable Deutschmark, symbol of the German economic miracle, with an untested Euro, in which the irresponsible Italians would be founder-members, was deeply unpopular with a majority of Germans by a margin of 2 to 1. The nightmare of rampant inflation under the Weimar Republic in the 1920s, which opened the door to Hitler, was still a vivd memory. In the end Kohl pressed ahead, telling the German people that greater integration was the only way to reconcile the French and others with Germany's domination of Europe.

This explains a lot in Germany today. The Germans have never loved the Euro, even though it has brought them huge economic benefits. The Eurozone was designed as near as possible to duplicate the fiscal sobriety of Germany itself and thus to placate the German electorate. But, to try to do this across 17 disparate economies has proved mission impossible. Much of this was camouflaged in the boom years of faux-prosperity. But, in an age of low growth and high debt, Merkel is now caught between a rock and a hard place. Economics tells her that Germany must do more to shore up the Eurozone if it is to survive. Politics tells her that this could consign her to electoral oblivion - the Euro has never been more unpopular in Germany and bailing out profligate Greeks, Portuguese, Italians etc wins no German votes.

So, what will happen? The choice appears to be between some kind of fragmentation of the Eurozone between the strong and the weak economies; or, in return for guaranteeing their debts, the creation of a single economic and fiscal area in which the creditor countries, above all Germany, take control of economic policy throughout the zone. It is a measure of the crisis hanging over one of the UK's major export markets, that George Osborne, a Tory Chancellor, has been arguing for greater integration in the Eurozone. Goodness knows what Margaret Thatcher thinks of it all.

But, if we play our cards right, a major treaty change in Brussels is an opportunity for the UK to change the terms of EU membership. We do not need to be full members to trade with the EU. It is as plain as a pikestaff that not only are we well out of the Eurozone, but that membership of the EU itself is an increasingly bad deal for our nation and needs to be renegotiated. There are vast areas of social, industrial and competition policy where we need to reassert national control. Is there the political leadership in London to embark on this necessary course?