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UK skipped euro party, but we'll suffer the hangover just the same

The strong euro has been a bit of a bonanza for Newry, but, south of the border, the party is over. And when it ends there, Newry, and assorted border outposts which have been cashing in, will feel the draught.

With French bankers confiding that the euro could collapse, the UK can be glad it is out.

The big danger is the domino effect - if the Greeks do not perform and take their medicine in the form of cuts in pay and services.

If they refuse and take to the streets in earnest, the sickness could spread through the most indebted states in the eurozone: the PIIGS, as the Brussels-watchers have it - Portugal, Italy, (Republic of) Ireland and Spain. Much will depend upon how deeply the states in the zone are committed to the single currency. We are about to find out.

When I fill up my car in the south of France, the ticket - to this day - bears two prices: the amount of the bill in euro, plus the amount in French francs, at the exchange rate fixed for ever on January 1, 1999, when the euro was introduced.

When they got their new notes and coins three years later, the French, in a significant quirk, never actually let go of the franc. The two prices still appear on every supermarket chit the customer is given at the checkout. I wonder why. National feeling?

Officially, the franc is dead. But there have been doubts from the start whether the new single currency would survive.

To run a currency efficiently, the zone in which it circulates needs to be able to manage that zone as a unit - to set its taxes and the interest rates on the money its citizens borrow and to manipulate the external value of the currency to keep imports in proportion and, therefore, inflation, and to encourage the exports which keep its people at work.

The EU states in the eurozone surrendered their own currencies - but each held on to all the levers of economic policy.

The Germans have never been keen on the euro because they argued it could not work under these conditions. Robbed of control of the national currency, the PIIGS have run up huge public debts, careless of the consequences.

The Greek dilemma is proving the Germans right. That is why Angela Merkle is finding huge reluctance inside Germany to the proposal for a Greek bail-out. The Germans know they would be asked to finance the largest part of it.

The personalities do not help. Merkle and Sarkosy of France are not Adenauer and de Gaulle.

Behind Berlin and Paris, in Brussels, the backers of the euro have seen the obstacles ahead from the start; but they are now shown to have been far too sanguine in their expectations.

Their secret hope was that the EU states in the eurozone would be obliged to pool their sovereignty and surrender taxation policy to Brussels.

The currency, in their eyes, could be used as a potent weapon to achieve the fully-federal United States of Europe they desire. All of which poses acute problems for the United Kingdom.

Gordon Brown is not the most decisive of prime ministers; but, although outside the zone, he may soon be faced with a demand from Brussels that the UK help to finance the pending Greek bail-out. This will launch him on to waters fraught with danger.

The atmosphere in the UK, already strongly euro-sceptic, would become more so. Demand for a referendum - promised, then denied on the recent and controversial Lisbon treaty - could become irresistible.

After Germany, the UK is already the largest net contributor to Brussels funding. Our annual contribution is denominated in euro, so the recent weakness of sterling has compounded the pain. Our present contribution stands at £4.1bn and, as our public services languish, is expected to rise to nearly £6.9bn next year and to £7.3bn in 2012.

One of the first challenges facing the new government after the coming General Election will be the negotiations in Brussels on the UK's contribution from 2014 to 2020.

Without radical reform of the EU budget, one doubts whether the bridge of UK membership can be held indefinitely.

The question, 'what do we gain from the EU?' would become progressively more difficult for any government at Westminster to answer.

In 2007, the Germans received €6.9bn under the EU's farm and environment budget, Spain the same and Italy €5.9bn. The French received €10.3bn. The UK - with broadly the same population - got €4.2bn. Under culture, health and consumer protection, France took €73.8m, Italy €75.6m and Germany €217.8m. The UK got €27.1m. As the gilded palaces rise ever higher in Brussels and 7,000 diplomats are recruited to man the offices round the globe, now to be elevated into 'embassies', the hard-pressed British taxpayer may yet be driven to cry: 'not on our backs!'