Today's Daily Chart in the Economist shows the budget deficits of the main Eurozone economies in 2007 (before the crash), 2009 (in the middle of the recession) and 2011:
The 3% mark is the agreed limit under the Growth and Stability Pact agreed at Maastricht (but never properly enforced). As you can see Greece was well over it before the crash in 2007, so Greece has got in the situation that it is in due to excessive borrowing over a long period of time. As a comparison, the UK was 2.4% at this time (so a bit less than France). However Ireland and Spain were actually running budget surpluses going into the crash, their economies collapsed because they were based on unsustainable property bubbles and when the financial services sector collapsed their economies went into deep recession and in the case of Ireland the costs of bailing out their banking sector saddled the taxpayer with huge bills. Their economies were ruined by bad practices in the financial services sector, inappropriate lending and speculation on property.
So you have two types of problem - excess government borrowing (Greece) and the failure of regulation on the financial services sector (Spain/Ireland). The solution being driven by Germany is to constrain governments from running up budget deficits and to impose regulation on the financial services sector.
In the UK however the rhetoric from Cameron and Osborne recognises the first problem but not the second. They are trying to turn everything into a problem of government borrowing, Osborne keeps going on about Greece, saying "we don't want to end up like Greece"....but the UK had more in common with the Ireland and Spain story than Greece as we did not have a large budget deficit before the crash. They have gone on about high government borrowing figures after the crash, across Europe, but that is always going to happen when you have recessions, it doesn't mean borrowing caused the crisis in the first place.
What Cameron wanted was to have a solution involving constraints on government borrowing but not involving regulation of the financial services sector. However he can't really stop it, because if the Eurozone countries want to put tight rules on banks trading in Euro denominated assets they may make it impractical for banks based outside the Eurozone to trade in Eurozone assets and so force the relocation of banks from London to Frankfurt.
