THE government tells us that we are out of recession -- but only by one tenth of one percent growth. Any smaller and it would have vanished all together. After the brutal negatives of the last year, our economy could not get any more fragile. Or could it? What if we had been a member of the Eurozone? Had we been in the euro these last few years, our economic state would not be a disaster, it would be a catastrophe. Our already damaged economy would have been crippled by a fixed exchange rate set by the so-called "successes" of the financial sector.
Instead, when our financial sector collapsed, the pound fell.
Outside the euro, sterling has been trading at a competitive level in global currency markets. British exports remained at attractive prices while eurodenominated goods raced to all-time highs against the pound and the dollar in 2009. This is the main reason we had a record manufacturing upturn in January, and without the beginnings of that upturn we would have still been in recession. In Greece, Ireland and Spain, all in the eurozone, manufacturing is struggling. The biggest of these, Spain, is unlikely to see an economic recovery this year.
So managing our own currency is critical to our ability to compete. Giving up our currency would also have meant giving up to the European Central Bank our ability to control interest rates. The ECB has kept interest rates significantly higher than rates in the UK.
The Bank of England has kept our rates low and pumped money into the economy, allowing companies to absorb the shock of recession and start to recover. None of this would have been possible had we joined the euro.
Those countries in the eurozone whose governments have, like Gordon Brown, behaved in a profligate manner, are now paying a fearsome price.
As well as the higher ECB base rate, they are being punished by the bond traders who are charging them for the riskiness of their national balance sheets. Greece, for example, is facing some of the highest interest rates for a decade, and is finding it hard to compete for funds with other eurozone countries.
What is worse, before the current crisis, membership of the eurozone lulled Greece into a false sense of security. Leading up to the budget problems in Greece, their government bond yields barely indicated the growing risk of Greek debt. …