Magazine article Management Today

Battered or Not, the Euro Rolls On

Magazine article Management Today

Battered or Not, the Euro Rolls On

Article excerpt

No government will have a veto against the single currency's pivotal role as fierce competition from price transparency begins to bite

Have you heard about parity parties, Secretary of State? my private secretary inquired one day in the mid-1980s. As it happened, I had not, but it appeared that the wild young things of the New York Stock Exchange were about to celebrate the trade of one dollar for one pound. Actually, the corks stayed in the bottles as this historic humiliation never occurred. But we were saved by only a hair's breadth. A week is a long time in politics and more than 15 years is another world, but I couldn't help but remember this vignette of economic history as I read of the euro's battering.

Of course, Mrs Thatcher and her ministers didn't like what was happening to the pound, but there was little they could do about it except pursue sensible economic policies, make structural reforms and hope sentiment would change. It did. The pound against the dollar has since appreciated by some 60%.

The important point was the limited ability of the government to do much about it. What did sovereignty mean? What options were available to the government that would have reversed the crisis of confidence it faced? All the options would have made things worse. Freedom to trespass outside the markets' perceptions of good sense carries too high a price to be politically acceptable.

So I watch the speculators drive the euro down and, in consequence, the pound up. First the dollar, then the go-cent parities are broken. Eurosceptics have 'freefall' prominent in their vocabulary. It is nonsense. The eurozone has inflation under control, low interest rates and overall growth rates the equal of ours. There is no rational explanation for what is happening. It will be reversed. The problem is not so much if as when.

Tony Blair is where Margaret Thatcher was but in reverse, with too high a pound against the euro, as opposed to too low against the dollar. He shares, however, the same impotence. I think he could help by declaring a firm policy to join the euro (confidence building), but at a lower exchange rate (market calming). But I would never claim that such a statement is likely to be of major assistance to the euro. The central bankers of euroland have a storm to weather and, having invested much political will, weather it they will.

The issue is part of Britain's wider problem with Europe. Every prime minister since Harold MacMillan in the 1950s has known that our political and economic self-interest is inextricably interwoven with that of our European neighbours. …

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