Magazine article The Spectator

Nothing to Lose but Your Freedom

Magazine article The Spectator

Nothing to Lose but Your Freedom

Article excerpt

IF the UK were to decide to join the euro, I would be deeply disappointed and worried for our country. But my even stronger fear is that the British might make that decision while still complaining that they hadn't heard the arguments and didn't know what was at stake.

Joining the euro is meant to encourage transparency throughout Europe, increasing pressure on suppliers to reduce costs to customers. That pressure is undoubtedly growing, but not mainly because of the euro. British consumers already make sure that they stock up with designer-label clothes when they go to America. Other British customers now order their cars from Brussels. They don't need Britain to join the euro in order to understand that cars cost less in some other markets.

Then it's argued that the euro will bring us stability. This is really a joke. The euro has been anything but stable since it was introduced, and has declined 27 per cent against the dollar and 30 per cent against the yen. Had we been part of it, as Eddie George has pointed out, we would by now be facing a serious problem of inflation, the most destabilising of all economic ailments.

It is also said that inward investment into the UK will be put in jeopardy if the UK doesn't join the euro. There's no evidence of that. Inward investment has been strong for many years now, even though it has been evident that the UK wasn't in the euro, and might never be.

Maybe the most common argument for joining the euro is to reduce transaction costs for businesses trading with others in the eurozone. That argument shows little sense of proportion. For most businesses, transaction costs are a fraction of a percentage point of their turnover - much less, for example, than their annual target for efficiency savings. They can hedge currency risks. There is some direct cost from trading with countries that have a different currency, but the risks of joining the euro, which I shall come to, are on an entirely bigger scale.

In contrast to that de minimis argument, others argue that we must become fully integrated into Europe because the future of the world will be giant economic blocs competing with each other: for example America, Europe and Asia-Pacific.

That sounds to me like an old-fashioned view of the future, a bit like those 1950s films that showed men travelling in space in what now look like very comical rockets. Where competition in this age is between global giants, they are corporations, not continents. The giants grow in those places where the environment encourages enterprise and investment. Microsoft is one example, and Vodafone Mannesman another. Whether Europe grows giants in the future doesn't depend on having a single currency so much as whether it follows better policies than now with regard to over-regulation and taxation.

The basic economic problem with the euro is that it seeks to apply one currency and interest rate to all Europe, despite the fact that Europe consists of many different economies, at different stages of development, with different characteristics and different cycles. The single interest rate is likely to be wrong for most places most of the time.

It is too low for Ireland, which now has a serious inflation problem. The governor of the Irish Central Bank is powerless to act because Ireland gave up the right to set its own interest rates when it joined the euro. A teaching union is now seeking a 25 per cent pay rise. At the same time, the single eurozone interest rate is too high for Germany where the economy may be faltering.

At this point, it's worth remembering that the EU's project is not a single currency but rather economic and monetary union. The then chairman of the Bundesbank, Hans Tietmeyer, said clearly, `A European single currency will lead to member-states transferring their sovereignty over financial and wage policy, as well as over monetary affairs. It is an illusion to think that states can hold on to their autonomy over taxation policy. …

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