Now the Euro is strengthening against both the dollar and sterling some of the usual suspects are out and about suggesting that we should be part of such a “success” and reminding us it will be dear to go on holiday on the continent if the Euro keeps on going up.
Since the Euro was launched, it has had periods of weakness and strength. It will have more of both over the years ahead. The best economic argument against our joining the single currency is the volatility of the Euro against the pound. It has varied from 57p to 80p per Euro. This shows our economies are not coming together, and do need changes in currency rates to avoid more painful adjustments on jobs and activity levels. The idea of the Exchange Rate Mechanism was to give countries and currencies a period of years to try to bring their economies together. If they could do so, the changes of one currency against another narrowed and eventually petered out, showing the two nations were ready economically for a single currency, if they also wanted that politically. The UK’s rapid exit from the ERM showed we were not a similar economy to the continental one:the pound did not start to move in line with DM/Euro. More recent movements both ways of the pound against the Euro are a further warning, if one is still needed, not to venture into a currency arrangement or try to prepare for a single currency again.
Yes, it is true contiental holidays are becoming dearer. They need to, as they are one of many drains on our balance of payments, and we need to spend less abroad and spend more at home in substitution for imports – that includes holidays.
It is also true that the Uk is becoming more competitive as our prices overseas fall relative to Euro prices. That is one of the reasons why UK manufacturing is doing better at the moment ,despite the credit squeeze and the slowdown.
The strong Euro is the result of the better performance of German industry in recent months. It is causing problems to some of the peripheral countries of Euroland, who may still live to rue the day they entered a single currency before they had brought their own economies properly into line with Germany’s.