Has the credit crisis changed the debate about Britain joining the Euro?
For those of us who support the idea of Britain having control of her own affairs, it will always be a bad idea to join the Euro regardless of the economic climate. The electorate needs to be able to appoint and sack the people who make the big decisions about our economy. This includes keeping the power to determine interest rates, the amount of currency in circulation and our budget deficit or surplus. The fact our Government has been making a mess of these powers does not justify scrapping them, but reinforces the case for keeping them under democratic control.
From a purely economic point of view, our economy is too big and too dependent on global trade and the dollar to fit comfortably inside the Eurozone. Were we to join the Euro we would suffer lost jobs and investment. In order to join, a country has to keep its currency stable against the Euro to show it has converged with the others. In the last few months we have moved from 60p to the Euro, to 71p, to 83p and now to around 95p. The fact we are now at parity does not mean that our economy has converged with the Eurozone, and the fluctuations indicate we are not about to. The Euro is the ERM you cannot easily get out of. The last time we hitched ourselves to a European currency scheme it did huge damage to our economy despite being recommended by all three political parties and the CBI.
To join the Euro a country must keep its deficit beneath 3% of income. Our Treasury is forecasting a deficit of 8%. While I want to see this reduced, going from 8% to 3% would be too far too fast, resulting in crippling short-term tax rises that would damage the economy further.
The EU would be foolish to want the UK in at any price. The Euroland is already struggling with the excesses of Italian, Spanish and Greek economic policy. Trying to incorporate Sterling would be a bridge too far.
John Redwood has been the Member of Parliament for Wokingham since 1987. First attending Kent College, Canterbury, he graduated from Magdalen College, and has a DPhil from All Souls, Oxford. A businessman by background, he has been a director of NM Rothschild merchant bank and chairman of a quoted industrial PLC.
2 Comments
Excellent, as always.
Isn’t it scary how quickly people forget 1992, George Soros and poor old Norman Lamont? I notice that the BBC delight in the clip of poor old Mr Lamont standing there and David Cameron scurrying past in the background.
Otherwise, it is “history”. And those who forget their history are condemned to repeat it.
As always, your ecomonic analysis is really helpful.