Should we join the Euro?

I am now being asked if we should join the Euro to have stability and more financial discipline! Have people learnt nothing? The Irish experience shows why the answer is a thousand times “No”.

Ireland joined the Euro with an Anglo-Saxon economy in very different shape from the German. For several years it gave her interest rates that were too low for Irish conditions. That felt great whilst it lasted. House prices rocketed. There was a construction and financial services boom. It meant an even bigger credit bubble in Ireland, relative to the size of the economy, than the UK got from a misguided MPC. The MPC kept our rates too low, but at least they were higher than Euro ones. Now it means a bigger bust, as the exchange rate is too high for Irish inflation. They have to make the adjustment by cutting wages and trying to price themselves back into world – and UK -markets by cutting costs.

The UK is also pursuing a government policy of cutting living standards after the huge policy errors, and after official encouragement to live beyond our means. So far that is happening through devaluation, making us all poorer as the price of food and other imports soars.

What do we need? A monetary authority which understands how to calm rather than augment the cycle. Would we get that from the Euro? Of course not. We would have been on an even bigger roller coaster than we were from home made mistakes. That should not be difficult to understand. It would be the Exchange Rate Mechanism experience all over again, if you have any history. It would be the Irish experience if you have any geography.

PS: Thanks to BBC Newsnight for a sensible interview last night on an important topic.

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41 Comments

  1. alan jutson
    Posted April 8, 2009 at 6:55 am | Permalink

    The last thing we want to do is tie ourselves to the Euro.
    We want more distance from Euro Regulation not more.

    A single currancy of any sort can only work properly if you have exactly the same Tax rates, Benefits, Regulation and control of the whole economy, over which that currancy is based.

    • Citizen Responsible
      Posted April 8, 2009 at 12:36 pm | Permalink

      Some politicians in the EU have been using the single currency’s problems as a reason to bring about the same tax rates, benefits, regulation and control over the whole economy of the Euro zone, in other words, full monetary union. If that were achieved, full political union would be the next step.

      • alan jutson
        Posted April 8, 2009 at 4:39 pm | Permalink

        Exactly, that is why we do not want it, and we should distance ourselves as far away as possible from all this Socialist Political control.

        • Number 6
          Posted April 9, 2009 at 8:56 am | Permalink

          To do that, we have to leave the EU. None of the three main political parties advocate that as the gravy train beckons for them at the end of their ‘illustrious political careers’ Watch Brown scuttle to Brussels when he is kicked out of office in the local parliament, once called HM Government.

  2. Ian Jones
    Posted April 8, 2009 at 7:00 am | Permalink

    In the end we have to do the same thing as the Irish except that we will pretend that devaluing the pound is different to cutting wages and inflation isnt really cutting our standard of living.

    In the long run the Irish will be better off as investors will see more credibility in the Irish Govt than the British who simply devalue and inflate away their problems every time.

    Discipline is something the British lost in the second world war and it shows.

    • Stuart Fairney
      Posted April 9, 2009 at 6:50 am | Permalink

      How did the British lose dicipline in WW2?

      • Eleanor
        Posted April 9, 2009 at 3:49 pm | Permalink

        I think he meant after.

  3. Jim Pearson
    Posted April 8, 2009 at 7:24 am | Permalink

    Very good in comparison to ED Balls article in the DT today. Liked the Newsnight bit as well, shame it wasn’t prime time telly!

    • SJB
      Posted April 8, 2009 at 5:26 pm | Permalink

      Prior to the 1975 referendum on whether the UK should remain in the EEC there was a 60mins Panorama special hosted by David Dimbleby where Roy Jenkins (pro) and Tony Benn (anti) debated the matter. Would anyone else like to see a 2-3 hour serious debate on the pros and cons of joining the Euro?

      The rules would need to be agreed between the parties but providing both sides fielded heavyweights who can communicate well it should make informative television. Some of the possible points for discussion can be read in ’10 Years of the Euro: New Perspectives for Britain’
      http://www.lse.ac.uk/collections/pressAndInformationOffice/PDF/10yearsoftheEuro.pdf
      n.b. 4.5Mb file

      • Jim Pearson
        Posted April 8, 2009 at 7:31 pm | Permalink

        Would love it! But not on the BBC unless the ref is spot on. I think choosing the ref would require someone from outside the UK/EU. But provided you could solve that, It would make great Telly.

      • Emil
        Posted April 8, 2009 at 9:52 pm | Permalink

        Never mind the Euro the real debate should be whether we stay in this corrupt, meddling, cash sucking Soviet style republic. Sadly that’s a debate no party will have the honesty and courage to let us have.

        • SJB
          Posted April 9, 2009 at 6:13 pm | Permalink

          I suspect the Conservative Party are reluctant to debate Europe for fear of opening old wounds; Labour used to have some anti-EU diehards, too. Nevertherless, why should that preclude a debate taking place with non-party advocates like professors, businessmen and so on?

          I think the format should be more akin to a trial spread over a whole week, which would allow viewers to reflect overnight. Is it only me, or do others find the ‘Question Time’ type of show rather tired and limiting?

          It seems unlikely that the main channels would provide the airtime but with so many other channels available surely it could find a home somewhere.

          Reply: We are not reluctant to debate Europe. I have written extensively about it, and often participate in public debates on it wheh invited. There are also many other important subjects which we need to cover as well.

  4. A. Sedgwick
    Posted April 8, 2009 at 7:47 am | Permalink

    Fellow readers – the EU is a flawed, corrupt, costly and bureaucratic organisation and the Euro has every chance of being its death knell.

  5. rugfish
    Posted April 8, 2009 at 8:19 am | Permalink

    Jeff Randal did a good interview the other day with the French Finance Minister who ‘complained’ that Gordon Brown should step in to bolster the Pound because France’s exports to the UK had dropped.

    Randal said that would be “interfering”.

    “No it wouldn’t”, she said……(???)

    So I guess “interfering” in markets is not interfering if we do it and France gets more trade than we do, and it IS interfering if we DON’T INTERFERE and they get less exports…….(???)

    No wonder the EU is a box full of clapped out politics.

    Greece, Ireland, and half the continent, are going down the tubes fast BECAUSE they have the Euro. Ashley Mote MEP wrote recently, that he’d overheard a speaker for the ECB saying “We don’t have the resources for this”, when talking about the bailout proposals.

    I think someone needs to come clean, because the ONLY reason another someone wants the UK in the Euro, is so many other someone’s can a) Keep flogging us foreign goods, b) Run our economy so as to pay for theirs, and c) Because they all want a piece of the UK and its sovereign right to stay INDEPENDENT.

    The only fly, or should I say Blue Bottle, in the ointment, is a guy called Obama.

  6. Brian Tomkinson
    Posted April 8, 2009 at 8:41 am | Permalink

    Glad you were able to describe quickly and succinctly to Gavin Esler on Newsnight the many ways that public spending could be significantly reduced without affecting basic services. Hope George Osborne was watching. Typical that the BBC should be suggesting that we join the Euro when many commentators are questioning if it the Euro can survive the recession. Sadly, we apparently learn nothing from history.

  7. mikestallard
    Posted April 8, 2009 at 8:53 am | Permalink

    How long does anyone give the Euro before it breaks up into fragments?
    AND congratulations on an excellent interview last night. Very encouraging, I thought. Well said!

    • Denis Cooper
      Posted April 8, 2009 at 2:44 pm | Permalink

      I think it’s unlikely that the euro will break up, because the top priority for the eurocrats must be to preserve the eurozone intact.

      If just one country, say Greece or Ireland, decided that there was no alternative to abandoning the euro and reverting to its national currency then that would set the precedent, and the project would start to unravel.

      So if it looks like, say, Ireland is in danger of defaulting on its debts, then money will be channelled to Dublin to prevent that happening.

      True, the EU treaties explicitly prohibit any such intra-EU bailout; but where there’s a will there’s a way, and there’s huge political will behind the euro.

      Laundering money through the IMF would be one option – Ireland would be a lot further up the queue for that, than the UK – but there are other possibilities, some of which have already been activated on a small scale.

      Ultimately if the board of the ECB could be persuaded that the situation made it imperative that they should embark on “quantitative easing”, there would be no limit to the quantity of euros which could be created and surreptitiously passed through to the Treasury in Dublin.

      As just one example of a possible route, the ECB could increase the euro reserves available to one of the state owned German banks, which could then buy Irish government bonds.

  8. Demetrius
    Posted April 8, 2009 at 9:04 am | Permalink

    In the early 1970’s we lurched into the EEC (EU) on a false prospectus to help solve problems that we seemed incapable of solving ourselves, despite ample facilities and opportunity. So now the UK Government has less authority over its internal affairs than did the City of Manchester County Borough Council in 1972. As for the rural and fishing districts, what on earth happened to the indigenous population? We no longer feed or clothe oursleves, and have surrendered control over our borders and internal security. Now we are another fine mess, inevitably we are invited to sign away our currency and credit systems to Europe, because it is inconvenient to sort it out ourselves. My saving bet is for England to become one of the provinces of Canada, that I would be tempted to vote for.

  9. APL
    Posted April 8, 2009 at 9:45 am | Permalink

    JR: “Should we join the Euro?”

    As usual the foremost objection to the UK joining the EURO is ignored.

    *It is not an economic issue*

    JR: “.. should join the Euro to have stability and more financial discipline!”

    Ask Greece if they like the economic stability they are getting from being in the Euro. Ask Spain if they like the economic stability they get from being in the Euro.

    Even so, *it is not an economic issue*.

    JR: “The UK is also pursuing a government policy of cutting living standards after the huge policy errors, and after official encouragement to live beyond our means.”

    People are hoping that by changing our government we might get a change of govenrment policy, but because **all other** areas of government policy are dictated by the European Union, we will just get another bunch of deceitful paracitical toadies.

    Even so, *It is not an economic issue*.

    It is a matter of self determination. Do we want it or not?

    • Adrian Peirson
      Posted April 8, 2009 at 6:03 pm | Permalink

      Sadly the EUPhiles are quite determined, if we truly want self determination, I fear blogging alone will Not be enough, they will simply ignore us.

  10. E.C.Forster
    Posted April 8, 2009 at 11:08 am | Permalink

    The euro has obvious intrinsic defects, but that does not mean floating currencies since 1971 have been a great boon for anyone. All currencies have competitively devalued together. The pound has lost some 95% of its value in the intervening period. There is no peg to value. Some think that devaluation by 2-3% per year is quite satisfactory in good times, but it is a hidden tax by any standard. This is the wasteland that economics has become. It has led to convulsions among emerging economies that were easily dismissed, by us who knew better, as their fault, but now that the malaise has spread to advanced economies, these excuses no longer wash. World trade needs sound money to avoid wildly fluctuating foreign exchange risks, that raise the cost of trade and discourage it at the same time. But the risks of financial disaster for national economies have also risen dramatically due to monetary uncertainty. Historically, up to 1913, sound money was successfully provided by a gold standard for Britain.

    May I suggest that the twin planks of economic recovery are sound money and low taxation and these should be the backbone of Conservative policy.

    A recent book well worth reading is Nathan Lewis’s “Gold, Once and future Money”, that also discusses how certain countries recovered by adopting just those economic policies mentioned above, such as Germany’s “economic miracle” after WWII.

    I should also add that taxation should be simplified down to a single sales tax. All taxes are derived from productive effort, which is mirrored by consumption. Tax either one or the other, but the simplest and most transparent is consumption.

    • Adrian Peirson
      Posted April 8, 2009 at 6:01 pm | Permalink

      You see that Mr Redwood, he said Money should be Gold, that’s two of us,

      Hey, this is like that scene in the Magnificent seven when they are recruiting gunslingers to fight the Bandits, ( New World Order Fiat Currency Banksters stealing our wealth with their fraudulent money )

      Actually this is a very fitting description now that I think of it.

      http://www.youtube.com/user/RenegadeEconomist

  11. revinkevin
    Posted April 8, 2009 at 11:23 am | Permalink

    Should we join the euro No never, in fact we should leave the EUssr for good.

  12. Stuart Fairney
    Posted April 8, 2009 at 12:10 pm | Permalink

    No.

    No, no, no.

    It would be the final betrayal as well as just a tad idiotic given the finances of the PIGS

  13. Steve Cox
    Posted April 8, 2009 at 12:15 pm | Permalink

    I’ve always been against Euro membership, personally. However, at least some Teutonic fiscal discipline is being forced onto the spendthrift Irish by their membership of the Euro. Germany will not allow them to inflate their way out of their foolish levels of indebtedness. Sadly, here in the UK we have nobody imposing such discipline onto us, and in fact the government is doing everything it possibly can to stoke up inflation, in the misguided belief that we are in a deflationary environment, even after the huge collapse in the value of Sterling (never mind oil prices currently at $50/barrel again). The Euro is not the answer, I will admit, but I truly do wish that there was some responsible external authority forcing Brown and Darling (and King!) to behave more sensibly. The IMF will do, I suppose, and if my guess at what will happen in the budget is correct (another Brown-inspired, save-the-world stimulus package, which we cannot afford), then Mr. Strauss-Kahn will probably be here quite soon.

  14. Dean Thomson
    Posted April 8, 2009 at 12:23 pm | Permalink

    The same old europhobia from Mr Redwood; why cant you be more like Ken Clarke?

    The Eurozone at the present is not adversly hurting the Irish economy; most notibly because interest trates in the zone are at an all-time low of 1.25%!
    The Eurozone, if anything, has lent Ireland with a better standing in the world of international loan borrowig, far above the credit they’d otherwise have possessed.

    Besides, the bulk of Irelands problems were not actually directly to do with the housing bubble at all; we all suffered from that one- it was the inbalance in their tax base which is causing all of their extraordinary problems; hardly eurzone issues.

    As per usual the level of europhobia in ones own party continues to astound.

    Reply: I was not making a party political point. As an analyst it seems obvious that in the early years of Euro membership interest rates were too low for Ireland, and now the exchange rate is too high. Just as the ERM caused a violent boom bust cycle in the UK, so Euro membership has made the Irish cycle worse.

    • Adrian Peirson
      Posted April 8, 2009 at 5:55 pm | Permalink

      The intention is that we will all be leveled, unfortunately that means Britain will be brought down to the level of the lowest common denominator, you can see this happeneing now.
      As to a picture of what a future Europe might be like, think cuba.

      The Renegade Economist
      http://www.youtube.com/user/RenegadeEconomist

  15. James
    Posted April 8, 2009 at 12:39 pm | Permalink

    Enjoyed the quality of the debate on Newsnight. Using the Irish Union leader as the left-wing foil got away from the dreary self-serving UK Government spin.

    For the first time in a long-while mainstream politics has two competing ideologies emerging to deal with this crisis. The British public need to be exposed to this and be given more informative debates like this to ensure they understand fully what is at stake.

    From the current polling trends it seems that the public are moving the right way and understand that over-taxing the productive sector to create jobs in the public sector isn’t going to help in the medium-term. The Conservatives need to nail their colours to the wall – argue for the right policies and ensure they push them through when in Government.

  16. THE ESSEX BOYS
    Posted April 8, 2009 at 1:35 pm | Permalink

    We watched it on replay this morning and swapped notes.

    Yes it was a good interview. Gavin Essler removes the confrontalist aspect that Paxman and Wark seem to feel necessary.
    (As ‘blokes in the street’ looking for balance WE find that approach intrusive.)

    We think you’re building a following in the ‘non-nerd’ electorate too which probably shows increasing interest and awareness of the forces that affect the everyday lives of ordinary folk.
    That’s encouraging.

  17. David Belchamber
    Posted April 8, 2009 at 4:46 pm | Permalink

    You cannot use a single interest rate to control so many very disparate economies.

    Might I ask about your comment:

    “It meant an even bigger credit bubble in Ireland, relative to the size of the economy, than the UK got from a misguided MPC. The MPC kept our rates too low…”

    The MPC was misguided presumably because it was controlling inflation in accordance with an artificially low index (the CPI). Surely, the MPC cannot have been that naive (or stupid); it must have realised what it was doing and – more important – what effect it would eventually have?

    Reply: Yes , the change of target made it worse, and the Bank did realise this. But they also failed to hit the target they were set, so they clearly got it wrong as well.

  18. Politico
    Posted April 8, 2009 at 4:59 pm | Permalink

    The world would be better for Europe (the UK with it) if we joined the Euro.

    The UK has one of the worlds major oil standards – Brent crude. It is currently priced in sterling, if we changed to Euro’s – how long before oil producing nations (who are increasing tired of America) decide that the Euro is indeed a safer bet?

    When oil changes to Euro’s – The Euro would them become the worlds reserve currency – giving the European bloc the ability to print all the money it likes (for the debt will be in our denomination)

    America is in the unique position as sole superpower to print money and buy oil. If the UK moved to adopt the Euro; such a scenario would not unfeasibly materialise for Europe.

    Splendid isolation is not going to cut it in the 21st century. The rise of Asia is going to prove a problem for the west. China is going to reach economic, military and scientific parity with the US perhaps in the next 20 years. Are we not remotely concerned that a totalitarian one party state is starting to flex its muscles? It is only a matter of time when the nation has equal if not superior control of the seas. Of course, lets not even mention that the US has somehow managed to become hooked on Chinese reserves. Suez crisis anyone?

    Europe needs to come closer together. I am not in any way suggesting a super state – but the bloc needs to come up with a way in which the leader of the union is democratically elected by the people of Europe. In its current form, the EU is a leviathan of bureaucracy and technocrats where German will is law (they couldn’t do it through war, but they are well on their way to doing it through peace, who would have thought?) – The brent crude standard would give the UK ample leverage for positions on the ECB.

    If it were to truly implement democratic legitimacy – and accept when no means no, the people of Europe would realise the union’s potential.

    The west needs to be made of two power blocs – the US and the EU. The EU cannot be a loose amalgamation of states – it must be a world power – both economically, militarily and technologically, or the world is going to be very bleak indeed.

    Who do you think Russia will ally with if things kick off between the US and China?

    • Denis Cooper
      Posted April 8, 2009 at 8:35 pm | Permalink

      Maybe you could explain how you square your:

      “I am not in any way suggesting a super state”

      with your:

      “The EU cannot be a loose amalgamation of states – it must be a world power”

      as to a simpleton like myself the two propositions seem contradictory.

  19. chris southern
    Posted April 8, 2009 at 5:02 pm | Permalink

    Lets face it, not only will the euro be forced upon us, but we will have full intergration into the EU.
    Their are too many politicians that stand to benefit from it, wether it screws the population or not.

  20. Number 6
    Posted April 8, 2009 at 5:26 pm | Permalink

    While we are in the EU the EU will continue to attempt, via its sock puppets in Westminster to pull us into ever tighter fiscal and finally total political union. We are close now, but it is not too late to leave this vile institution.

    Sadly, I do not hear that option being touted (or indeed anything of note on any of the huge issues facing the country today) from Mr Cameron.

    Good job on the idiot box Mr Redwood, putting points across that the ‘man down t’pub’ could understand.

  21. Adrian Peirson
    Posted April 8, 2009 at 5:51 pm | Permalink

    We should abandon the Euro because when I and my children go on holiday, we just like having foreign money, it’s part of what makes going on holiday exciting, like trying different foods and experiencing different customs.

    When they have finished with us, I expect these Communists will start cross pollinating all plant species next in order to homogenise all flowers into one and the same, what these communists are doing to us is Hideous, they are nothing less than deranged control freaks who are destroying all of our lives.

    Can’t we just have them sectioned for the Greater good of humanity.

  22. cuffleyburgers
    Posted April 9, 2009 at 8:58 am | Permalink

    There are plenty of good economic arguments for not joining – but they are irrelevant since the euro is an entirely political project.

    It was an important milestone in the creation of a federal european superstate in which national self-determination of all types is to be squeezed out.

    The history of the project is documented in impressive detail in the Booker book which details the depth of the betrayal of the British people by their political leaders, ever since grocer Heath.

    History will look back on Blair/Brown’s contribution as an important contribution as well, by corrupting both the constitution and the currency as well as forcing through Lisbon against the express objections of the British people.

    Britain can never really recover from this labour government, it will take decades just to pay the bill in cash terms; and so much had been lost that can never be re-made, largely because they were the quirky, enjoyable bits.

    Is there really no mechanism for indicting politicians guilty of such serial negligence, corruption and lies?

    • Adrian Peirson
      Posted April 9, 2009 at 5:36 pm | Permalink

      Not to mention the fact that within 50 yrs, on current demographic trends, indigenous brits are set to become minorities in our own land.
      Clearly, they have thought of everything.
      (words left out)

    • SJB
      Posted April 9, 2009 at 6:22 pm | Permalink

      By “the express objections of the British people” do you mean opinion polls? If people were that het-up about the Lisbon Treaty wouldn’t you expect to see UKIP win a parliamentary seat, perhaps at a by-election? After all, recent General Elections saw two single-issue MPs elected: Martin Bell (sleazebuster; and I read the other day he wants to stand again), and the hospital consultant (local hospital).

      Reply: People are strongly against LIsbon, and can vote for the Conservative party which has opposed it and voted against it at every opportunity.

      • SJB
        Posted April 10, 2009 at 11:45 am | Permalink

        But where is this strength of opinion manifested? In 2002, about 400,000 marched against the hunting ban. The following year around a million people marched against the Iraq War. How many marched against the Lisbon Treaty?

        By the time the General Election is called it seems likely that the Treaty will be done and dusted: 23 Member States (including the UK) have already deposited the instrument of ratification. So then the Conservative Party will have to set out its post-Lisbon EU policy, which I suspect will not include withdrawing from the EU.

        Historically, Conservative governments – under three different leaders – have each taken a further step toward the goal of “ever closer union”: joining the EEC (1973), Single European Act (1986) and Maastricht Treaty (1992).

        Reply: I trust not. If all member states have not ratified then there be a referendum and the people will decide. If all have ratified than we need a renegotiation, as Lisbon (and Nice and Amsterdam which Conservatives voted against) cannot work for us.

  23. Alan
    Posted April 10, 2009 at 8:15 am | Permalink

    The ‘advantage’ we gain from having a separate currency is the ability to devalue. This lowers the value of the savings of those who were prudent and makes it easier for those who were imprudent to repay their debts in the devalued currency. If we had joined the euro then savings would have been protected and those who had borrowed excessively would have to pay back what they had borrowed. Being in the euro would have brought about some of the policies you are advocating.

    Reply: And several I oppose strongly, like removing our right to democratic self government.

    • Alan
      Posted April 11, 2009 at 9:55 am | Permalink

      ‘Removing’ is going a bit far; ‘diminishing’ I suppose I would have to accept, although I see the way out of that as working to improve the democratic accountability of EU institutions. I often see Conservative policies as aimed at damaging the EU rather than improving it. From my perspective the EU is almost essential to our future prosperity and we need to make it work better, not hamper it.

      I am very impressed that you have took the time and trouble to reply to my comment.

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    John Redwood won a free place at Kent College, Canterbury, and graduated from Magdalen College Oxford. He is a Distinguished fellow of All Souls, Oxford. A businessman by background, he has set up an investment management business, was both executive and non executive chairman of a quoted industrial PLC, and chaired a manufacturing company with factories in Birmingham, Chicago, India and China. He is the MP for Wokingham, first elected in 1987.

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