Why joining the Euro would have been right and may become right again sooner than we think.
The Times 19 Nov 2011
In these uncertain times, one thing is clear; we who recommended Britain should join the Euro should hang our heads in shame, apologise and remove ourselves from the public debate for a decent interval.
Er – no!
The argument that if Britain had joined the Euro on 1997 it would have been disaster, rests on a single presumption. Then we would now be the same as Spain, Italy Portugal and Greece. But Britain is not small, southern, cavalier about the rules, and largely without a manufacturing base like these countries. It is large, northern, rich, serious about the rules and with a strong manufacturing tradition like those who faced up to the challenges of the Euro by liberalising their markets and improving their competitiveness. In the Euro, why should we have acted like the countries most unlike us, rather than those most like us?
Take the case of Germany. It is only a few years since the commentators were warning that, post unification, German growth was stagnant, its economy staggering. Could Germany ever again be the engine of Europe? they gravely asked. We have our answer. Not just the engine – the fire engine, too. From the sick man of Europe to the saviour of Europe in a hand-full of years. “Just li’ that” – as Tommy Cooper used to say.
Except it wasn’t. Germany did it by facing up to its problems and improving its competitiveness. Since it couldn’t devalue and wouldn’t borrow, there wasn’t another way.
Thanks to Mrs Thatcher’s 1980s supply side reforms, Britain was well placed to do the same. But being out of the Euro, we could devalue. And so we did – by a whopping 20%. Once again, as so often, right back to Harold Wilson, Britain ducked the problem by devaluing ourselves out of it.
I even saw one Conservative Euro-sceptic newspaper celebrate this fact with a headline which said something like “Thank goodness we are out of the Euro so we can devalue!”. Harold Wilson, thou shoudls’t be living at this hour!
And so having the freedom to duck the German way of improving competitiveness, we did so. And unrestrained by the Euro’s rules (which the Italians broke, but we would have followed) decided to follow them down the route of more borrowing to maintain living standards, because it was easier and more fun. And for a bit it was. But now, fifteen years later, we are back to exactly the same problem the Euro would have forced us to face then; improve our competitiveness and produce tradeable goods the world will buy – while now having to cut our massive deficit at the same time. The worst of both worlds.
Would it really have been even worse if, like our northern partners we had been in the Euro and subject to its disciplines, rather than out and free to repeat our old indisciplines? I don’t think so.
And who knows if we had been in, we might have added weight to those who argued (as I did) that you could not create an economic giant, controlled by a political pygmy? That there had to be stricter rules, stronger sanctions, more muscular central institutions. We might also have added weight to those who wanted a more rigorous approach to liberalization, competiveness and financial discipline. And adding weight to these arguments, we might even have won them and have a very different Eurozone today.
So should Britain join the Euro now? Of course not. But we should not exclude the possibility in the future. This is what separates us from the Eurosceptics. We still say, if it should become in Britain’s interest to join the Euro, we should. They say EVEN if it were to be in Britain’s interest to join the Euro, we shouldn’t.
This could – and sooner than we think – become much more than just an academic question.
Maybe the whole thing will now unravel and the EU with it – in which case, bring on the clowns.
But absent that, only two other options remain.
Somehow they make the current Euro of 17 work. On balance this appears unlikely; even if the people don’t reject it, the markets cannot yet be made to believe in it.
If the 17 fail, then a core Euro follows – Germany, Benelux, Austria, Finland and (for political reasons) France –Sweden probably, too. Strong, free market, in surplus and working together to drive the policies of the EU.
In either case, deeper integration, Treaty Change and very probably, a referendum
In either case, too, Britain would be almost alone in the outer ring and trying to get further out, while almost all the others – even Mr Cameron’s best friends the Polish – are trying to get further in. Where do our allies come from then?
Despite Mr Cameron’s brave words Britain has, vide his visit to Berlin on Friday, now lost almost all influence over the dynamic in Europe. And over the timing and context of a referendum in this country, too. The PM will swear to defend Britain before every Euro-summit, but bring back too little to satisfy his back benchers, afterwards. The Euro members will caucus to advantage those who are in and disadvantage those who are out (beware, the City, start cheering Frankfurt). Now a grumpy discontented England becomes a furiously angry one; a referendum is unstoppable and the outcome, a foregone conclusion.
I say England, because there will be another referendum about the same time – in Scotland. Held on Mr Salmond’s terms and timing, there is now every chance that he will win this – and then seek to join the Euro.
This is the tiger we are riding.
So finally we can count the cost of staying out of the Euro. Spurning the best in the Euro zone, we reformed our economy fifteen years later than we should have done. Following the worst in the Eurozone, we ran up debts we shouldn’t have done. Cutting ourselves off from influence in the EU, we finally left it in disgust. And ended up, Euro to the north of us, Euro to the south, Euro to the east of us and Euro to the west. Splendid little England, splendidly isolated, splendidly alone and of course, as ever, splendidly right!
Not all certain, of course. But on this course, all increasingly likely.
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