[Siberian Fox]

If there was a referendum tomorrow I would probably vote yes, thinking about the long term benefits, but the way the Chancellor is going at the moment it looks like he is just going to say "maybe later"

Experts unite to tell Brown: don't delay over euro
By Philip Thornton and Marie Woolf
09 May 2003

The Chancellor, Gordon Brown, was confronted by the collective might of more than 300 of the world's most eminent economists yesterday, who told him to declare that the UK has passed the five economic tests which will place it on track to join the euro.

The economists, who include Paul Volcker, the former head of the US central bank, Stanley Fischer, a former IMF managing director, the Nobel laureate Professor Robert Mundell and Lord Kingsdown, made their declaration before Mr Brown's own announcement about the result of the five tests, expected within three weeks.

"With only days to go until the Government announces the results of [the] tests, it is clear that not only is the economic evidence overwhelmingly in favour of euro entry, so is the opinion of the economics profession," said Phillippe Legrain, chief economist of the lobby group Britain in Europe (BiE) group, which published the list of pro-euro economists.

The list was reminiscent of the letter to The Times in 1981 denouncing the monetarist policies of Margaret Thatcher's government.

The call is echoed by Martin Weale, head of the National Institute for Economic and Social Research think tank, who, in today's Independent, says membership of the euro would eliminate swings in exchange and interest rates. Mr Weale says: "Joining the euro area will provide a more stable environment and one in which the UK should be able to compete effectively with the other European economies."

The appeal to Mr Brown, by 330 economists, was accompanied by the announcement by BiE of the launch of an Economic Council of Great Britain, to demonstrate the weight of economic support for British entry and provide a group of experts to argue the case.

Armed with a body of support including former heads of the Bank of England, the United States Federal Reserve and the International Monetary Fund, Mr Legrain insisted that a negative assessment of the five tests would be greeted "with scepticism, even disbelief" by economists. "Short-term political considerations must not be allowed to take precedence over the overwhelming economic case for euro entry," he added.

His economic council will be chaired by Professor Lord Layard of the London School of Economics. It includes Lord Kingsdown, who as Robin Leigh-Pemberton was Bank of England governor from 1983 to 1993. Other members will be Willem Buiter, a recent member of the Bank's rate-setting committee, and Andrew Crockett, outgoing head of the central bankers' bank, the Bank for International Settlements.

Patrick Minford, a Eurosceptic former adviser to the Conservatives, played down the significance of the famous 1981 letter. "That letter was signed by 364 economists and they turned out to be totally wrong," he said.

Mr Brown also re-entered the debate on the euro yesterday to dismiss claims that disagreements between Britain and some European partners over the war in Iraq would affect the decision.

"It should neither be made on short-term considerations based on foreign policy or based on other events that have happened this year," he said. "It should be made on a long-term assessment of the national economic interest."

Earlier this week BiE published a report commissioned from independent economists showing that the UK economy would suffer from postponement of entry.

Originally Published here: http://news.independent.co.uk/business/ ... ory=404532

[AnotherDeadHero]

I'd vote no personally Fox, at the moment anyhow. And I'd recommend you try and locate 'The Economist's' recent survey on the issue (May 3rd issue). They speculated that the government was 'delaying the inevitable' in refusing to join as of yet and harshly criticised the Five tests outlined as criteria for UK entrance. They argued that there should be three economic tests instead;
1) The sensitivity of the economy to changes in interest rates needs to diminish so that it is closer to the euro-are average. Currently the UK is much more sensitive to changes in interest rates that other European economies, mostly because of the ponderance of floating rate mortgage debt. Low inflation will gradually erode the difference but joining the Euro system before the change is well advanced would be risky.
2) The European Central Bank needs to be given a new mandate. Rather than being told to achieve 'price stability' it should be given an explicit target, much in the way the Bank of England conforms to the inflation targets set by the Treasury. The ECB has not distinguished itself as a good judge of monetary policy, this is partly because it has set itself an unduly operational in inflation target (2% or less as opposed to Bank of England's 2.5% with a margin above and below)
3) Europe's inept Stability and Growth pact should be improved, preferably to the point where it ceases to exist. Flexibility in fiscal policy is of paramount importance once economies lack control of heir own interest rates. The pact insists that fiscal deficits stay small even when economies are in recession.

The Economist argues that "once these tests have been met--and there is no reason why they should not--the economic benefits of Britain's adopting the Euro would most likely outweigh the economic drawbacks: the gains from fiercer competition within the European market and the spur to cross-border investment would more than make up for the loss of exchange-rate flexibility. But the choice is only partly, and secondarily, a matter of economics. Joining the euro system is also an act of commitment to a political cause--that of deeper European integration"

I think the highlighted section at the end of the previous quote is also the most important factor in the UK joining the euro. I remember being convinced that all the problems relating to the United Nations diplomatic breakdowns in the Iraqi debacle were well orchestrated plans by the United States to break down relations between the European states in an attempt to lessen UK proposals of joining the euro, which would economically affect the US dramatically as well as, in theory, creating a European superpower to rival the US in terms of political, military and economic prowess.

[TUC]

If there were a referendum if we want the brits in atm I would vote no. and before I dont get 2 pounds per euro I wont chnage my mind.

You guys dont know how lovely it is to get 70p instead of 60 :-D

[Mercurivs]

I'd have to agree with ADH - the balance of evidence is favour of the monetary union being an essential means to the intended end of a European Union. When debating the pros and cons of the Euro it is therefore essential to think beyond the economic ramifications and think of the political ones as well. It is therefore highly improbable I would ever vote for Britain to join the Euro.

I will also observe that on one level anything the American bloc can do to delay the plans of its European rival while persuing its own global goals at the same time it will do. (i.e. killing many birds with one stone).

- Mercurivs

[Il Porko]

It's not just the Euro that one should consider. The physical Euro notes and coins are only the decorative side of the whole EMU process. EMU is about far mroe than just the coins in your pocket. Firstly, it is about the GSP (growth and stability pact), secondly, EMU relates to the ECB (European central bank).

The stability pact restrains spending by Eurozone govts. In order to maintain the eurosystem (technically the backbone of EMU), all countries should have comparable spending levels. Thus, the linmit of a governemtn deficit to not more than 3 percent of GDP, in a situation of expansionary fiscal policy. In other words, if the economy is doing anything other than having a very serious recession, there are fairly tight spending limits imposed on Eurozone govts.

In the very long run this can be overcome. Technically, however, the GSP was not supposed to be an issue. Well, it is. Germany, Portugal, France, reland and Italy have all had probelms with cutting spending to stay within the limits of the GSP. Some govts propsoed changing the GSP, but this has been rejected by the EU.

So much for fiscal policy. The other great lever of economic policy is monetary policy. In the EU, nobody has a seperate monetary policy. The ECB decides Eurozone monetary policy.

There are three problems with the ECB having control of monetary policy. Firstly though, monetary policy relates to interest rates and inflation. Raising the former theoretically reduces the latter. Changes in interest rates also change the cost of borrowing (and many people borrow money), while affecting the return on investment. Needless to add, rewarding savers penalises borrowers, and vice versa.

This is the first problem with the ECB: right now it's not possible to pick one interest rate that is ideal for all the different economies of Europe. In the long run, Eurozone economies should coverge, and this may be possible. Until then, lots of peopel could pay a heavy price for ECB mistakes

Another problem with the ECB is the handling of inflation. The ECB has only one target: to keep Eurozone inflation below 2 percent. Again, inflation rates vary for the seperate countries in the EU, so some countries could have a high rate, while others are at a low rate. The ECB acts on the average value. Inflation of less than one percent brings its own problems, and it is very difficult,in practice, to keep Eurozone inflation between one and two percent.

The third problem? The governor of the ECB. Right now he's mostly harmless, but this is a political appointment, with the scope for countries (such as France) to stick their oar in and get priority for their own countries.

Does Britain really want this? I don't think so, especially when britain's biggest trade and politcal partner is America, which does not use the Euro.

[Siberian Fox]

Does Britain really want this? I don't think so, especially when britain's biggest trade and politcal partner is America, which does not use the Euro

Perhaps the USA is the largest single country that Britain trades with, but as a whole the UK does more trade with the Eurozone countries.

The main point you missed is the one of investment. During the 1990s Britain benefited greatly from foreign investment as a centre for serving products to the rest of the EU (reciving more FDI than any other EU country). Being outside of the Eurozone would undoubtably have a negative impact on that, since companies do not like exchange rate fluctuations. This is a real long term consideration that cannot be lightly dismissed.

[Il Porko]

In bound FDI into the UK is an issue, and a very good reason for entering the Eurozone. But there are reasons to delay over FDI.

The contagion from Enronitis, as seen in the collapse of Worldcom, K-Mart, NTL, BA, American Airlines and ITV Digital, has meant that many companies are having to restructure. The IT/ telecoms sector is weak, the DJIA is still dominated by bears to a great extent and the Euro is a very strong currency with interst rates in the Eurozone being very high.

Theoretically, FDI should be bound for Europe as opposed to the USA. The theory gets thrown out the window because of one thing: economic sentiment. America is the world's single largest location for investment, whether in-, or out-, bound FDI. America is also home to the almigty Dollar. The greenback and DJIA have taken a battering, but Europe is not getitng any benefit from this.

FDI into Europe in not increasing. Europe's economies are not showing much growth. In the long run, FDI is the single biggest reason for joining the Eurozone. Right now though, it's a very uncertain issue. It would take a year to stage a referendum, and that referendum could well be lost. Some people are saying that Tony Blair will have to sack Gordon Brown to force through a referendum on the Euro. Mr Blair is not popular enough to do that, having just been named in a major survey as the least popular British politician in history, and the least popular famous person currently in Britain.

So, while Europe struggles, and Labour argues, the war in Iraq is over. President Bush lords it in America, an America which is becoming more and more accepting of the use of military force in the war on terror. The DJIA hasn't plummetted below 4,000 as some peopel said. Better yet, while the Euro is becoming stronger (which means weaker in layman's terms), America can continue to build for the future. Why??

Why? Well, because America is America. conomic sentiment will always favour America. Basically, theer isn't enough short term FDI to justify joining the Eurozone (in my opinion), and in the long run, it could well happen that the Eurozone is a bad place to be.

This pessimsitic scene might never materialise, but there are hints that it could. Italians despise the Euro and, as Italy only ever joined the Eurozone by cooking the books big time, italy always has the potential to cause the Eurozone to implode. The GSP is essential to maintianing the Eurozone, but it's fair to say that the GSP is a flawed deal. Additioanlly, the ECB suffers from credibility issues, so many investors are afraid of the uncertainty associated with the Eurozone. Uncertainty keeps them out. Where will they go? Well, maybe America

[Adrien]

I'm not an economist (i hate numbers) but from a personnal point of view i would really like to see the UK join the euro zone.

The euro is more than a new money, it's a factor of unity for europe, and once the UK join us, the unity is complete with this factor. I believe in europe, and this is an important step of its concrete construction.

So, British friends, i know that you like being apart, on your own (you eat strange food, have a queen with funny hats and drive on the wrong side of the road -some even say that the British chose to do so just to be in contradiction with Napoléon, who instituted our circulation rule), but if your economy can do it, join us!

[Countium]

I would not like to join the Euro, hell, I'd vote on complete separation from the European superstate if a referendum was held tomorrow.

I'll Ignore most of you post, concerning, wrong side of the road driving and bad food, as I take it you meant it light heartedly, anyways, you eat frogs

All of Europe is governed by the same set of laws that do not allow for the extreme differences in most of our nations. It is also the way of the British to uphold and follow every law to the Tee, no matter how obscure or possibly nation damaging.

A new EU directive concerning Building sites and Labour safety measures was enforced throughout the South of England the other day. Something like 600 people were fined or faced with possible prosecution!

Now lets switch the tables, what if this happened in a country like Spain? Have you seen the workers/worksites in Spain, most of them would be out of a Job by Lunchtime if the Directive was applied as strictly as it has been in England.

Being French you must understand this position, you are well renowned for picking and choosing what laws you will or will not follow.

[Secession]

When I read through Fox's quote saying that various 'experts' think it's a good idea and that these include ex US Bank and IMF types I am suspicious. I look around and see the policies these people pursue as responsible for much of the suffering of those in this world who aren't rich. I doubt their urging is in my favour, or that of my country but rather to further their own search for yet more wealth and power.

[Enigmatic]

*votes no*
I think the points about the flaw of a "one size fits all" monetary policy and unique susceptibility of the UK homeowner to interest rate changes due to (rapidly increasing) borrowing on variable rate mortgages have already been made.
It's also worth noting that not only have several nations including Eurozone giants Germany and France found it difficult to keep to the Growth and Stability Pact but also that they have missed the 3% deficit target by large margins, openly stated that they may have to do so in future, and that the ECB does not intend to censure them for it - which makes you question the point of retaining it in it's current form, not to mention the ECB's ability to deal in future with national governments with spending plans which threaten the stability of the Euro.

On the issue of FDI; isn't the greater stability of sterling against the dollar (than the euro against the dollar) of huge significance to non-EU investors?