Posted 12:14 PM by Dil
George Foulkes: Advice to Blair: Ignore Brown, join the euro
The issue is so important that the judgement of one man cannot be allowed to stand in the way
30 April 2003

As Gordon Brown prepares for his statement on the euro in the next few weeks, I hope that the Chancellor, like me, will learn the lessons of the past few decades. I fear, however, that he will draw the wrong lessons. This issue is so important that the judgement of one man cannot be allowed to stand in the way, and that if he is against then the Prime Minister should overrule his Chancellor for the sake of the economic wellbeing of the British people.

Every Labour government in my lifetime – up until now – has been destroyed by a crisis of confidence in the currency markets.

In the early 1950s, Clement Attlee's administration was ripped apart by a dispute about the consequences for sterling of paying for the war on Korea. In the 1960s we were traumatised by the devaluation of 1967 and the crunch for public spending that followed. And one can be sure the letters IMF are burnt into the heart of every Labour member – including me – who was active in the 1970s.

So far we have avoided these problems this time round but it would be madness to pretend they have gone away when, in fact, the risks of a sudden currency crisis have actually increased.

Today we are running an Edwardian monetary policy – a freely exchangeable pound – in a 21st-century market-place, where currency dealers exchange sums the equivalent to the total of our GDP every day. The longer we persist with this approach, the more power we are handing over to the speculators. My objection is not that speculators are the vanguard of the counter-revolution or a bunch of fascist hyenas out to destroy Labour. Their attack will be based on one thing, and one thing only: they will make money from it.

Joining the euro will not remove the risk of a speculative attack on our currency. But it will do two things. Firstly, it will make one far more difficult. The markets are powerful, but given the scale of currency trading, speculative attacks have to reach a tipping point before they make an impact. This level is higher for the euro than sterling.

Secondly, they will simply matter less. Today a bout of speculation will hit every exporter or importer in Britain as 100 per cent of our external trade is with countries with a different currency. If we joined the euro, that figure would be halved overnight.

This ought to be reason enough for any democratic socialist to take a positive attitude to the euro. So why is it that a small, but disproportionally influential, group of Labour MPs is so opposed, and why do these people seem to be in danger of winning the argument with the Government?

In the end, the conclusion has to be that this has become solely a question of politics – and bad politics at that. Deep at the heart of government, somewhere in No 10 or No 11, there is a profound reluctance to take on a 30 per cent opinion poll deficit, to challenge the Murdochs, the Blacks and the Rothermeres and to press the case that, whatever we think of their foreign policies, strengthening our trade with France and Germany is fundamentally in our interests. They seem to have forgotten we are at our best when we are at our boldest.

Of course, if the Government were to conclude we shouldn't join, it would frame its arguments in terms of economics. But such arguments hold little water.

Let me deal with the easy one first – the suggestion that because the average growth on the Continent is lower than in Britain, we should not join the euro. Certainly some euro countries, Germany in particular, are suffering. But that has nothing to do with the euro. The problem is a structural one, unrelated to the level of interest rates, and reflects a long-term hangover from reunification. In any case, German weakness actually strengthens the case to join, as that way we can maximise our advantages today and seize the opportunities tomorrow when the German revival comes.

So too with the argument that the euro economies are too inflexible. So what if they are? If French or Spanish labour laws weaken their ability to compete, that is no argument for lumbering our exporters with the disadvantage of a separate currency.

What matters is the flexibility of the British economy, because that will determine our ability to withstand economic shocks. And on just about every measure we are not just flexible today but getting more flexible. Long-term unemployment has been tackled and the Government has made consistent efforts to make it easier to bring new ideas and businesses to the market.

Finally, there is the question of interest rates. Surely, argues the opposition, we must agree that one-size-fits-all interest rates would do us irreparable damage. But again, there is no economic evidence to back this up.

Engineering firms in my constituency in Scotland already have to live with a uniform UK interest rate. They have no reason to fear a European-wide rate. In any case the differences are already minimal – 1.25 per cent at the short end, nothing at the long end – and there is every reason to expect the gap will narrow further when we announce an intention to join.

Our economy is flexible enough to allow us to join. It's time our politics was too.

The author is former minister at the Department for International Development, 1997-2001
http://argument.independent.co.uk/commentators/story.jsp?story=401664

Posted 5:36 AM by Dil
Brown's euro ambiguity is no longer credible
By Giles Radice
Published: April 30 2003 21:52 | Last Updated: April 30 2003 21:52


Six years after becoming prime minister, Tony Blair still faces the most difficult and important decision of his career: whether and when Britain should join the euro. This is more significant even than the war in Iraq, involving not only vital economic issues but also the UK's political future in Europe.


Mr Blair has often acknowledged the economic benefits of the single currency in terms of ease of transaction, of price transparency across Europe, of the promotion and expansion of trade and, perhaps most important of all, of economic and monetary stability. He is also worried about the economic costs of staying out, especially the impact on trade and inward investment. Already UK trade with the European Union, by far our biggest market, has fallen relative to gross domestic product while Britain's share of inward investment into Europe has dropped.

The prime minister is well aware, too, of the political costs of staying out. He has always stressed the need for Britain to play a leading role in Europe - all the more important after strains imposed by the Iraq war and when the direction and nature of the EU is under such intense debate. In the medium term, it is difficult to see how the UK's position can be sustained if this country stays outside the euro. As José Manuel Durão Barroso, Portuguese prime minister, warned the UK last December: "You cannot be in the centre if in the most important enterprise - the euro - you are not there."

However, Mr Blair's euro ambitions are in grave danger of being undermined by the existence of Gordon Brown's five tests and by the latitude in their interpretation that the prime minister has given his chancellor of the exchequer. When Labour came to power in 1997, neither it nor the country was ready to join the euro in the first wave. The five tests provided a convenient way of putting off the decision. Now, it seems as if the tests are being deliberately used by the Treasury as a smokescreen for keeping Britain out indefinitely. There is substantial convergence between the UK economy and the eurozone (noted in this week's report from the House of Commons Treasury select committee). And yet media stories based on leaks suggest that Mr Brown has decided that Britain has "failed" four of the five tests and that he wants to rule out entry at least for this parliament, as he did in the last parliament.

The Eurosceptic press would no doubt represent this as a great victory for the chancellor. Yet delivering such a negative assessment would be unlikely to enhance his reputation, any more than Mr Blair's.

So far, Mr Brown has been able to hide his views about the euro behind the ambiguity of the five tests. He has sought to appear both as a convinced European and yet cautious about entry. But after such a pointed thumbs-down, one would be justified in concluding that he is, in reality, against the UK joining the euro in the foreseeable future. The emergence of the real Mr Brown could lead to a massive loss of confidence in the British economy by foreign investors who believe that the UK's economic future lies with the euro. It could also seriously damage the UK's political position in Europe. It would represent a great blow to the national interest.

The conclusion is clear. If Mr Blair is to retain his credibility as a pro- European prime minister, he cannot allow British interests in Europe to be scuppered by his chancellor. It would be a travesty of political leadership if Mr Blair agreed to a referendum on the euro being ruled out for this parliament. At the very least, he will have to keep open a realistic option of joining the euro before the next election. To secure such an option will require much more than warm words about the euro, tagged on to the end of a negative Treasury assessment of the five tests. It will need nothing less than the overdue creation of a genuine strategy for joining.

I have already argued that the prime minister should take the exclusive direction of euro policy away from the dead hand of the Treasury and set up a cabinet euro strategy group of senior ministers, which he should chair. A negative assessment makes the creation of such a group all the more necessary. For the first time, the government would be able to focus on how to join the euro rather than how to keep out. It would determine not only the terms of membership - such as a sustainable exchange rate, compliance with the Maastricht convergence criteria and reform of the European Central Bank - but also the mechanics of entry. If Mr Blair is serious about joining the euro, as he claims, he should start getting serious about providing the means to bring it about.

Lord Radice is chairman of the House of Lords sub-committee on economic and financial affairs