Eurozone

Britain’s political independence depends upon staying outside of the economically unsuccessful eurozone.

The Conservative Party may have been guilty of taking Britain into Old Europe’s job-destroying Exchange-Rate Mechanism but – unlike Labour and the LibDems – it learnt the lessons of Black Wednesday.

A few months into his Tory leadership, William Hague warned a conference of industrialists:

“Unlike the ERM, the single currency exists for all time. British business could find itself trapped in a burning building with no exits."

Hague and IDS may not have carried the Tories to victory but they transformed the party into a reliable voice of the British people’s euro-scepticism.

The eurozone’s poor record

Experience has vindicated William Hague’s opposition to the euro. Just as Britain benefited from its ejection from the ERM it has benefited from being outside of the eurozone.

The Old Europeans warned that Britain would be excluded from the continent’s prosperity if it clutched onto the allegedly out-dated concept of monetary sovereignty. The Old Europeans were wrong. The average eurozone growth rate has been 2% - compared to the UK’s 2.7%. [That 2.7% could have been better still without Gordon Brown’s regulations and stealthy taxation]. The EU’s performance is even less flattering when compared to the world economy. The overall EU growth rate of 2.4% (from 1996 to 2005) is a whole percentage point slower than that of the USA. The world economy as a whole has grown by 3.8%pa.

The single currency has cast different forms and different scales of blight on different countries. The one-size-fits-all Frankfurt interest rate has flattened weak economies like Germany but failed to cool overheating economies like Ireland. At one stage Spain was growing eight times faster than Holland but both economies were ruled by the same interest rate.

The growth and stability pact

The Growth and Stability Pact (GSP) was introduced to ensure that individual countries didn't free ride on other nations' fiscal discipline. there was a worry that small nations would borrow heavily but - within the eurozone - wouldn't be penalised by the foreign exchange markets. In fact the big economies of Germany and France have been the fiscal profligates. But they have escaped sanctions. One newspaper said that the budgetary disciplines of the GSP were as well observed as speed limits on Italian motorways. That is slightly unfair because the rules aren't evenly ignored. Portugal and Greece, for example, have been bullied into correcting their excessive borrowing by Europe's big boys.

Inflexible Europe

It would be unfair to blame all of the eurozone’s weakness on the single currency, however. Europe’s inflexible employment markets (labour mobility being an essential precondition for any successful single currency zone) and high levels of taxation are responsible for Europe’s fast declining share of world trade. But, Bill Jamieson - writing for The Business – noted that UK membership of the eurozone might easily have necessitated convergence towards the EU’s job-destroying policies.

Other economic reasons for Britain to keep the pound include the transitional costs of joining the euro and the danger of producers using the currency change to overcharge consumers. Further arguments for and against EMU – not least some of the fundamental issues of national sovereignty - are overviewed in this Bruges Group paper by Dr Lee Rotherham.

Comments

[Yorkshire_Tory]

Although I am currently opposed to the Euro, I am not opposed to it inperpetuity. It has the potential to be a success, but we are right to oppose membership in the current circumstances.

It would be economic madness if David Cameron declared that the Tory Party would not support the Euro under any circumstances. Best thing we can do is what John Major suggested- wait and see.

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