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Can we be in Europe and not run by it?

When asked whether they want to join the Euro, by a large majority British people say 'no'. But when asked whether they will have to in the end, they mostly say 'yes'. This curious paradox has prompted Lord Maurice Saatchi for example to infer that the British look at the Euro in the same way as they look at death and taxes: nasty but inevitable. This state of affairs can only be altered, he argues, by spelling out to them an alternative vision- of Britain outside the Euro, which he implicitly takes to be Britain outside the European Union. What price then Mr. Hague's Conservative vision of a Britain in Europe but not run by Europe?

One of the difficulties of dealing with the European Union is forecasting exactly how it will evolve. Will the Common Agricultural Policy be reformed sometime? Will the EU sign up to more and more 'trade rounds' in the World Trade Organisation that gradually reduce protectionism to limited anti-dumping exercises on behalf of a few fading no-hope industries? What will enlargement do to EU institutions: deepen them into a federal state with only majority voting or widen them into a universally 'variable geometry'?

These questions do have reasonable answers but only for a betting man. I have little doubt that the British are fully aware of this; they mostly refuse to get too excited about their ultimate relationship with the rest of Europe, because they realise that it will evolve as Europe and we evolve. All we can do is decide on issues as they come along when we can no longer defer a decision. When there is a lot of uncertainty about, that is a sensible strategy.

Could then the paradox of British opinion on the Euro perhaps be seen as a distinction between a practical question on the one hand and a crystal-ball question on the other? People's answers in a coming referendum would be 'no'. But when asked to speculate on the distant future, they shrug and, since their answer matters not a jot, disarmingly concede they might be wrong.

Now turn to that vision thing, as President Bush used to call it. He had trouble with it and so do I here. Consider where we are. Our economy is behaving quite well; and where it is not- whether over unemployment among single parents or over welfare dependency - there is an increasing consensus that we must tackle these things with the grain of market forces. The consensus on the continent is that the state not the market is the solution to these and most other problems. In monetary policy we have at least as good a set-up for controlling inflation and the economy as anyone else; and it has the advantage over the Euro that we have have a size of interest rate that fits us and not the one-size Euroland average. In the absence of visions, it is plain that we would be foolish to swap the system we have for an experiment in the European Way of the Euro and greater state regulation.

But at this stage some people - Messrs Blair and Brown most notoriously- say we either have to take the European way, joining up to everything the continent does, or we have to leave: we may have no Middle Way! (This from the party of the Third Way?)

Why so? If we like things roughly the way they are, why should we change? Our position is of course protected by the Rome Treaty for all its amendments and by our veto in those areas where we have not surrendered it. There are now plenty of precedents for opt-outs and variable geometry in the European Union- besides the Euro, there are for example borders and immigration policy; for a long time there was NATO from which the French were, uniquely in the EU, absent; and after all what of subsidiarity?

I argued a couple of years ago that our economic relationship with the EU probably brought us under the status quo no real net benefits but no real net loss either- even Stevens. Since then our sign-up to the social chapter has shifted the calculation into net loss; so has the increasing evidence that in spite of all our foreign investment we will continue to be large-scale net importers of manufactures from the continent. What all this implies is that were our EU partners to find ways to be protectionist against us, they -not we- would be the net losers. Hence, even if they were willing to defy the Rome Treaty, it would not suit them to drive us out of the EU altogether. They may threaten and bully but if we stick to our guns- New Labour, please note!- that will be the end of it.

Some may say that if it is in our interests to leave altogether, we should do so. It is true that if we were unbearably provoked, this remains a beneficial strategy. But while it would bring us short-term economic advantages to leave now- including lower prices for food and computers- it would create a political stink, not just with our partners but also with foreigners who invested here assuming we would be in the EU. Furthermore, there is a real chance that over the next decade or so the EU will finally sort itself out and come up with the right answers to our earlier list of questions- in which case we might as well stay in an EU that is joining up to a world order of openness and free trade. Leaving is therefore a back-up strategy- attractive if Europe remains stuck in its ways but mainly a bargaining ace for the back pocket. We can wait and see.

This is all rather like living with a potentially troublesome neighbour. The vision we need is of a combination of politeness and firmness to enable us to carry on as we are: in Europe but run by ourselves to suit ourselves. This, come to think of it, has been pretty much our aim since 1066.

Patrick Minford is professor of economics at Cardiff Business School and visiting professor at Liverpool University.
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