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You are being persuaded to agree to our giving up the pound and putting the Euro in its place. Some powerful voices- the government, the European Commission in Brussels, and a few large multinational businesses- are saying you should. This paper explains why you should not agree- and remember there has to be a referendum so your view does matter, unlike the views of the German people for example who like so many others in Europe were not consulted.
What is the Euro?
The euro is the single currency which has replaced French francs, German marks, Italian liras - and the currencies of the other nine countries of the EU that have decided to join this currency project. On January 1 1999 these currencies were fixed in value against one another and made units of the euro. The notes and coins of the 12 previous currencies were replaced with euro notes and coins early in 2002.
(Question 1) Further explained

Is the Euro merely an economic matter?
Does it affect our sovereignty in general?

The euro is a vital political matter. There are no examples of a large country having a single currency that was not also a single state. It is generally agreed by the twelve countries in the Euro that there must be strong coordination of budgets, under the 'Stability Pact', even if this has been relaxed somewhat in 2002 conditions of recession. Then there are proposals actively being made by the Commission and some governments for common tax rates and common social burdens on employers, so as to prevent a competitive country like Britain undercutting others. These proposals are major steps on the road to a super-state, via heavy-handed intervention in member countries' affairs under the excuse of 'making the single currency work'. Some politicians supporting the Single Currency have made no secret of their aim to use it as a political stepping-stone to Political Union. They have brushed aside economic objections to the idea as irrelevant to this political aim - indeed they have welcomed these difficulties as necessitating more integration.
(Question 2) Further explained
Will the Euro be an economic success
for the 12 members now in it
It is an unprecedented experiment in recent times for 12 states to have a single currency. By having a single currency the 12 members must also have a single interest rate and of course a fixed unit of exchange against each other. But having the same interest rate and exchange rate for all the very disparate parts of the euro area is full of problems. The Asian Crisis of 1997/8 pushed Germany towards recession; but the European Central bank was reluctatnt to cut interest rates because some other countries, such as Spain and Ireland, were still growing strongly. In 2002 again Germany is threatened with a recession and unable to respond with cuts in interest rates. The German people, who were never consulted on abandoning the Deutschemark are not amused.
(Question 3) Further explained
Is the Euro necessary for the Single Market?
Will having just one currency in Europe will drive down the costs of doing business in Europe and eliminate exchange rate uncertainty? But the EEC Commission itself has found that the reduced cost of changing money would at best only save 0.1% of national income for a big mature country like the UK. On exchange rate uncertainty, while the Euro obviously eliminates uncertainty between Euro currencies themselves, it will increase uncertainty between Euro currencies and otheres, especially the world's main currency,the dollar. This is particularly the case for the UK because of our close ties with the USA.
(Question 4) Further explained
Should we join because the members of the Euro Club
might damage us if we were outside it - e.g. through
protection or concerted action through taxes or spending?

Protection against us by other EEC members is completely illegal under the EEC Treaties. Even if it was legal, it would be completely against our partners' interests because they export much more to us than we import from them. No doubt euro members will adopt all sorts of coordination of policies to try and reduce the problems facing monetary policy. But the euro countries' struggles to set their policies jointly does not threaten us (provided we are not involved in damaging 'harmonisation'), as the better they can manage their economies, the better for our exports.
(Question 5) Further explained
Will we lose out in foreign investment if we do not join?
No! The decision to invest is a long term one resting on a judgement about long-term competitiveness; in the long term an exchange rate that is flexible has advantages for an investor- it means that if competitiveness is threatened then the exchange rate can adjust. The key factor is the commitment of the country and its government to competitiveness as well as cost factors such as infrastructure, language and property rights. Investment has continued to pour into the UK in spite of being out of all European exchange rate arrangements.
(Question 6) Further explained
Would our pensions be safe from bankrupt
continental state pension systems?

The OECD has estimated that Italy will probably need to raise taxes or pension contributions by around 10% of national income, meaning about 15% of wages, within the next 20 years. Germany and France's systems are barely in any better shape. All this on top of sizeable debts and deficits otherwise. The UK, with public finances and state pensions in balance, could be called on to help out- even though the EEC Treaties theoretically prevent this, the dangers to other countries from letting a fellow Euro-country go bankrupt would exert strong political pressure to bail it out.
(Question 7) Further explained
What damage could it do us economically to join the Euro?
Our vital ability to set our own interest rates and exchange rate would be removed; our economy is different from the continent's in many ways- our close links with the USA and the dollar, our flexible mortgage rates, our hi-tech and service industries, our high employment and work hours, all mean that there is no 'convergence'. We had a grim warning of all this when we joined the Exchange Rate Mechanism with such disastrous results in 1990-92. Then we have much to fear from harmonisation' in the name of the euro; it could destroy our more flexible, deregulated and competitive economy. Finally, we would lose control of our public spending and taxation - our sovereignty in our economic affairs.
(Question 8) Further explained
What is the government's position?
The government has said that it would decide to join the Euro if it is in Britain's economic interests to do so; if it decides to do so, it will then submit the matter to a referendum. It has also published a National Changeover Plan detailing the steps to be taken if the referendum endorses the decision. It estimates that it will take about 40 months in all from that decision for the Euro to be fully introduced and sterling withdrawn. It is not clear what steps are actually being taken within the public sector before the decision; detailed planning is said to be going ahead but one assumes that no serious sums will be expended beforehand. The private sector is obviously reluctant to spend money in advance of a firm decision.
(Question 9) Further explained

  • EMU is a political matter; it involves a massive loss of sovereignty over the powers not just of money but of taxation, public spending and regulation- matters over which Parliamentary control has been central to our democracy. Other European countries may want that; but do we?
  • EMU means that economically, because we lose the power to set our own interest rates, we can experience far worse recessions and economic boom-bust cycles.
  • Staying out does not threaten our prosperity- neither can EMU members exercise protection against us, nor will investors be any the less attracted by our competitive economy.
  • On the contrary, EMU threatens our economy because it implies far more 'coordination'- which in practice means that European-style regulation and high taxation would be forced on us, ruining our competitive, flexible economy.
  • EMU also threatens us financially, because most continental countries face state pensions crisis on top of already high tax rates, high public deficits and in several cases high debt. We may be called upon within EMU to bail them out.
© Patrick Minford, October 2002
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