« Morality and markets: a paradox? | Main | Maria Connor as pundit »

February 01, 2009


Feed You can follow this conversation by subscribing to the comment feed for this post.

Andrew Duffin

How about not caring much whether it would make us marginally better-off or marginally worse-off.

How about the argument that we ought not to join because actually we prefer to be a free nation running its own affairs?

Does that argument have no merit at all?

Have we become so totally defeatist?


Ask the Irish, Greeks, and Spanish, to name but a few members of the Euro, whether or not they would like to be able to control their own interest rates, and allow their currency to depreciate like sterling at the moment. I think the answer will tell you why joining the euro at any time or exchange rate would be a profoundly bad idea.

passer by

The euro has nothing at all to do with economics, its politics pure and simple.

its empire building not nation building, its politicians teaming up with one another and creating systems that are inherently unstable, such as a financial system totally interlinked for instance, with no firewalls between its parts.

In computing terms we are talking about something very similar to the concept of Single Point of Failure, (SPOF)


The bigger the organisation the bigger the mess up, and corporatism, the marriage of the government and big business will bring the biggest messes of all of which the EU is its zenith.

Bob B

The above claim is demonstrable nonsense: "The euro has nothing at all to do with economics, its politics pure and simple."

The same old economic issues about joining the Eurozone remain unresolved:

At what exchange rate would Britain join and by what route? The present low exchange rate locking in a competitive advantage for British exports into the Eurozone? I think not.

When the Eurozone joining route was last officially raised c. 2003, the EU Commission was properly (in a legalistic sense) insisting on applying the provisions of the Maastricht Treaty (1992), namely that Sterling would have to rejoin the European Exchange Rate Mechanism (ERM) and remain in it for at least two years while maintaining a stable exchange rate prior to joining the Eurozone.

Sterling would again become vulnerable to similar speculative pressures to those in September 1992, perhaps bringing the need for similar hikes in interest rates to maintain a stable exchange rate between Sterling and the Euro. The current remit to the Bank of England to use monetary policy to target inflation in Britain having regard to circumstances in the British economy would go. The UK would lose national autonomy of monetary policy - the Bank of England would have set base interest rates according to events in the foreign exchange markets.

Having supposedly overcome that problem - there is still the fundamental question of the consequences that would flow from having to live with the base interest rate set by the European Central Bank (ECB) to maintain an inflation target focused on the AVERAGE price level across all Eurozone economies, as defined by the (Harmonised) CPI for the Eurozone - which, incidentally, doesn't include house prices.

What of the problem Walter Eltis refers to in his book: Britain, Europe and EMU (2000) p.186:

"An independent committee . . reported in May 1997 that: 'Simulations on macroeconomic models run by national central banks suggest that, for the UK, the impact of an interest rate change on domestic demand after two years is four times the EU average.'"

The implication is that the British economy would experience greater swings than the Eurozone upon changes in ECB base rates.

Frankly, I'm surprised anyone takes Oliver Kamm seriously. Evidently, HMT doesn't.

Btw whatever happened to that (nutty) proposal in early 2003 of Oskar Lafontaine - the unlamented German finance minister at the time - to fix the exchange rates between the Euro, the US Dollar and Sterling, which was very sensibly quickly kicked out by the Bush administration and Blair/Brown?

Anthony Zacharzewski

"How about the argument that we ought not to join because actually we prefer to be a free nation running its own affairs?"

Do we? All of us? Or is that just what you think?

Anyway, it depends on your definition of freedom, doesn't it? I don't feel particularly free to affect the Bank of England interest rate, for instance, since it's set by a bunch of men in suits in London. If those men in suits were replaced by similar men in suits in Frankfurt, I can't say that it would make much difference to how free I felt.

Life is a balance of different sorts of freedom - this is why we don't have an independent currency in Sussex, or a separate army just for County Durham. It's why the votes of those in Tunbridge Wells have been ignored for the last twelve years - because they voted for a party the rest of the country didn't want. For a similar reason, the votes of those in Liverpool (Riverside) are likely to be ignored after the next election. I don't think that makes them less free.

Wailing about defeatism at the mention of the euro makes me think that you're pretty invested in the idea of Europe as the enemy that might defeat us, rather than an alliance of similar and friendly nations, clinging together in a wild and increasingly dangerous world.

Passer by

Bob, whatever the economics be they favorable or otherwise, when the establishment thinks its in their interest to join, we might not even be asked, as so many have not.

The Fiat in Fiat currency, mean "by our order"
whatever could be more political than that?


The Euro is pure politics and Kammo is correct to concentrate on this.

But I don't understand why he feels the need to make a case for this politics. It makes not one iota of difference whether people understand and agree with it or not. The EU simply isn't interested in the will of its people except as something to be circumvented.

Europe should unite and kick out the Eurocrats.

Bob B

In my experience of government, all the stuff by politicians about 'politics trumps economics' is often just a cover for sloppy or ignorant thinking.

If the economics for signing up to the Euro were favourable, I'd have no objection to joining. But then in the 1975 referendum, I campaigned for a "yes" vote, mostly on the economic case, and was an official observer for the European Movement at the count in the county where I lived then - which btw had one of the highest "yes" votes in the country.

I'm not a regular Eurosceptic. After a rather neutral position, what prompted me to oppose joining the Euro was reading this article: Euro Fantasies, by the late Rudi Dornbusch (MIT) in: Foreign Affairs, for September/October 1996:

Nowadays, we tend to forget about this letter to the Financial Times on 9 February 1998:

"More than 150 German economics professors have called for an 'orderly postponement' of economic and monetary union because economic conditions in Europe are 'most unsuitable' for the project to start.

"The call to delay Emu 'for a couple of years is made in a declaration signed by 155 university professors and sent to the Financial Times and the Frankfurter Allgemeine Zeitung newspaper in Germany. It signals intensified opposition to the government's euro policy."

Germany had to go through much social pain, many strikes and threatened strikes, a major reform of its (previously generous) system of state welfare (which is one reason why Angela Merkel is now German Chancellor instead of Gerhard Schröder) as well as a period of slow GDP growth. That was all part of the social and political price of adjusting to the consequences of Germany having one of the highest employment costs (wages + employer social security charges) at prevailing exchange rates among the advanced economies at the launch of the Euro. There is much less social pain in having to adjust to uncompetitive unit labour costs (because of either high employment costs or relatively low productivity) through exchange rate flexibility than with fixed exchange rates.


Ask the Irish, Greeks, and Spanish, to name but a few members of the Euro, whether or not they would like to be able to control their own interest rates, and allow their currency to depreciate like sterling at the moment. I think the answer will tell you why joining the euro at any time or exchange rate would be a profoundly bad idea.

Uh huh.

And are Greeks, Spaninairds and the Irish currently in favour of leaving the Euro?

Bob B

Consumer prices across the Eurozone went up by 3.2% during 2008. For comparison, consumer prices went up by 4% in Greece, 4.3% in Spain and by 4.2% in Ireland.

In Britain, outside the Eurozone, consumer prices went up by 3.5% in 2008.

"In the case of Spain, the country has gradually lost competitiveness during its time in the euro as a result of higher inflation than elsewhere in the zone, helping to feed a current account deficit which neared 10 percent of gross domestic product."

Despite that, Spain is staying in the Eurozone because the prospective costs of leaving now are too high to contemplate - but that doesn't mean Britain needs to get into that predicament. Ireland and Greece can't face the possibility of losing all those EU agricultural subsidies.

Andrew Duffin

Anthony, I don't regard Europe as the enemy. Far from it; I am proud to belong to such a great civilisation.

I just don't see why the EU (which is not the same thing as Europe) should tell us how to order our affairs.

I don't wish to run France or Germany. I quite like the way Italians run Italy, though it may not be very efficient. Back in the fifties and sixties we were always told that it was better for the Africans to run Africa than for us to do it for them, even though they demonstrably make a total balls of it.

So why can't the British run Britain?

Bob B

"I don't wish to run France or Germany."

There are significant potential economic benefits in Europe from freer trade in goods and services along with factor mobility, from achieving scale economies by serving a larger market with fewer barriers and through agreeing common technical standards where that is economic. The weight accorded to supporting agriculture in the EU budget is a pain. There are also valid concerns about how much harmonisation is really needed to secure the benefits and about how much authority over economic affairs has to be conceded to Brussels as proposed in the Lisbon Treaty.

The European legacy from the inter-war period and WW2 was a hugely complex and disparate array of barriers to trade and factor mobility. It made much sense to dismantle that in the context of maintaining a market economy. For much of Europe, pre-1914 trade/GDP ratios were only restored by the 1970s.

The leftist objections to the European "common market" in the 1970s and 1980s were founded on the presumption made in the Rome Treaty (1957) favouring a decentralised market economy in Europe over central planning and "socialism".. That was why the Attlee government had wanted no participation in the proposed Coal and Steel Community eventually created by the Treaty of Paris of 1951 and why the Labour manifesto for the 1983 election - at which Blair was first elected to Parliament - proposed withdrawing from the European Common Market altogether.

European Monetary Union is a bolt-on extra and only makes sense if the constituent national economies are sufficiently similar be be able to give up national autonomy over monetary policy and live with the downstream consequences of one set of base interest rates set by the European Central Bank. Spain - and a few other Eurozone economies - have evidently found that difficult.

With the lower interest rates set in the Eurozone until recently, the house-price bubble in Britain would have inflated to even greater dimensions than it did. Curiously, some misguided Euro-enthusiasts c.2000 were trailing the lower interest rates of the Eurozone as one leading reason why Britain should sign up to join. Sadly, economic literacy is not as pervasive as it might be.

john b

"So why can't the British run Britain?

For similar reasons, I think London should seek independence and have its own currency. Not only would this have clear economic benefits (as London's economy is a leveraged bet on global stock markets and so high volatility is to be expected and no big deal, whereas the rest of the UK primarily makes things, drills oil, mans call centres and gets paid benefits, where low volatility would be preferred), it would mean London was being run by the Londoners.

From a political point of view - given that there are at most four people in the entire world, all of whom are aristocratic Scots Tories, who think 'British' is a more important cultural identity than 'Londoner' - it's the logical consequence of your argument.

Anthony Zacharzewski


The British do run Britain. Elections, parliament, judiciary, the whole bit.

They participate of their own free will in a European Union that sets certain common rules, which they have a voice in negotiating. If they were to join the Euro, they would still run Britain.

They have shown that they want to continue this relationship by giving an electoral kicking to any political party (Labour in 1983, UKIP now) who proposes leaving the EU. Given the strong headwind of open dishonesty and misinformation they encounter in the press, that's quite some commitment.

As long as secession from the EU is possible (it is de facto possible now, and will be de jure possible under the Lisbon Treaty), Britain runs Britain.

Or do you believe that being Europe means being run by Europe. In which case I would like to declare that I am run by the National Trust, the RAC, the Fabian Society and Exeter City FC Supporters' Trust.


With income per head growing in developed countries by about 1.5 percent per year how do reckon that 0.4 percentage points is small? That is enormous!


A lot of exporters 'price to market' if they can make a margin on it. They then take the up- or down- side of the currency exchange. They don't base decisions too much on ST currency devaluations.

A few weeks ago I saw a presentation by an economist who looked at airline ticket prices on the internet and tried to claim that this was a perfect market without any national distortions. But he didn't even mention the 'price to market' strategies of most companies.


Why do you assume that the 0.4% yield spread with Bunds would disappear if we joined the Euro? Other weaker Euro nations like Ireland, Italy, Spain all have spreads over Bunds, just as we would have even if we were part of the Euro.

Tony Maher

The lagging impact of a currency devaluation on exports is rightly noted by Chris but surely there is virtually no lag on its price impact on imports?

The UK trade defecit is currently shrinking - is this not (at least in part) due to a drop in imports?

The comments to this entry are closed.

Why S&M?

Blog powered by Typepad