Euro effects

Ken Clarke has always struck me as an oaf, even by the demanding standards of the Stupid Party. His latest utterances on the euro - if understood in narrow economic terms - do not not change my mind. He says:

I thought [the euro] would lead to increased productivity, efficiency and living standards and stimulate policy reforms. On that front so far it has been a failure.

But surely, no intelligent person would have expected any boost to productivity to show up yet.
The main way in which a single currency would raise productivity is by cutting the transactions costs of cross-border trading. This could raise productivity in two ways. It could raise profits, thus encouraging investment in productivity-enhancing equipment. And/or it could encourage aglommeration - the concentration of industries in particular regions - which in turn raises productivity through either economies of scale or network effects (whereby companies that are closer together learn from each other).
However, these mechanisms   take years to show up (If that is, they exist at all - the classical dichotomy should remind us to be sceptical of whether monetary arrangements can have permanent real effects). Any reasonable supporter of the euro before 1999 should therefore not regard the experience of the last five years as strong evidence against the productivity-enhancing effects of the euro.
Sure, the euro zone's economic performance has been poor. But this is due to (among other things) competition from low-wage economies and over-regulated markets, rather than to any effect of the euro.
If you want a more rigorous analysis, try this paper (pdf) by Hashem Pesaran and colleagues. It concludes:

UK entry to the euro in 1999Q1 at 1998Q4 exchange rates would probably have reduced UK GDP in the short term and raised it in the long term, but the effects are small...the welfare effect is ambiguous, depending on the discount rate used, and on the relative weights given to output and inflation.

There's nothing in this to justify a supporter (or opponent) of UK entry into the euro  changing their mind. That Mr Clarke has done so cannot be justified by the economic evidence.
Note: I write as an opponent of the euro, for narrow economic reasons that aren't relevant now.

Comments

[EU Serf]

There is also nothing in Ken's remarks to justify a Eurosceptic supporting him.

He hasn't said sorry I was wrong, I think the EU is crap. He's instead said, I was wrong on one narrow issue, now trust me with all the other Euro conundrums.

[Angry Economist]

Goes back to why Britain is interested in things like the EU, and why some other European countries are. Similar to the Euro - for totally different reasons. UK thinks about economic benefits, possible efficiency gains, but do the other nations?

I think Ken is bailing out some water from his sinking (sunk?) leadership campaign by making nonsensical statements that may appease the eurosceptic wing of his party.

The major personal benefit of the Euro is that I don't have such a huge collection of useless coins sitting in a drawer somewhere. That's about it, isn't it?

Personally - I find that the economic grounds don't seem to be convincing enough to support UK entry. I couldn't give a fig for hanging on to the cultural cachet of the pound or sterling though. Load of patriotic tosh all that. As for the design of coins, lets signal our long term intentions to dump the monarchy and get their heids off them.